Across England, local government funding is in disarray. Councils are issuing section 114 notices – indicating unlawful expenditure or their equivalent of bankruptcy – at unprecedented rates. Cuts are following rapidly, with even more looming as local and national government tussle over responsibility for services such as social care. 

These cuts are already hitting charities, because the fortunes of local councils and many charities are tethered together. Nine in 10 charities (87%) that work with councils state that relationship is “important”, and four in 10 (38%) go so far as to state their relationship with government is “critical”. And when one partner goes into difficulty, the other struggles too.

Local government is an important source of the charity sector’s income, providing around 13p in every £1 through grants and contracts. This funding has been in decline over the past decade, as austerity led to a 23% real terms drop in charity income from local government. That equates to a cumulative loss of £13.2 billion over that period.

The current difficulties in local government finance mean that loss will continue to grow. From funding cuts to a domestic abuse charity in Brighton to cuts to heritage organisations in Suffolk, and from total withdrawal of funding to many arts and culture charities in Birmingham to the closure of community transport services in Woking, these cuts are being announced at pace. And charities across the country are anticipating further escalation in the months ahead, warning of further decimation of grants to charities in locations as disparate as Nottingham and Hampshire. Overall, almost three in ten (28%) charities that work with local authorities expect their funding to fall over the next 12 months. 

Impacts from local authority cuts to physical assets and maintenance of their estate will also cascade down to charities. Of the charities that responded to the VCSE Sector Barometer, 13% are local authority tenants. Many of these are warning that the current financial distress in local government will lead to them being evicted from their 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 so to the people who rely upon them.

But the consequences of crumbling local authority provision are not limited simply to the financial. As councils withdraw from providing services, it will generate additional demand for charity services, now and in the future, as the knock-on effects of the unwinding of preventative services become realised. As a result, one-third (33%) of charities that derive no income at all from local government but still work with councils are bracing themselves for the aftershocks of the challenges in local government financing, rating it as a moderate to high risk for their organisation. This additional demand arrives on the horizon at a time when a third (36%) of charities still say that they do not expect to be able to meet demand over the coming three months.

Additionally, relationships between councils and charities are expected to come under strain. Such connections have become more important in the wake of the pandemic, a crisis which threw the two sides together to good effect. Over three-quarters – as many as 78% – of charities that work with local government would describe the working relationship with their local authorities as “good”, “very good”, or “excellent”.

However, some charities are already warning that their relationships with local authorities are fraying, as redundancies and turnover leave councils with less experienced resource available to coordinate action with the charity sector. This is likely to lead to disconnection and, ultimately, both councils and charities working less effectively to solve the challenges that they share, be it their shared goal to reduce homelessness or joint ambitions to give every child in an area the best possible start in life. Once again, the people whom both charities and councils exist to serve will lose out. 

Whether the impact they experience is the result of direct financial cuts, eviction, demand overspill, fracturing relationships, or a mixture of them all, 53% of charities that work with local government suggest that the financial situation in local authorities is a moderate to high risk for them. While charities will work hard to replace lost funding, to cope with increased need, and to continue fulfilling their missions, the further weakening of a charity sector only just recovering from the pandemic and cost of living crisis will impact people who rely on charities for their support. 

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