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Summary

Small and medium-sized charities1 are a vital part of civil society in Britain today. If we exclude micro-organisations2 (which constitute over 60 per cent of all voluntary sector organisations), they make up over 90 per cent of all organisations in the voluntary sector, and with an income of around £7 billion in England and Wales alone they account for one-fifth of the sector’s income (NCVO 2016). They are working in every community in the country, and have helped create and deliver many of the services that we now regard as essential to the quality of our lives, from education to health to child protection.

This report reviews the evidence of the value of small and medium-sized charities (defined as those with annual incomes of between £25,000 and £1 million), and how recent changes to public policy have impacted upon them. It draws upon evidence published by academics, thinktanks and third-sector organisations, as well as material gathered through a wider call for evidence issued as part of this project.

From the wealth of literature that demonstrates the merits of small and medium-sized charities, the following insights are of particular interest.

  • Many smaller charities are rooted or embedded in their local areas, which brings with it an intimate knowledge and understanding of those areas’ strengths and needs; allows them to draw upon a willing workforce of local volunteers; and means that they can act as ‘anchors’ within their communities, providing stability and flexibility and being responsive to local needs.
  • Small and medium-sized charities can also play a key role in building and nurturing social networks, and in creating positive and enabling relationships between people who live and work in a particular community. They can help to boost levels of local social capital by building local capacity, and by developing links both within particular communities and between communities and other networks, including national and local government and their agencies.
  • Many smaller charities are considered uniquely placed to engage directly with those who are hardest to reach, because their independence, situation within the community and ability to draw upon local volunteers fosters greater levels of trust. Many smaller charities are longstanding and well-known local institutions, with an established history of helping individuals and communities through difficult times. Such organisations are considered experts in working ‘holistically’, or in a ‘person-centred’ way that is responsive to individual and local contexts.

However, although there are thousands of organisations doing valuable work in communities across the country, successive reviews have found little evidence of a distinctive ‘offer’ from the voluntary sector as a whole, or from small charities in particular. While there are many well-intentioned qualitative appraisals of the strengths of the small charity sector, there is a lack of rigorous evidence to support many of the claims that are made for it.

This is to be expected: the small charity sector is very diverse, and contains organisations of widely varying focus and scope. What’s more, many organisations outside of the charity sector are equally embedded in local communities, and as such may be equally well-placed to boost social capital or work with those with complex needs – the charity sector does not have a monopoly on creating social value.

At a local level, smaller charities can go some way towards developing their own frameworks of evidence, in order to attract funding from public and private sources. However, not only are there limits to how some aspects of their work can be usefully quantified, but small organisations also face considerable challenges to evidencing their work due to their limited capacity. Those that are able to produce the most reliable and comprehensive evidence base are not necessarily those that are most embedded in their communities.

Ironically, while it is hard to measure the contributions that small and medium-sized charities make while they are in operation, these contributions are much easier to notice when they are gone – and the risk that many small charities will disappear is an increasingly real one. Cuts and changes to local and central government funding pose a serious risk to many small and medium-sized organisations.

  • Against a backdrop of rising demand and the long-term reduction in grants in favour of contracts, the income that the voluntary sector as a whole receives from government has fallen, and smaller organisations have been hit particularly hard. For example, between 2008/09 and 2012/13, charities with annual incomes of £100,000–£500,000, and of between £500,000 and £1 million, experienced large falls in their income from contracts (of 32 and 37 per cent respectively), while larger charities fared much better (NCVO 2016).
  • Since 2010, the nature of public service delivery has changed significantly, with a shift towards the use of competitive commissioning models in which all types of provider compete to deliver public services. There is compelling evidence to suggest that large organisations, including some large charities, are increasingly dominating the market for public service provision, to the detriment of small and medium-sized organisations.

The charity sector as a whole, and smaller organisations in particular, have historically shown great resilience in the face of changes in their income, but organisations working in deprived areas are far more exposed to risk than others. Current trends suggest that these organisations, which are most reliant on state funding and least able to draw upon alternative sources of funds, are losing out most of all, and will continue to do so. They are also likely to experience the greatest increases in demand because of changes to the welfare state, and the increasingly precarious nature of the job market.

In line with these findings, the research presented in this report leads us to make the following recommendations.

  1. Although there are limits to the extent to which any measurement will capture the contributions that they make to society, small and medium-sized charities need to be able to provide better evidence of their value and impacts. While the tools and methods for doing so already exist, most of these charities need more and better support from umbrella organisations in order to use them, as well as greater capacity to introduce methods for monitoring and evaluation. Grant funders who typically support such charities could consider innovative ways of funding this kind of work within, or in addition to, existing grants.
  2. Commissioning and procurement teams within local authorities, clinical commissioning groups and other public agencies should be made more accountable for delivering social value. Legislation already provides for this: under the provisions of the Public Services (Social Value) Act 2012, authorities in England and Wales are required to consider how the services they commission and procure might improve the economic, social and environmental wellbeing of their area. However, in practice, implementation of the Act has been hampered by uneven awareness and take-up; inconsistencies in its implementation because of poor understanding; and the lack of a clear means of measuring social value (Cabinet Office 2015). Furthermore, many public authorities continue to regard unit cost as the primary factor when making procurement decisions. While a recent review (ibid) set out how the Cabinet Office can help to remove some of these obstacles, more could be done to strengthen the Act by, for example, requiring authorities to ‘account’ for the social value that they generate, rather than just having to ‘consider’ it, as has been proposed by the National Council for Voluntary Organisations (NCVO).3
  3. The Coalition government prioritised diversity of scale in its general procurement agenda by introducing a goal for 25 per cent of central government spending to go to small and medium-sized enterprises by 2015. The government has announced that this target was met in 2014/15,4 and the 2015 Conservative party manifesto included a pledge to increase the percentage of spending going to small and medium-sized businesses to one-third. It is significant that the current government has made a commitment to work with smaller private companies to overcome the particular obstacles that they face, but not with charities. We recommend, therefore, that the government makes a similar pledge for small and medium-sized charities that may be offering greater social value through the goods and services they provide.
    • Local authorities could also benefit from following the example set by central government, by setting their own targets for contracting with smaller organisations (including private5 as well as voluntary sector organisations).
  4. Those organisations that have moved away from, or are moving away from, grant-giving in favour of commissioning or more complex forms of social finance need to review the impact that this has on small and medium-sized charities that might not be able or willing to engage with such forms of funding. These charities might still provider greater social value-for-money than those that are more adept at bidding for funding and providing formal evidence of outcome improvements. Although commissioning based on hard evidence of impact makes good sense in theory, in practice the bureaucratic demands that it places on small charities may exclude some of the best among them. Funders and commissioners also need to recognise that it is particularly rare for charities in deprived neighbourhoods to be able to access the kinds of gifts and endowments that some charities in richer areas can rely upon. Local authorities should follow the example set by Camden borough council in developing a locally determined framework for small charities commissioning, including, if appropriate, a dedicated pot of long-term funding for small local organisations.6

1 Here defined as voluntary sector organisations with annual incomes of between £25,000 and £1 million.

2 That is, organisations with an annual income below £25,000.

4 Official figures indicate that 27.1 per cent of central government buying was with small businesses, either directly (10.9 per cent) or through the supply chain (16.2 per cent). See https://www.gov.uk/government/news/small-business-benefited-from-121-billion-in-government-spending-in-2014-2015

5 Analysis of local government spending data has suggested that spending on small firms varies considerably between local authorities. See http://centreforentrepreneurs.org/wp-content/uploads/2015/11/Procurement-Report-WEB.pdf

6 Camden borough council is currently consulting on proposals to offer seven-year contracts to local organisations working in areas of need. A strategic partners fund worth between £1.5 and £2.0 million will be available in areas of high deprivation to provide unrestricted core funding, meaning that organisations are free to choose how best to use that funding in order to meet the outcomes set, either within a particular locale or across a particular equalities theme.