My predictions for 2018

Craig Dearden-Phillips looks into his crystal ball for the forthcoming year and concludes that it's not all doom and gloom for the sector

So what will 2018 hold for the third sector? One thing we can be sure of is that there will be plenty of thinking about the future, with the Office for Civil Society’s voluntary sector strategy coming and Julia Unwin’s Civil Society Futures inquiry continuing to gather evidence.

Another thing we can be sure of is that life will not be getting any easier for charities. With inflation rising, public service contracts increasingly struggling to cover their running costs, grant funding remaining flat and charities having to contend with the implications of the General Data Protection Regulation, 2018 looks financially bleak. Add to this worsening reserves and it isn’t a heartening picture.

But all is not gloom and doom. I’ve talked to leaders across the sector and the picture is far from uniform. Some organisations are hiring staff and growing their impact, as highlighted in the last issue of Third Sector. There’s a renewed appetite for merger and consolidation, led by forward-thinking federations such as Relate and Home-Start UK.

Beware of contracting

Going out on a limb, I have three predictions for the year ahead. First, there will be a continuing, Dunkirk-like retreat in 2018 from public service contracting. Once promoted as a key to sustainability, this is now recognised as low-margin, brand-endangering activity for charities, often best avoided. The hope that charities delivering public service contracts would enhance delivery has proved mistaken. (I was one of those proved wrong!) Charities have been left peddling services indistinguishable from the ones they inherited from the state, stifled by the red tape dangled around them by public service commissioners who simply want cheaper, not better.

Too many charity chief executives and boards are preoccupied with survival. This is not healthy. The focus has to shift

My second prediction is that there will definitely be more mergers in 2018 than in any year since 2010. According to the forthcoming edition of the Good Merger Index from Eastside Primetimers, there were 70 mergers in 2016/17, a small but perceptible increase on previous years. But I can see momentum building. In the past year, I have been running into many more organisations with exhausted reserves that simply cannot keep the lights on without merger partners. For these organisations, a merger, or being taken over, is the only way to avoid a winding up. With low or no reserves, wind-up can be a difficult and legally tricky route for trustees, especially for charities with pension schemes. For organisations with money still in the pot, early action means they can bring something to the merger table.

My third prediction is that there will be a steep growth in the number of charities going to the wall, either quietly or, in a few cases, in a blaze of publicity. Although this is sad for everyone involved, let’s remember that insolvency isn’t always a bad thing. There is huge over-capacity in many parts of our sector, leading to inefficient allocation of resources. Too many organisations are in hyper-competition for an evaporating pool of resources. Some of these charities are poorly led and managed. If truth be told, some have little social impact at all. Is it not right that the poorest performers fall by the wayside? We shouldn’t regret this. Our sector has to evolve if it is to improve.

What is less easy to predict is what the Office for Civil Society’s voluntary sector strategy will focus on. I hope it starts by recognising that, despite the stick the third sector has taken in recent years, it is still one of the most advanced and sophisticated civil society sectors in the world. The UK is lucky the sector is here. But it’s time to cut right back on the negative rhetoric of recent years.

It’s also time for government to shift the focus away from social investment as a big solution. For something that is relevant to only a small number of organisations, it has had its fair share of time, energy and government money. Although social investment has been a godsend to many third sector
organisations, it is not an answer to sustainability issues for most. Deploying hundreds of millions in returnable social investment in a long downturn has proved nigh on impossible. It’s time for a change of tack.

Finally, I would like to see government get robustly behind the idea of a smaller, more sustainable sector, one that spends far less time worrying about survival and far more concerning itself with its impact on society. Too many charity chief executives and boards are preoccupied with survival above anything else. This is not healthy. The focus has to shift. We have to get to grips with all sorts of challenges: Brexit, an ageing society and digitalisation being just three. Only a sector that is not living hand to mouth can face these issues creatively.

Merger fund

What this would mean in practice, among other things, would be a sizeable fund for merger and a lot of practical help for organisations in crowded sectors that want to wind up safely and legally. Supporting this approach to consolidation should be an independent Ofsted for the sector, as advocated by Third Sector columnist Joe Saxton. Self-published impact assessments are fine, but they are not a common currency and are often untrustworthy. Even if these are well executed, few funders or donors materially reward charities that report impact well. The trust just isn’t there.

An Ofsted-style rating system that uses a common framework for impact, but which also rates overall organisational health and leadership, is long overdue. The sector old guard will always see this as wrong, but if we are serious about transparency and getting better, the potential gains outweigh the risks.

As you can see, I am probably moving from predictions for 2018 into my new year wishlist. But if 2018 is to be a year that matters for the sector, we have to hope that the OCS’s new strategy doesn’t seek to deliver "more of the same". Surely it’s time to take a few more risks? To be a strong sector into the 2020s, we need a bit more sector-led radicalism in 2018, not the usual comfort food.

And, dear reader, this is down to us.

Craig Dearden-Phillips (@deardenphillips) convenes Social Club, a new network of social sector leaders

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