The voluntary sector lost £1.3bn of income from central and local government in 2011/12 compared with the previous year, according to new figures from the National Council for Voluntary Organisations.
The umbrella body, which published the figures today in the latest edition of its UK Civil Society Almanac, said they showed that the sector was shrinking for the first time since it began collating figures in 2000/01.
The almanac, produced using figures from a database set up by the NCVO with the Third Sector Research Centre, shows that the value of government contracts with the sector fell from £11.6bn in 2010/11 to £11.1bn the following year, while government grants went down from £2.9bn to £2.6bn.
When inflation is taken into account, the NCVO says in the almanac, the fall in income of both kinds totalled £1.3bn. Voluntary sector spending also fell by £450m in real terms to £38bn, the almanac shows.
David Kane, senior research officer at the NCVO, said the sector was "a shrinking sector in terms of what it’s getting in and what it’s able to spend".
The almanac also shows, however, that charities’ income from individuals rose to a record high of £17.4bn in 2011/12, compared with £16.9bn in the previous two years. But combined reserves fell by £2bn to £48.8bn in 2011/12, meaning charities held on average 8.3 months of reserves.
The publication shows that the sector employed 800,000 people in 2011/12, the highest number since the almanac was first published. But 291,000 people were working part-time and about one in five of those said they were doing so because they were unable to find full-time jobs.
Pay was also down: the almanac shows that salaries for the highest-paid workers fell by 47p an hour in 2011/12 to an average of £15.04 an hour. Average pay among the lowest paid fell by 21p an hour to £7.78. The median hourly rate, however, increased slightly from £10.57 to £10.59.
Sir Stuart Etherington, chief executive of the NCVO, called on the government to review the way public service contracts were awarded to avoid charities being squeezed out by larger companies.
"The government has set out an ambitious agenda to open up public services, but there is a long way to go before reality matches the ambition," he said. "Unfortunately, most charities simply can’t compete with the financial muscle of large outsourcing companies. Our members tell us they are at risk of being squeezed out of public service provision as government contracts grow larger, meaning only big companies can afford to bid."