When bigger isn’t better

It may come as a surprise to hear that government cuts to grants for the voluntary sector have been more than balanced out by a doubling of income from contracts during the same time. There has in fact been a net increase in government funding to third sector organisations of about £3bn since 2003/4.

There is a problem though in the translation: contract funding has overwhelmingly been awarded to a small number of charities with a turnover of over £100m - the one percent. The third sector is diverse and unequal in many respects: mission, effectiveness, geographical reach - and financial standing.

In view of the funding gap for the majority of third sector organisations. NCVO recently concluded that policy action is required to prevent further loss of local expertise. What might that look like and what evidence can be brought into consideration? 

According to Locality, ‘The false belief in economies of scale and standardisation of services is the problem, not the solution. Large-scale standardised services don’t solve people’s problems. They do lead to a drop in quality and a rise in costs.’ 

While on paper it might look more efficient to fund larger third sector organisations, the New Economics Foundation offer a different side to the argument. Could it be possible that it’s actually more efficient to split contracts between smaller organisations? Public spending, in their view, should be assessed on how much it stimulates the local economy rather than ‘the efficiency of the spend against the service or product procured.’ In which case:

'If the aim is to generate a greater amount of local economic activity, then funding two small organisations to deliver 50% each of a contract is arguably more efficient than funding one organisation to deliver 100% of it. The latter example might see a reduced amount of administrative costs in relation to the amount spent on delivery of the actual service. But when two organisations are each hiring space locally, employing administrative staff, and generating two separate streams of spending in their local supply chains, the impact of that contract value on the local economy is substantially increased.' (NEF)

In Lancashire last summer, the Centre for Local Economic Studies working Preston City Council, identified that £450m public money was leaking out of the local economy, to organisations based outside of the county. They looked at what could be given to smaller organisations and began to build up a network of local organisations that could deliver appropriate contracts in the future.                                             

What are the specific strengths of voluntary, community and social enterprises? According to NCVO: closeness to the communities they work in, direct experience of the problem, ability to identify improvements and earlier interventions, and the advocacy role they can apply through their knowledge and experience.

Various social impact measures can help give an indicator of the value that charities, social enterprises and voluntary groups add to society through their work. It can be costly to apply these measures and difficult to use them appropriately. But by taking a view focused on local problems and solutions to these problems it may be possible to cut out some of the complexity. At a local level at least, what if funding could be channelled to the most effective and needed ‘beyond profit’ organisations?

As Charlotte Alldritt, Director of the Inclusive Growth Commission, asks: "If we were serious about creating inclusive economies in the UK, how might we reprioritise our investment, spending and relationships with the private and voluntary sectors, social enterprise, community organisations and individuals? Is it possible under our current fiscal regime?"

It can happen with changes to decision making in contracting authorities. For example councils can commission platforms that enable smaller organisations to find out about lower level contracts. They can prioritise working with organisations whose organisational aims complement their priorities. They can encourage large suppliers and super-major charities to use the Social Value Act and engage with organisations working at a solely local level. It’s about growing the local economy by supporting organisations which truly are ingrained in local networks - and making sure that these organisations have a fair chance being funded.