Collaboration or Collapse

Charities are now critical to the support that local authorities must provide to tackle the cost of living crisis, find Diarmuid McDonnell, Xihui Haviour Chen, and João Rafael Cunha.

Charities play an important role in the ‘mixed economy of welfare’ in the UK. Originally seen as supplementary or superfluous to the aims and activities of the state, charities are now partners in the delivery of essential public services in the form of care homes, hospices, employment and income support, citizens advice, dementia support and more. There has been rapid change in central and local government funding of charities as public bodies move from being providers to purchasers of public services. The involvement of charities in supporting local government to tackle the cost of living crisis is therefore unsurprising. However, a number of features of this crisis mean the partnership between the public and charity sectors warrants a closer look.

Rising inflation is the critical context for understanding this partnership. The increase in the prices of goods and services affects individuals, businesses, charities and governments alike.

The Consumer Price Index (CPI) peaked at 11.1% in October 2022 and this recent increase in inflation has multifaceted implications. It has decreased the purchasing power of consumers,putting pressure on the cost of living. In turn, the rise in interest rates to fight inflation has put an even greater pressure on households’ budgets. Local authority budgets are also at the mercy of inflationary pressures, with sharp increases in employee salaries, maintenance, utilities, capital projects and service provision (especially to vulnerable groups).

This summer, we have been researching the characteristics of charities that offered their services and infrastructure to local authority residents in an effort to ease the impact of the cost-of-living crisis. [1] This often took the form of offering a warm space (such as a village hall, café) or food aid (like food banks and pantries). In some instances, charities received funding from the local authority to provide these services and in others they relied solely on their own resources. Our emerging findings suggest that the organisations that offered their services and infrastructure were larger, older, conducted a wider range of activities, and were less impacted financially by the pandemic than their peers.

Divergent views of managers and workers

Our interviews with managers, staff and volunteers of some of these charities revealed divergent viewpoints on the role and necessity of charities in supporting local authority residents. Managers emphasise the need for increased resources, especially in order to train volunteers and hire full-time coordinators. Current funding from cost-of-living policies is viewed as insufficient, leading charities to seek supplementary financial support from various sources. Managers advocate for transferring more funding from local governments to charities, asserting that charities possess unique insights into local communities and can efficiently target funds to specific needs. They stress that their agility and direct connection to local areas allows them to engage effectively with people in need and to operate with less bureaucratic burden than local councils. In essence, they want to be commissioned by the local government to fulfil their roles effectively.

Conversely, workers and volunteers express concerns about the use of charities to tackle the cost-of-living crisis, viewing it as unsustainable. They question why individuals seeking warmth and meals must depend on charities or churches instead of direct government assistance. The primary focus of the organisations we spoke to is to support individuals finding employment rather than merely to provide warm spaces.

How do these findings and perspectives relate to the prospects facing charities in Scotland? Scotland’s local authorities face a constrained or shrinking funding environment throughout the mid-2020s2 and this will affect charities in a number of striking ways. Firstly, local authorities are important funders of charities directly and it is likely that these grants and contracts will be put under pressure – the case of bankrupt Birmingham City Council is likely to be instructive in this regard. [3] Secondly, research from England demonstrates how austerity is downloaded from central to local government in the form of spending cuts, impacting the finances of charities that receive funding from local authorities: this process is patterned by deprivation, as charities in the most deprived local authorities suffered the largest reductions in income. [4] Thirdly, local authorities’ increasing reliance on charities to support efforts to tackle social need offers an opportunity to form and deepen these relationships: the rapid construction of lists of charities offering support to local authority residents during the cost of living crisis is likely to prove longer-lasting than initially thought. Fundamentally, the essential needs of local authority residents are likely to be met by the charity sector for longer and more intensely than councils or charities would perhaps like.

Collaborative or co-dependent?

This mutual reliance creates a relationship between charities and local authorities which brings both risks and possible solutions. The risk is that a co-dependent relationship emerges through which local authorities are locked into allocating funds to charities in order simply to maintain basic services, without efficient, meaningful, or accountable improvements in service provision. The prospect of imminent cuts as the cost of living crisis continues could result in a crisis for charities themselves, particularly given it follows the substantial financial shock of the pandemic. [5]

What solutions exist to support the capacity of charities to play an important role in addressing the needs of local authority residents? Charities’ responses to the pandemic were insightful: voluntary organisations ‘showed up’ and ‘stuck around’ at the onset of Covid-19, tailoring their services to different groups experiencing complex social issues. In return, local authorities and other state bodies offered an ear and support to charities, including smaller, community-based organisations that had previously struggled to be heard and included in projects. Funding and reporting requirements were loosened, and there was top-down permission to ‘break the rules’ of normal public service delivery. [6] While it seems as though the status quo ante is returning, we would urge local authorities to continue to proactively seek the involvement of charities in addressing the needs of their residents, and to think twice before seeing support to these organisations as a cost to be cut.

1 For example:

2 Institute for Fiscal Studies (2023). Scottish Budget 2023–24: further analysis.

3 Birmingham Voluntary Service Council (2023). Statement on Birmingham City Council’s Section 114 Notice.

4 Clifford, D. (2021). Disparities by deprivation: The geographical impact of unprecedented changes in local authority financing on the voluntary sector in England.

5 Clifford, McDonnell, Mohan (2023). Charities’ income during the COVID-19 pandemic: administrative evidence for England and Wales.

6 Rees et al. (eds). COVID-19 and the Voluntary and Community Sector in the UK: Responses, Impacts and Adaptation.

Xihui Haviour Chen is an Assistant Professor in Accountancy at Edinburgh Business School, Heriot-Watt University. Diarmuid McDonnell is a Lecturer in Social Sciences at the University of the West of Scotland. João Rafael Cunha is a Lecturer in Finance at the University of St Andrews.