Austerity Watch: '2011 will be a bloodbath'

Members of Third Sector's Austerity Watch panel - the successor to Recession Watch - are pessimistic about 2011. John Plummer reports on their first meeting

Austerity Watch panel: from left - Toby Blume, Cathy Pharoah, Helen Verney and Tim Waldron
Austerity Watch panel: from left - Toby Blume, Cathy Pharoah, Helen Verney and Tim Waldron

The new year is traditionally a time for optimism, but there was precious little of it when Third Sector's Austerity Watch panel met to discuss the prospects for the voluntary sector in 2011.

The general feeling was that this will be the year when the phoney war ends, the full effects of the funding cuts bite, and job losses become depressingly common.

"2011 is going to be a bloodbath," said Toby Blume, chief executive of Urban Forum, a national charity supporting community empowerment. "Many organisations that do fantastic work will go to the wall. It's going to be a terrible year."

Tim Waldron, director of management consultancy at the consultants Action Planning, agreed it would be a "difficult and painful" 12 months, but said that, when the cuts came, charities would at least be able to think ahead more clearly.

Helen Verney, finance director at the Diocese of London, said the first quarter of the year would be dominated by talk in the sector of restructuring and redundancies.

And Cathy Pharoah, professor of charity funding at Cass Business School, said the voluntary sector had to focus on the gaps and risks in the big society. "It has been on the back foot, with short-term thinking and planning," she said. "The sector knows what will happen to people in the cuts if it doesn't make the case."

Statutory funding and the big society

All the panel members were concerned about the impact on charities of cuts to public funding, particularly by local authorities.

Waldron pointed out that there had not been any concerted outcry.

Blume said this was partly because charities were still trying to identify and adapt to opportunities under the new government: they were unsure whether to make a fuss or try to find solutions. "But there will come a time when the writing is on the wall, and so large that people will have no choice but to challenge the extent of cuts," he said.

Pharoah agreed that the big society had "bamboozled" charities. "Ambiguities around the big society have definitely repressed and held back active discussion of its implications," she said.

She said the sector would have to "reconfigure itself" and the most entrepreneurial charities - which were not necessarily the best ones - that adapted to new business and outsourcing opportunities would be the most successful.

Verney also agreed that charities felt they had to engage with the big society rather than criticise it. Some of them still didn't appreciate the severity of town hall funding cuts, she said: some councils were thinking not about which arts and culture projects to fund, but whether they would fund any arts and culture at all once they had fulfilled their statutory duties.

But she said there were also many in the sector who thought the big society was "smoke and mirrors", lacking a coherent vision.

Other members of the panel also had concerns about the lack of clarity in the big society. Pharoah believed the agenda was partly motivated by an ideological desire for small government. It might flourish in wealthy areas, but little thought had been put into how it would take root in poorer locations. "I don't think the big society concept has even begun to address this," she said.

She also wondered whether people would buy in to the big society vision. "There is an argument that people won't self-organise until they have to, and that it's often in response to negative challenges rather than positive ones," she said. "The great question is whether the government can turn that round."

Waldron said it was incumbent on people to connect what was happening in their neighbourhoods to the big society. He gave the example of lollipop ladies being something communities, rather than the state, should organise. "We're all in this together," he said. "But at the moment it doesn't feel like that."

There were also doubts about how much difference the forthcoming Big Society Bank and the Office for Civil Society's £100m Transition Fund would make. Waldron said the value of the fund was equivalent to the amount charities lost when VAT went up to 20 per cent on 4 January.

Pharoah questioned whether venture philanthropy would catch on in austere times, given that it failed to do so during the boom years. But Waldron said there was now more interest in charitable bonds, such as those recently issued by the charitable investment firm Allia.

Individual giving and philanthropy

The panel agreed that statutory funding would plummet in 2011, but there was less certainty about individual giving.

"We have yet to see the impact of redundancies and rising tuition fees," said Verney. "And bills are going up." The loss of Gift Aid transitional relief, rising VAT and changing National Insurance thresholds were other reasons why people might give less, she said.

Waldron said recent public sector job losses would have a disproportionate effect on voluntary donations because state employees were more likely to give. Whatever happened to the size of the pie, more would be fighting for a slice of it: organisations that had lost statutory funding, such as universities and hospitals, were gearing up to raise voluntary income.

"They are very sophisticated in their mechanisms for getting that money in and they are applying that to the donor market," he said.

Pharoah said universities and healthcare organisations would not only be market rivals but also "market-makers", because they would create a new sense of the importance of giving among people who had not traditionally thought of individual giving as the way to fund things such as opera and university education. One of the biggest challenges the government faced, she said, was how to convince wealthy donors to link privilege with a sense of community.

Pharoah said falls in individual giving tended to mimic falls in average income, which made the challenge of building philanthropy all the more pressing. "People still give only 1 per cent of income to charity," she said. "There's plenty of slack for giving, so the whole culture around philanthropy will be extremely important over the next decade."

Some financial advisers and major donors thought the introduction of lifetime legacies could unlock some money, she said, but it would be a niche market. There were also signs that people were beginning to think more seriously about corporate social responsibility by purchasing ethically, and this could present opportunities for charities. The government, said Pharoah, seemed keen to develop social accountability.

Blume said companies were aware of a growth in ethical consumption and could see a competitive advantage in being transparent; but government needed to apply some standards to stop people thinking CSR was "greenwash".

Verney said that if the government was serious about boosting giving, "the one simple thing it could do is say we can assume everyone is a taxpayer so that charities can claim Gift Aid on all individual donations". There was a general feeling, however, that significant Gift Aid reform was unlikely.

The voluntary sector's response

Blume said small community groups were the most vulnerable in the current economic climate. He predicted that the highest level of collaboration would be in local and national infrastructure organisations as they adjusted to losing funding.

But he warned that some organisations were not being radical enough in their restructuring plans. "A significant proportion of them are presenting change as something remarkably similar to what they have done in the past," he said.

Waldron said organisations had become pragmatic about working together. "They are far more realistic about power relations within a collaboration and are more prepared, out of necessity, to accept that it won't be perfect and to be far more willing to get on with it," he said. The collaborative spirit extended to other money-saving ideas, such as group purchasing and economies of scale, he said.

Pharoah predicted there would be more working in consortia, with the bigger charities more dominant. But the panellists felt that the generally harsh outlook for the sector was unlikely to improve until late 2011 or early 2012 at best.


Action points from the austerity team

TOBY BLUME - Chief executive

Toby Blume, chief executiveDon't forget that local government didn't ask for this - it is struggling with the cuts too.

A stick can be used to beat people or as an olive branch: think about which approach best suits you and your organisation.

Remember it's about beneficiaries. Organisations will come and go in 2011 - will beneficiaries be better or worse off?

CATHY PHAROAH - Professor of charity funding

Cathy Pharoah, professor of charity fundingGet on the front foot about the social risks from budget reductions and how to address them.

This is not a state of emergency but a new era in service configuration. Don't let short-term pressures obscure longer-term visions of the sector's role.

Build your business case on a clear perception of your social markets and stakeholder relationships.

HELEN VERNEY - Finance director

Helen Verney, finance directorPut your balance sheet to work - make loans to related charities, for example, or sell and lease back buildings.

Communicate with stakeholders and share contingency plans. Don't wait until you can't pay the bills.

Consider collaboration or merger to reduce people costs and create a stronger organisation.

TIM WALDRON - Consultant

Tim Waldron, consultantPrivate money is out there - be smarter at getting it. Affluent individuals are willing to invest in the creation of new delivery mechanisms.

You need to show that private investment will enhance - rather than subsidise or replace - state funding.

Get investors involved in the vision and leadership, not just in the provision of money.

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