Government spending is in the early stages of a transformation that is likely to cause major changes to how charities provide services. The personalisation agenda, endorsed by Labour and the Conservatives, will do away with the culture of government contracts that has been dominant for the past decade. Instead, service users will gain control of individual budgets and decide how and where to spend them.
It promises to be a profound shift in the way charities provide health, social care and - if the Conservatives win the next election - education services. But charities and their finance departments are far from prepared, says Matthew Pike, chair of chief executives body Acevo's Commission on Personalisation, which is examining the implications of the change.
"They are not remotely ready," he says. "The survey we did for our interim report found just under 30 per cent of charities said they were ready, and that's likely to be an overstatement. Many are not even clear about what's happening."
The changes, he says, present a big opportunity for charities. "The move from block contracts to individual contracts creates amazing market opportunities," he says. "If charities can get organised, there is the opportunity for growth and bigger margins. The adult social care budget for England alone is worth £28bn. Contracting has been difficult for the sector - the margins are poor and there are difficulties of access, particularly for smaller charities."
With budgets in beneficiaries' hands, many of the administrative barriers to delivering services are likely to fall away, he says.
There are, of course, challenges. One issue is the uncertainty of revenue streams, says Pike. The other issue is accessing the capital funds needed to develop services without the security of large contracts.
Such challenges will require charities to change to how they operate at the moment. "Charities need to be clear about the strategic implications of the change, and this needs to happen at board level," says Pike. "This then needs to feed back into detailed financial modelling and pricing work. The pricing work needs to factor in the risks of revenue insecurity, and they need to ensure they price risk into the equation."
Acevo is currently researching pricing implications, building on its earlier work on full cost recovery, he says.
On the capital funding side of things, Pike says charities need to innovate: "Charities need to begin to think about non-traditional ways of doing this. The paradox of this change is that it could promote a new mutuality in the sector. There's lots of potential for consortia - loans that might feel too risky for an individual organisation could be arranged through a consortium."
Market intelligence is another area that needs development, he adds, because charities will need to make sure they know their markets.
The commission, which in September published its interim report on how it believes the personalisation agenda will develop, won't complete its final report until the end of October 2010. But Pike says the big shift is closer than many think. "In terms of individual buyer power, I think 2011 will be the tipping point," he says. "By the end of the next parliament, we will have seen a fundamental shift."