The commitment by the Department for Communities and Local Government to cut its spending by 30 per cent over the next four years could be a "silent killer" for charities, a new report has warned.
The Chancellor’s Choice report from the think tank NPC claimed the DCLG announcement could result in many charities facing a perilous future unless they collaborate more on bidding for government contracts and sharing research on the impact of their work.
The department was one of four government departments that said they would provisionally cut their spending by an average of 30 per cent by the end of the current parliament, before Chancellor George Osborne’s spending review on 25 November.
"Cuts to local authority budgets are perhaps stealthier and quieter than some of the headline cuts, but there is the possibility that, for many charities, cuts to local authority spending will be the ‘silent killer’ of this spending review," the report says.
"The announcement that the DCLG will take a 30 per cent cut can only add to this suspicion—although we do not yet know how much of this will be taken via lower funding for councils."
It says that charities should think carefully about how changing relationships with local authorities and funding cuts will impact on their beneficiaries.
The report argues that smaller charities with local expertise and roots in the communities they serve are at a serious disadvantage in local authority commissioning and that they should think in terms of bidding for bigger contracts through merging and building consortia to compete against national organisations.
The advice follows the closure earlier this month of the women’s support charity Eaves which blamed its demise in part on larger charities winning tenders formerly won by smaller specialist organisations.
The report also says that charities should share data on the effectiveness of their work, in order to strengthen the whole voluntary sector as it competes on outcome-based commissioning.
It says that even those charities linked to departments whose budgets are ostensibly ring-fenced, such as health and education, should not assume they are immune from the expected cuts, saying that there is a real risk that charities involved in mental health work and non-core schools work will be affected.
It predicts that the postponement of the government’s changes to tax credits may result in deeper cuts to budgets for other services or cuts to welfare benefits, which would have a knock-on effect on charities, and it says that organisations that work with schools in areas such as the arts, careers and youth services, need to be alert to cuts because schools will be under pressure to reduce non-core funding to retain current teachers on the payroll.
George Hoare, a consultant at NPC and one of the report authors, said: "The spending review is certain to deliver more cuts. Charities will be confronted with even tighter public funding in the years ahead. Boards and staff will need a strategic response, whether this means doing more in collaboration with others, or cosying-up to local politicians who will make key decisions on where the money goes."
"The challenges ahead aren’t insurmountable. But charities need to prepare for the choices ahead, some of which will be very difficult indeed."