​Charities face increased demand for their services - but hugely reduced income, a bombshell TFN survey shows.

The third sector in Scotland has been caught in a perfect storm of rising demand for its services and a massive cut in income.

Results of a survey conducted by TFN shows the bind many groups are in.

At a time when more people than ever want – and demand – their help, charities are finding themselves squeezed by a collapse in income from statutory sources such as local government.

The situation is made worse by a difficult and uncertain funding environment, where the charity sector has found itself battered by negative news stories and subsequent poor public perception.

However, despite this, through responses to the survey, a counter-picture also emerges of resilience.

The sector is determined to fight on and is looking at new and innovative ways to not simply survive, but to thrive and to meet the increasing demands of those in need.

Charities are being asked to do more for less and statutory funders can often see charities as being cheaper service providers

Headline figures thrown up by the poll show that demand for services has gone up in 76% of organisations in just one year, over all expenditure increased for 65% while income has dropped for 41% of survey respondents.

A drop in statutory funding was reported by around 33% of respondents, while income from donations has remained roughly static and staff pay has risen for many.

More than 80% of those polled expect demand for services to increase over the next 12 months while a majority expect over all income to shrink further.

Even more pessimistically, 70% think the financial situation of the third sector in Scotland as a whole will worsen over the next year.

So far, so dire. But when asked to comment further, respondents – while remaining brutally realistic and not glossing over the challenges – said they are committed to finding ways through the crisis.

This is partly borne out by survey figures which show 45% of respondents expecting their own group’s financial prospects to worsen. Hardly heartening, but at least showing some improvement on the sector-wide pessimism mentioned above.

One respondent stated: “Although we are generally optimistic that we will be able to keep our heads above water (due mainly to the kind of work we are doing and the good relationships we have with key funders), things are tough and getting tougher. So many organisations in Edinburgh are doing similar work in the region, so competition for project funding is getting more and more crowded. Worse, core/operational funding is now virtually impossible to find.”

Another said: “Juggling the income streams and managing the impact of a decreasing pot can be a full time job and takes away from the positive mission of the organisation. Getting the foundation as strong as possible and having an optimistic mindset is essential as leading a voluntary sector organisation is not for the faint hearted. We are exploring all avenues for alternative sources of income including social enterprise opportunities.”

And another: “Statutory funding continues to decrease so we have concentrated on diversifying our income streams so we are less reliant on any single source. The most important thing for us is being able to respond directly to need.”

Among those taking part were Glasgow-based cerebral palsy therapy charity Bobath Scotland.

Chief executive Stephanie Fraser told TFN that 80% of its funding traditionally came from the NHS – but now it is 15% from that source and still falling.

However, the charity has been able to attract funding from other sources, enabling it to grow to meet need.

Fraser said: “Certainly charities can be more creative in service provision which may or may not lead to cost savings.

“Statutory requirements to include third sector organisations in service delivery are encouraging. However, charities are continually being asked to do more for less and statutory funders can often see charities as being cheaper service providers.

“Rarely can we ensure full cost recovery for what we do, causing us to be more reliant on charitable giving just to keep going.

“This is an unsustainable position that erodes quality, trust and respect for both sides of the relationship and those that suffer most are the beneficiaries.”

Meanwhile, and backing up the findings of the TFN survey, the financial pressures third sector groups are likely to come under in the coming year were discussed at a conference of charities from Aberdeen, Edinburgh and Glasgow held by accountancy firm RSM.

It found that a majority of those who attended thought there is a significant risk of large financial failures in the sector in the future.

The impact of pension deficits, pressures on local authority budgets and any further changes to funding from the new Scottish Government were all cited as pressure points.

In addition, 80% of charities who attended confirmed the market was tough and operating in a recessionary environment remains difficult, resulting in many diversifying and restructuring services.

Janet Hamblin, audit partner at RSM, said: ‘‘As pressure on public sector finances continues and the sector deals with the knock on impact of the high-profile collapse of Kids Company, with the UK government already consulting on further controls over government grants to charities, there is a growing need for charities to take action and review their operations to ensure they identify and manage strategic risk effectively.”