Small charities are being "priced out and scaled out" of bidding for local authority contracts and it is "inevitable" that charities will take over some local government services, local government representatives have told the Lords Select Committee on Charities.
Appearing before the committee yesterday, Daniel Hurford, head of policy (improvement and governance) at the Welsh Local Government Association, and Robert Light, a councillor at Kirklees Council in West Yorkshire, both said that the funding cuts faced by councils and the shift from grants to contracts had had a negative impact on local charities.
Hurford said that despite a general understanding from the charity sector that local authorities were facing severe budget reductions, "there is increasing tension over how that funding is distributed to the sector".
He said there was a risk that smaller organisations "are priced out and scaled out of the market" and the increasing focus on larger contracts with bigger organisations meant the charity sector risked losing "some of the value it brought as a body, both as a potential deliverer of services but also as a representative body, as an advocate and as having local community ties".
Light warned that the shift from grants to contracts between local authorities and charities could have a disproportionate effect on smaller charities, because larger charities are "used to bidding for a contract" and that smaller charities "have not got the capacity to get engaged in a big contract bidding process".
He also said that a purely contractual relationship between charities and local councils could be problematic.
"The importance of the relationship between charities and voluntary bodies and a local authority needs to be that it can be flexible," he said. "That can be challenging for both organisations, but it is really important because the demands for services are not rigid – they are flexible. So strict contracts can sometimes be a problem."
Light said the need to continue statutory services, such as adult social care, meant that other services, such as museums and libraries, were bearing the brunt of reductions in local government funding.
"Our demands for adult social care are growing," he said. "What that means is other areas of council activity have had to diminish or in some cases stop altogether.
"It's inevitable that some provision by charities and voluntary organisations will replace what was previously done by local authorities. I don't think you should necessarily see that as a negative."
Light said that the impact of these cuts on charity funding, especially for smaller sports and environmental charities, "is potentially going to get worse as we go into the rest of the parliament".
He said the situation meant local authorities should consider how services are commissioned to smaller charities and how the outcomes of those contracts are measured.
"I think local authorities have moved forward quite considerably from some of their old commissioning practices and are prepared to be more flexible," he said. "I think we actually have enough space in what we do to ensure we have a wide variety of organisations."
Devolution, Light said, could help to address inconsistencies in how services are delivered in different council areas, and help voluntary organisations working across the region by engaging with a number of authorities across "the common basis of a contract".