Sheffield City Council has announced plans to cut its voluntary sector budget by 15 per cent from April.
The council also intends to alter its funding relationship with not-for-profit groups by commissioning more services and awarding fewer grants to achieve what it calls "better value for money for local taxpayers".
About 1,200 voluntary organisations currently receive £73m a year from the local authority, which is 5 per cent of the total council budget.
They were due to receive letters yesterday from Lee Adams, the council’s deputy chief executive, informing them of the "radical change".
The letter says: "Each organisation will be considered on its own merits, and will have ample opportunity to put its case forward to us."
Adams apologises for breaching the Sheffield Compact by allowing only two months’ consultation on the proposals. He says urgent action is necessary so the council can finalise its 2011/12 budget in February.
Kevin Curley, chief executive of local infrastructure group Navca, which is based in Sheffield, said a 15 per cent cut in one year was "deep and disproportionate" because the 28 per cent cut in local authority funding from central government was taking place over three years.
He also said the move from grants to tendering would disadvantage smaller, local not-for-profit groups.
Sue James, director of operations at Voluntary Action Sheffield, said she welcomed the council taking a more consistent, strategic approach to voluntary sector funding. But she said: "We have concerns about competitive tendering because local charities often lose out to the private sector and large national charities."
James Henderson, director of policy and research at the council, said the voluntary sector would be subject to the same 15 per cent cuts that were being planned across all council services.
"We hope the voluntary sector will understand that we are living in unusual and uncertain times, so we are up against a tight timeframe," he said.
Elsewhere, Leeds City Council this week held discussions with Third Sector Leeds, a new group that coordinates the voluntary sector in partnership working, on its budget-setting process for the next financial year.
Voluntary organisations are expecting cuts. David Smith, a member of the leadership group on Third Sector Leeds, said it was encouraging that the council was involving the sector in discussions but it was too early to tell what the likely impact would be.