Charities in England are on the brink of insolvency after subsidising heavily underfunded local authority and NHS contracts to the tune of hundreds of millions of pounds donated to them by the public, voluntary sector leaders have warned.
Donations, will legacies and charity shop profits are being used to prop up thousands of state-funded services in danger of closure, including care homes, homeless shelters, addiction projects and physical rehabilitation support schemes.
One charity told the Guardian it used £6m a year raised from the public and other donors to subsidise clinical and care services it provided under contract to the NHS and local authorities, a sum it described as “unsustainable”.
The refusal of local authorities, the NHS and government departments to fund the real cost of local service contracts – and the built-in assumption that voluntary sector will deliver “on the cheap” – was threatening the existence of vital local services, the National Council for Voluntary Organisations (NCVO) said.
“It’s potentially catastrophic for communities if these services stop,” said Sarah Vibert, the chief executive of NCVO. “Many services, like homelessness interventions and support for victims of domestic violence or sexual abuse, wouldn’t currently exist without charities.”
She added: “For too long, the goodwill of charities has been taken for granted. [Public sector contract managers] know charities will do everything possible, including subsidising public services with charitable funds, to prevent closing their door to someone. But this can’t continue.”
Although charities have been embedded in delivery of public services for years, the scale of the funding gap has pushed many charities to the edge as inflation and demand has soared, and councils and NHS bodies, many in financial crisis themselves, slash grants and refuse to uplift the value of contracts.
The Stroke Association, which is contracted by the NHS and local authorities to deliver stroke recovery services for tens of thousands of patients once they have been discharged from hospital, said last year it was paid just under £11m for services costing nearly £17m, with the £6m gap met through public fundraising.
It said the funding gap was unsustainable, meaning it would have to cut the volume and quality of services or walk away from contracts. “This will have an impact on people’s recovery from their stroke, emotionally and physically,” said Jen Garner, the Stroke Associations’s associate director in north-west England.
Charities fear more will follow in the footsteps of Leonard Cheshire, the social care charity that has been forced to shut care homes and evict vulnerable residents as a result of a financial crisis caused when its multimillion pound subsidy of hundreds of underfunded council contracts became unsustainable.
A detailed NCVO survey of its members reveals bitterness and frustration among charities who feel their focus on the needs of vulnerable beneficiaries is exploited by public bodies which routinely expect charities not to charge for the full cost of the service or to deliver it for “next to nothing”.
One respondent said: “[The local authority] see contract payments as ‘handouts to do-gooders’ instead of recognising that they are paying us to work for them because we able to do it better, cheaper, faster and with a more human and empathic approach.”
The survey of more than 330 charities found:
The vast majority were subsidising the cost of providing public services. Nearly half had not received an uplift in the value of the contract in the past two years, despite increasing demand and rising wage and energy costs.
Contracts were often only viable by freezing or cutting staff pay and conditions. One charity made a senior member of staff redundant, then took them back on as a volunteer to do their old job to keep vital services afloat.
A social care charity started a public fundraising campaign, and sold a building it owned, to raise the cash to maintain a service the council would only part fund. “[We are] not sure we can carry on unless something changes,” it said.
Although there is sympathy for councils and NHS bodies which are themselves in dire financial straits there is anger at public sector “double standards” that accept private contractors must make a profit while routinely expecting charities to run services at a loss, with donors picking up the tab.
A government spokesperson said: “We are backing the NHS with record funding. The NHS resource budget in England will be £165.9bn in 2024-25 – and that doesn’t include the additional £8.1bn for adult social care and discharge over two years.
“Local authorities have seen an increase in core spending power of up to £5.1bn or 9.4% in cash terms on 2022-23, with almost £60bn available for local government in England.”
‘It’s the oil that keeps community wheels turning’
“Local people helping local people” is how Nick Ralph describes the Good Neighbours network, a loose federation of 123 neighbourhood groups providing low-level informal care to vulnerable people across Hampshire in south-east England.
Its 4,000 volunteers drive isolated older citizens to hospital appointments, help them with shopping, dog walking or DIY tasks, and organise lunch clubs and other social events. It is classic preventive charity work, knitting communities together and reducing pressure on overstretched hospital and care services.
“It keeps vulnerable people independent and in their homes for longer, and out of expensive hospital beds. It’s the oil that keeps community wheels turning,” says Ralph, the executive director of the Council for Social Responsibility, a charity that supports the scheme on behalf of the Church of England diocese of Portsmouth.
The scheme costs £150,000 a year to run, but is under threat. Hampshire county council – itself facing financial “meltdown” – scrapped its grant in March and local NHS commissioners say their own £50,000 a year grant is at risk.
The charity, whose four staff ensure the countywide army of volunteers are trained, insured and security checked, will use its own funds to keep the service running until April. After that, it is unclear how many local groups will be able to continue.
Ralph understands the council’s predicament – its budget has been squeezed by government cuts – but believes the savings are shortsighted. “There will a loss of community support and as a result much more cost will be thrown on to the state,” he said.
