·       28% of charities that work with local councils predict their funding from them will fall over the next 12 months.

·       Four in ten charities that work with local councils say that doing so is critical to their operations.

·       Finance crisis in local government is a moderate or high risk to over half of charities that work with local councils.

·       Local government funding of charities fell 23% between 2009-10 and 2020-21.

·       Money from councils currently responsible for 13p in every £1 of charity income.

As financial distress grips local councils across England, a new report highlights the hidden consequences for charities and the people who rely on them. Councils such as Birmingham City Council are issuing section 114 notices at unprecedented rates, notifying the government that their financial situation is unmanageable, and charities across the country are being hit by the consequences.

The report ‘Tethered fortunes: The threat to charities from trouble in local government’ by Pro Bono Economics (PBE) and Nottingham Trent University’s VCSE Data and Insights National Observatory, reveals the depth of the entanglement between charities and councils and emphasises the risk that creates as councils struggle to stabilise their budgets. It draws on data from the VCSE Sector Barometer, the largest quarterly survey of charities in the UK.

Local government is a significant funder of charities, providing 13p in every £1 of charity income at present. But charities are warning that will diminish. The survey found that 28% of charities that work with local authorities predict their funding will fall over the next 12 months. This is despite widespread attempts by councils to pull more money in through council tax rises, with analysis from the County Councils Network last week suggesting that 95% of councils in England will raise council tax by the maximum amount in April.

Historic reductions in local government funding have already taken a toll on charity incomes. Pro Bono Economics calculated that council funding of charities had already reduced by 23% between 2009-10 and 2020-21. This has led to an estimated £13.2 billion reduction in council funds to charities over the decade since 2010.

The report also warns of the risk of charities being evicted from their premises by councils selling off property, and of a failure of councils to maintain their buildings’ roofs and floors leading to difficulty for charities delivering services. 13% of the charities that responded to the survey were tenants of local authorities.

The consequences for charities of the financial distress in local councils are not limited to financial impacts. Even charities that receive no income from local government and are not tenants reported serious concerns. These included fears that demand for charity services will increase as council services are withdrawn, at a time when more than a third of charities believe they will not be able to meet demand over the next three months. In some parts of the country, like Woking, this additional pressure has already been put on charities attempting to provide support for residents following the closure of council day centres. Overall, 53% of charities that work with local government suggest that the financial situation in local authorities is a moderate to high risk for them.

With the Local Government Association warning that one in five council leaders expect to need to issue a section 114 in 2024 or 2025, these consequences for charity services are likely to become even more widespread. Nine in 10 charities that work with local councils state that the relationship is ‘important’, and four in 10 go so far as to state their relationship as being ‘critical’.

The report warns that, while charities are seeking alternative sources of funding to make up for council cuts, public donations have been depressed by the cost of living crisis. The research suggests that further cuts to service can be expected and even closures announced by charities in the coming months, with serious consequences for people who rely on charities for support.

Dr Jansev Jemal, Director of Research and Policy at Pro Bono Economics, said:

“The fates of councils and many charities are entwined, and when one partner goes into difficulty, the other struggles too. Charities have already seen significant withdrawal of support from local government over the past decade, and the current difficulties in local government finances mean that the loss of will continue to grow. These cuts are being announced at pace, and charities across the country are anticipating further escalation in the months ahead.

“The hidden impacts of the council funding crisis matter too. Charities are being evicted from their council premises, or forced to reside in unsuitable buildings, where roofs are falling in and floors are deemed unsafe. This will generate extra costs and disruption to charities at a time they can ill afford it, and hit the people who rely upon them the most.”

Prof Daniel King, Director of the National VCSE Data and Insights Observatory, said:

“As local authorities across the nation are facing escalating financial challenges, a growing number are compelled to issue Section 114 notices or cut non-statutory services just to break even. On one hand, as these critical services such as adult social care and support for low-income households are reduced, charities are stepping into the bridge to help people in greatest need. On the other hand, our survey reveals a worrying trend: 28% of charities anticipate a decline in funding from local authorities over the next year. In some places this is particularly challenging, for instance in Nottingham, the City Council has proposed to entirely eliminate grants for local charities.

“While this reflects a concerning financial reality for these organisations, it also highlights a deeper societal issue — the growing reliance on charities to provide essential services, particularly as they face their own financial constraints.”

Read the report