Many charities are facing financial difficulties after providing services to the public sector at reduced costs.

Voluntary sector leaders have cautioned that charities are at risk of going bankrupt due to their substantial financial support of underfunded local government and NHS agreements. These organizations have received hundreds of millions of pounds in public donations.

Funds from donations, bequests, and sales at charity shops are being utilized to sustain numerous state-funded services at risk of shutting down. These include care facilities, shelters for the homeless, programs for addiction, and schemes for physical rehabilitation.

A charity informed the Guardian that it utilized £6 million annually from public donations and other contributors to support clinical and care services it offered through NHS and local government contracts. The charity deemed this amount as “untenable”.

According to the National Council for Voluntary Organisations (NCVO), the failure of local authorities, the NHS, and government departments to adequately fund service contracts is jeopardizing essential local services. This is due to the expectation that the voluntary sector will provide services at a low cost.

Sarah Vibert, the CEO of NCVO, stated that if these services were to cease, it could have devastating consequences for communities. She emphasized that without charities, important services such as homelessness support and aid for victims of domestic violence or sexual abuse would not be available.

She stated: “Charities have been taken advantage of for far too long. [Public sector contract managers] are aware that charities will go to great lengths, including using their own funds, to avoid turning someone away. However, this cannot persist.”

Even though charities have been involved in providing public services for a long time, the current lack of funding has caused many charities to struggle. Inflation and high demand have made the situation worse, and government bodies like councils and the NHS, who are also facing financial difficulties, have reduced grants and are not increasing 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.

The statement indicated that the lack of funding was not feasible, resulting in potential reductions in services or withdrawal from contracts. Jen Garner, the associate director of the Stroke Association in north-west England, stated that this would negatively affect individuals’ stroke recovery, both emotionally and physically.

Charities are concerned that other organizations may face a similar situation to Leonard Cheshire, a social care charity that has been compelled to close care homes and expel vulnerable residents due to a financial crisis. The cause of this crisis was the unsustainable nature of the charity’s multimillion pound subsidy for hundreds of underfunded council contracts.

A thorough survey conducted by NCVO on its members has uncovered feelings of resentment and disappointment among charities. They feel that their dedication to helping vulnerable beneficiaries is being taken advantage of by public organizations, who often expect them to provide services free of charge or at a significantly reduced cost.

A respondent stated that the local authority views contract payments as charity rather than acknowledging that they are paying for our services because we are able to deliver them more efficiently, affordably, and compassionately.

A study of over 330 charities in the UK discovered:

  • Most of them were covering the expenses for offering public services. Almost half did not get an increase in the contract’s worth within the last two years, even though there was a growing demand and higher costs for wages and energy.

  • In order to sustain contracts, it was common to reduce or eliminate employee compensation and benefits. A charitable organization even terminated a high-ranking employee, only to rehire them as a volunteer in their previous role, in order to maintain essential services.

  • A charity dedicated to social care initiated a campaign to raise funds from the public. As part of this effort, they sold a building that they owned in order to cover the costs of maintaining a service that the council was only partially supporting. The charity expressed concerns about their ability to continue without any changes in their situation.

While there is understanding for the financial struggles faced by councils and NHS organizations, there is frustration towards the perceived hypocrisy in the public sector’s treatment of private contractors versus charities. Private contractors are allowed to make a profit, while charities are often expected to operate at a loss with donations covering the costs.

The government was asked for a statement.

“It is the oil that keeps the community functioning smoothly.”

Nick Ralph refers to the Good Neighbours network as “local people helping local people.” This network consists of 123 neighborhood groups in Hampshire, located in the south-east of England, that offer informal care to individuals in need.

4,000 volunteers offer transportation to elderly individuals who are isolated for their hospital appointments, assist with errands such as shopping and dog walking, and provide support with DIY tasks. They also coordinate lunch clubs and other social gatherings. This type of charitable work focuses on prevention and strengthens community bonds while easing the burden on overworked hospitals and care services.

Ralph, the executive director of the Council for Social Responsibility, which is a charity that supports the program on behalf of the Church of England diocese of Portsmouth, states that it helps vulnerable individuals maintain their independence and remain in their homes for a longer period of time, thus avoiding costly hospital stays. He describes it as the essential component that keeps the community functioning smoothly.

The program has an annual operating cost of only £150,000, but it is currently in danger. Hampshire County Council, which is also struggling financially, removed its funding in March and local NHS commissioners have expressed concerns that their annual grant of £50,000 may also be at risk.

The organization, with four employees, is responsible for training, insuring, and conducting security checks on the county’s volunteers. They will use their own finances to maintain the service until April. However, it is uncertain if other local groups will have the resources to carry on after that.

Ralph is aware of the council’s difficult situation – their budget has been significantly reduced due to government cuts – but he believes that the cost-cutting measures are not looking at the big picture. “This will ultimately result in a loss of community support and will end up costing the state even more,” he stated.

The NHS in England will receive a record of £165.9bn in funding for the 2024-25 financial year, according to a statement from a government representative. This amount does not include the additional £8.1bn for adult social care and discharge over a two-year period.

Local governments in England will have access to nearly £60 billion and an increase in Core Spending Power by 9.4% or £5.1 billion in cash terms for the 2022/23 fiscal year.

“Since 2018, over 640,000 households have been spared from homelessness and we have allocated £2 billion to local authorities over a span of three years to address the issue of homelessness and rough sleeping.”