The end of the road for underfunded public service contracts?

  • A reduction in government grant funding has led many charities to take on public sector contract work to fill the revenue gap
  • However, there are concerns about the financial viability of some contracts, and about the approach local authorities are taking to procurement
  • Gordon Wilmott, Zurich Municipal’s Head of Charities and Social Organisations, discusses what lies ahead

Over the past decade, there has been a transformation in the way charities generate revenue. Income from fundraising, while remaining relatively stable overall, has polarised the sector, with larger charities generally having more success than smaller organisations.

A bigger change has been the scaling back of government grant funding for charities, who have increasingly taken on public sector contract work to fill this revenue gap. Half of the income generated by the charitable sector now takes the form of central or local government contracts.

There is growing concern in the charitable sector, however, about the financial viability of some of these contracts, and more generally about the approach some local authorities are taking to procurement.  

Councils, who are also feeling the sharp end of austerity, are sometimes pricing these contracts in a way that is just not sustainable. The only way charities have been able to make these contracts work is by subsidising the service delivery, which can lead them into tricky financial territory.

There’s a view that local authorities are effectively pillaging the reserves of charities to make up some of their austerity shortfall. This can create real conflicts, because the money charities raise is supposed to benefit their beneficiaries; they aren’t meant to be bailing out local government by providing services that should be provided by the public sector.

Could grant funding be on the way back?

There is a feeling, though, that we could now be reaching the end of the road in terms of underfunded public service contracts.

In its 2018 Road Ahead report, the NCVO highlighted how a number of charities have walked away from such contracts amid concerns about whether they are meeting the needs of beneficiaries.

There are also suggestions that the government may be willing to re-appraise its approach to grant making, and consider an increase in grant funding, following the Department for Culture, Media and Sport’s recent consultation on the Civil Society Strategy. 

Be brave, be a partner

Above all, though, there needs to be a step-change in the way local authorities choose to engage with the third sector, and a willingness to consider a genuine partnership model, rather than the binary, extractive model of procurement.

We have seen some successful examples of this partnership approach. The HCT Group, a social enterprise, runs all the bus services on Jersey – CT Plus Jersey – and splits any excess profits with the local authority on a 50/50 basis, so they can be reinvested into public transport services on the island.

Partnership models can deliver positive outcomes, but local authorities need to be brave enough to see charities and social enterprises as a genuine partner, and to put social value at the heart of their procurement.

How can Zurich help?

Commercialisation and the provision of public services are now inextricably linked. Within the current financial framework, the drive towards being more commercial brings challenges for public service leaders. What do our decision makers understand commercialism to mean? And what examples are there of innovation as well as risks around a commercial approach? This conference will examine the relationship and attempt to understand both the benefits and the risks of a commercial approach to delivering public services in the 21st century.

Join Zurich Municipal at CIPFA’s Commercialism Conference on 11th June in Westminster. Book here

Zurich has years of experience supporting public sector organisations in their commercial ventures. You can find a wealth of information about commercialisation in our new whitepaper – What are we here for? How commercialisation is reshaping the public and voluntary sectors