"There needs to be an urgent and radical rethink about the way the third sector is funded and the Scottish Government’s relationship with them"

Charity funding models are in need of an “urgent rethink” due to the vast scale of financial and operational pressures faced by the voluntary sector.

Children In Scotland says that current short-term funding arrangements are not sustainable – and a lack of inflationary increases is impacting long-term planning, staff wellbeing and retention.

This forms the core of the response the group – which represents 450 charities and statutory bodies across the country – has given to the Scottish Government’s call for evidence ahead of an inquiry into sector funding.

David Mackay, head of projects, policy and participation at Children In Scotland, said: “The third sector in Scotland currently faces immense financial and operational pressures due to years of static funding, rising costs, recent high levels of inflation and the impact of the Covid-19 pandemic.

“Meanwhile an increase in demand for services has placed an increased strain on third sector staff and resources.

“Children in Scotland believes there needs to be an urgent and radical rethink about the way the third sector is funded and the Scottish Government’s relationship with them.

“Without this, many high-quality third sector organisations will simply not survive the coming years, and ultimately there will be a significant impact on the children, young people, families and communities that benefit from these organisations.”

The group says that a shift to longer term funding, of three years or more, would help the third sector to plan for the future, spend more efficiently, and create better organisational stability, all of which would positively impact staff wellbeing.

Enquire, Scotland's national advice service for additional support for learning, is just one of Children in Scotland’s services affected by the current short-term funding model. Although this has been funded by Scottish Government over a period of more than 20 years, for most of that time, it has been done on a yearly cycle.

Mackay said: “We currently spend a disproportionate amount of time and staff resources on annual and bi-annual proposals, rather than the direct delivery of projects and services. Longer-term support would allow us to develop longer-term workplans with certainty, helping us to more efficiently co-ordinate our work.

“Short term funding is also having a significant impact on recruitment and retention of staff, which in turn has an impact on relationships with service users as trusted relationships are broken. The third sector’s competitiveness with the private sector and public bodies is key to ensuring the success of our relationship-based practice.”

The issues around short-term funding arrangements are frequently compounded by poor communication and delays around the funding, which can have significant implications for project delivery. Children in Scotland and their members have seen cases of projects being confirmed within days of, or even into, a new financial year.

One Children in Scotland member described the impact of this ongoing uncertainty:  “It impacts on our ability to function effectively, has a negative impact on staff, and we have seen staff move away from the sector, because of lack of confidence in funding decisions. Specifically, we found out about funding for a project for this year, six weeks into the financial year.

“Fortunately, we had been able to retain staff for the project in other work. Without this, we would have needed to make the staff redundant and lost the ability to deliver this key piece of work for the Scottish Government.”

Like many third sector organisations, Children in Scotland’s grant for core funds from Scottish Government has not kept pace with the rate of inflation. They say that by committing to fair work, the Real Living Wage, and progressive employment practices, they have been left with a shortfall.

One Children in Scotland member reported: “As the Real Living Wage increases automatically in line with inflation, charities who have signed up to the Real Living Wage have to budget for an automatic uplift to wage bills every year, which are often a very high percentage of their overall budget. If grant funding doesn't also increase in line with inflation, then the charity could end up running a service at a loss.” 

Children in Scotland says that third sector funding needs a complete rethink, in order to continue to operate a fair working environment, and continue to support the service users.

The body joins a growing list of major players in the sector, including Citizens Advice Scotland and the Scottish Council for Voluntary Organisations (SCVO), calling for an urgent change to funding models.

Just how urgent these calls are was underlined this week as the results of the latest wave of SCVO’s Third Sector Tracker showed that charities are having to make job cuts and are eating into reserves to survive.

Another report covering the entire UK sector predicted an autumn of crisis because of rising costs and demands.

Children in Scotland’s full response to the Third Sector Funding Inquiry consultation can be downloaded here.