The UK Voluntary Sector Almanac is reporting a growing gulf in income levels between big and small charities. Patrick McCurry investigates what this means for smaller organisations outside the Compact
Is the charity sector turning into a version of the football league, with a growing gap between the top teams that are mopping up revenues at the expense of the 'also rans', struggling to survive in the lower divisions?
According to the NCVO in its UK Voluntary Sector Almanac, published this week, there is a worrying gulf developing between large and small charities.
"We're not yet sure if it's a post-millennium blip caused by difficult economic circumstances, or something longer term," says the umbrella body's head of research Karl Wilding.
The study, which covers the financial years 2000-2, covers levels of charitable income, assets and other indicators.
However, there have been changes in the way the NCVO has calculated income as compared to the 2002 almanac, which makes direct comparisons between the 2002 and 2004 studies difficult. Nevertheless, Wilding says that the research does point out that large organisations with an income of more than £1m have managed to maintain income growth, while small and medium-sized charities have seen their income fall.
There are clearly many reasons for this, including the investment big charities have made in branding and fundraising, and their stronger financial infrastructure. But an increasingly significant factor, says Wilding, is the growing importance of public sector contract income to the sector, which is disproportionately shared among the big, national charities.
The research appears to reinforce the fears of Lord Dahrendorf, who, in a lecture at the Charities Aid Foundation in 2001, foretold of a growing gap between charities that had close relations with the Government and those smaller organisations operating outside the Compact.
Those working with smaller charities and community organisations echo the almanac's findings. Ben Hughes, chief executive of the British Association of Settlements and Social Action Centres (Bassac), says: "We're seeing an increasing polarisation between big charities and small, neighbourhood-led organisations."
He says that big national charities with local franchises can mop up contracts with the public sector because of their infrastructure, branding and comprehensive coverage: "Many of these big charities are doing a good job, but they're skewing the sector."
David Tyler, national director of umbrella group Community Matters, agrees and highlights a deeper problem: "The Government's vision of the voluntary sector is about delivering services, but where does that leave smaller organisations that find it difficult to go down that route? Are they considered to have any value?"
He argues that there are major risks to beneficiaries if large charities take on too much public sector work at the expense of community-based organisations, and points to the example of the Children's Society's withdrawal from Wales two years ago.
"The Children's Society abandoned a huge number of services in Wales, which shows the danger of putting all your eggs in one basket. We need a greater diversity of providers."
But not everyone accepts the argument that smaller charities are losing out. Simon Burne, director of external affairs at children's charity NCH, says that big charities are not squeezing out smaller groups. "Small, local charities are often well placed to win contracts because they offer local knowledge, low overheads and trust in their communities. Those that are losing out are the smaller, national organisations because they're spread relatively thinly and face greater competition."
Leonard Cheshire director-general Bryan Dutton, while insisting that he is not competing with small charities, agrees it is the medium-sized charities with an income of more than £1m that are facing the biggest difficulties.
But Cathy Pharaoh, director of research at CAF, says her research backs the almanac's findings. "Our studies have shown a continued growth in the large fundraising charities since the millennium, and that is partly due to government funding."
She adds that this is nothing new, as a small number of the larger charities have long dominated the sector, but she is surprised that local regeneration schemes such as the New Deal for Communities seem to have done little to boost financial stability of community organisations.
So what can be done to improve the financial position of smaller charities?
Bassac's Hughes says it is evident that there are issues around small charities' resourcing, such as the fragmentation of funding sources.
But there are other methods that smaller organisations could adopt. "I'd like to see smaller charities forming 'clusters' in their communities and working together more closely, and perhaps sharing back-office functions," Hughes says.
These clusters, he adds, would provide smaller charities with a more united front when dealing with local authority funders.
Closer partnerships between big and small charities are another way forward, argues Community Matters' Tyler. In talks about the role of the Futurebuilders fund, he proposed closer links between big and small charities in delivering services to the public sector. "Instead of creating bigger empires, large charities could do more to contract delivery of services through local community organisations and play a role in helping build capacity in those smaller organisations."
Although this proposal was not taken up by Futurebuilders, Tyler would like to see greater efforts by both the Government and sector umbrella bodies to help establish such a framework.
"Maybe there could be a compact between big and small voluntary organisations," he suggests, while acknowledging that any progress in this area is likely to be gradual.
But there is unlikely to be much appetite in the larger organisations for a significant change in the relationship between big and small charities. Leonard Cheshire's Dutton says that his charity is already actively helping smaller organisations by making its training for care staff available to smaller charities, for example.
And NCH's Burne says that while it is engaged in partnerships with local organisations, the cultural differences between big and small charities can hinder closer working. "It is sometimes quite difficult to work together because smaller charities are more fleet of foot, and bigger organisations tend to move more slowly."
The big danger, argues Burne, is not polarisation within the voluntary sector, but, rather, the growing challenge to charities from the private sector. "In future, contracts will be much more based on price than quality, and in many activities where charities or statutory organisations have traditionally offered services, private providers are moving in."