Speak to most charities and the odds are they will fairly quickly mention the impact of government spending cuts and changes to the way their services are being commissioned. In the last six months I've met dozens of charities, such as Community Links in London, which has had its income cut by more than a third, and had to let a quarter of its staff go, while seeing levels of poverty so high in its community that it has had to give out food parcels.
The coalition government's policy of opening up public services to a wider range of providers is supposed to allow more charities to get a look in. But cuts mean council budgets are tight, and commissioners are under pressure to maximise value for money. Often this means a move towards bigger contracts and an increase in outcomes-based contracts, such as payment by results.
At New Philanthropy Capital, we wanted to get a clearer picture of how the sector is coping with these changes, so we partnered with Zurich to survey 750 of the largest charities involved in delivering public services. We wanted to find out whether the government's vision of a thriving, competitive and diverse public sector is becoming a reality – and whether it's a world charities like.
From our survey, it seems that charities are finding this new world pretty tough. Funding cuts, plus moves to new types of contracts, explain why 90% say they face a "riskier future". Cashflow problems and uncertainty associated with outcomes-based contracts are new challenges for charities, and more than half of respondents thought payment by results would have a negative impact on their finances. As more charities enter complex sub-contracting arrangements and face competition from private organisations, many are worried about how this will affect their income and ultimately the people they are there to help.
With such uncertainty it is perhaps not surprising that many charities are cutting frontline services, making redundancies and using up their reserves – all unsustainable in the long term.
But charities are adapting and innovating. Three-quarters are making more use of volunteers and nearly 80% plan to work with other charities in an effort to fit into this new contracting world.
What does this mean for the future?
Clearly, the cuts are not going to end any time soon – and new types of contracts do have the potential to deliver better, more efficient public services. Our survey suggests payment-by-results contracts aren't coming in as quickly as the rhetoric implies, so charities need to use this time to get ready to compete in this changing world. They need to strengthen relationships with potential partners and build their skills to become more attractive to commissioners. Charities must carefully assess tenders before bidding, and ensure that when entering sub-contracting agreements the contract works for both parties.
But commissioners also need to think harder about how they support charities through these changes and how they can design contracts that put small local charities and big national players on an equal footing. The government and bodies such as the Local Government Association need to work fast on developing best practice guidelines to help make the commissioning process fairer and more transparent for charities.
A thriving, diverse public sector needs innovative charities that offer effective solutions to Britain's social problems. If we want them to flourish, we need to act now to ensure this new commissioning world is working to achieve that.
• Dan Corry is chief executive of New Philanthropy Capital
