Charities struggling to raise income are being tempted by government contracts. Annie Kelly reports on the implications of such deals.
Charities Aid Foundation has revealed that voluntary organisations are becoming increasingly reliant on money from non-voluntary sources, which will worry those fighting to preserve the essential independence of the sector.
CAF's new Charity Trends research, which is being launched as a book next week, shows that the past two years have seen an increase of almost 10 per cent in the amount of non-voluntary income coming to the top 500 charities.
It attributes the majority of this growth to a 33.9 per cent increase in grants from public bodies for service delivery or programme development.
The research also shows that 42 per cent of new income coming to the top 500 is accounted for by the increase in government grants. NCVO says that initial research for its annual almanac for 2003 supports these figures.
The 10 per cent increase is particularly significant when compared to the modest 2 per cent growth in voluntary income over the same period.
Cathy Pharoah, director of research at CAF, has warned that this discrepancy could seriously unbalance the fragile dynamics of the voluntary sector.
"If this keeps going, then it will have a marked effect on the way that charities operate," she says. "At a time when many are struggling to maintain their levels of voluntary income, it may be extremely tempting to go for the money being offered by government contracts."
The Labour Government has clearly indicated its desire to work with voluntary sector bodies through its £125 million Futurebuilders Fund, designed to help charities build the infrastructure needed to provide public services.
But Pharoah voices the concerns of many when she says that a charity can lose the right to follow its own agenda when it enters into a government contract.
"A reliance on non-voluntary income means that the sector will become more performance-driven and professional, and less able to work to its own independent targets," she says.
So what happens when a charity becomes too reliant on government funding?
The sector could look to organisations like Victim Support, which is currently embroiled in a financial crisis after the Home Office refused to allocate the charity any more funds.
Paul Fawcett, head of communications at Victim Support, says: "Although we currently receive £30 million in government funding, we need double that to be able to run our services efficiently."
The charity currently pulls in around £1 million in voluntary income and is struggling to build on that. Fawcett believes that this is because people are reluctant to give to organisations that benefit from large government grants.
"It's proving difficult to persuade people to give because they either don't know that we're a charity because we've been so linked to government funding, or they take our service for granted and don't realise how desperately we need additional support," he says.
However, he believes that strong central government funding has enabled Victim Support to grow quickly and expand its services.
In a recent speech, Stuart Etherington, chief executive of NCVO, criticised the assumption that more earned income means a loss of independence.
"It is neither realistic nor desirable for the voluntary sector as a whole to seek to have no form of relationship with the Government," he says. "What is important is that those in the sector have to be careful about the relationships they forge."
He believes that if a charity manages the relationship with the Government correctly, then a 'contract culture' could put voluntary organisations in a stronger position than before.
"A contract also constrains what the Government requires from the sector, whereas with a grant, the sector can be seen and treated more as the supplicant who has to do as they are told," he says.
Roger Howard, chief executive of DrugScope, which runs partnership schemes with local authorities, believes that third sector organisations can retain an independent voice even when vying for non-voluntary income.
"One of the things that has always impressed me on the drugs side is the ability and willingness of the Government to fund and support informed analyses and critiques of policies and programmes," he says. "Many of the projects supposedly tainted by government money have a scrupulous foundation of research and methodology behind them."
Howard also believes that the CAF figures represent the natural growth of funding following the Government's modernisation of public services.
"Public fundraising would never be able to keep pace with the influx of money that has recently come into the sector to help services delivered by a responsive voluntary sector on behalf of local public organisations over the past few years," he says.
"What we're seeing is an internal government infrastructure growing alongside the charity sector at the same time as voluntary income is dropping because people aren't doing too well financially."
But Pharaoh believes that it is imperative that charities continue to focus on increasing voluntary income.
"The increase in non-voluntary funding is not exponential," she says.
"We need to get people to understand where and how a charity adds value and how their money helps it to work legitimately and independently for their causes."