Scotland’s resilient third sector through the cost-of-living crisis: insights from new research by Erin Cutroneo.

Introduction

The Cost-of-Living Crisis (CoLC) squeezed Scottish voluntary organisations from both sides: rising costs stretched their resources and capacity, while public need for their services grew as people struggled to get by — all within an increasingly competitive and insecure funding environment. New research, conducted as an MSc Public Policy dissertation in collaboration with SCVO, reveals how the diverse third sector adapted to these challenges over time and what support they continue to need. The research included a quantitative longitudinal analysis of Third Sector Tracker data (Waves 2-10) over the course of the CoLC, as well as qualitative insights from an Expert Advisory Group of key third sector workers.

Key findings

• Use of Reactive and Adaptive Resilience Tactics: Organisations sought resilience through the CoLC by using reactive tactics (using reserves, stopping work, etc.) and adaptive tactics (seeking new funding streams, increasing borrowing, etc.). Using adaptive tactics demonstrated continuous learning, assessing and transforming their organisation to be more inherently resilient to crisis pressures, while reactive tactics were served as short-term measures for survival. While organisations often used a mix of both tactic types, the use of these tactics largely depended on organisations’ diverse characteristics.
• Crisis Intensity and Resilience Action: Staffed organisations increased their use of adaptive tactics ahead of and immediately following the peak of the crisis (late 2022-early 2023), and only relied more on reactive measures during the peak of the crisis around October 2022, when inflation reached 11.1%. Unlike staffed organisations, volunteer-run organisations did not increase or decrease their use of resilience tactics as the crisis intensified. Instead, they only reduced their use of these tactics as the crisis receded.
• Organisation Size: For staffed organisations, reliance on reactive tactics increased with organisation size, with the largest organisations being ~2x as reactive as the smallest organisations. Larger staffed organisations were also more strategically adaptive to crisis pressures, and organisations with greater volunteer capacity were also more adaptive in their resilience tactics. While reactive action was not influenced by organisation size for volunteer-run organisations, larger volunteer-run organisations were more adaptively resilient than smaller organisations.
• Volunteer Capacity: Staffed organisations with more volunteers were more adaptive than those without volunteers. Conversely, volunteer capacity did not influence volunteer-run organisations’ propensity for any resilience tactics.
• Leader’s Outlook: Both staffed and volunteer-run organisations whose leaders had more positive perceptions of their organisation’s achievement of planned services relied less on reactive tactics.
• Diverging Influence of Financial Difficulties: While staffed organisations experiencing greater financial difficulties were less adaptive, volunteer-run organisations were more adaptive in response to these pressures.
• Difficult Political and Funding Environment: Organisational resilience was also largely influenced by the wider political and funding environment. The Expert Advisory Group of third sector workers spoke to how funding delays and slow political change impede capacity for taking adaptive action, especially for smaller more financially vulnerable organisations. The necessity of Fair Funding was salient, not only to support organisations as they transition out of the CoLC, but to future-proof them for future crises.

Background: A Sector Pressured from All Sides

Since late 2021, Scottish third sector organisations (TSOs) have faced a double squeeze: soaring inflation rates and costs, alongside rising community need. UK inflation went from 2% in July 2021 to the crisis peak of 11.1% by October 2022. As it has fallen to 3.6% in June 2025, ongoing challenges remain. Even today, TSOs report ongoing financial strain, reduced volunteer engagement, and increased pressures on both staff and beneficiaries. 81% of TSOs cited financial challenges in Autumn 2024, a +10% increase from Spring 2023. These challenges have been further intensified by austerity-driven welfare cuts and reduced third sector funding.

Scottish Government has acknowledged the challenges faced by the sector, recently committed to implementing Fairer Funding, and began a 2-year funding pilot, providing £60 million each year to select TSOs. While a potentially promising start, these interventions have not matched those implemented during the COVID-19 pandemic, including the Third Sector Resilience Fund, which provided emergency funding to TSOs in need.

Examining Resilience Under Pressure

With the challenges of the crisis and lack of political response to support these organisations, TSOs sought resilience through the CoLC. Resilience is an organisation’s ability to absorbing external shocks while still retaining a level of organisational capacity. While it can mean different things for different organisations, for this study, resilience was defined as an organisation’s capacity for continuous learning over time and “bounce back” to a transformed, more resilient version of themselves.

Following the approach of Lambert and Paterson’s case study of two Scottish TSOs between 2008-2022, organisations’ uses of two kinds of resilience tactics were examined:

• Reactive resilience tactics: “pragmatic”, short-term, “firefighting” measures aimed at getting by rather than transformative change (like using reserves, reducing staff or staff hours, pausing some or all operations, etc.). Use of reactive tactics does not indicate continuous learning, but survival.
• Adaptive resilience tactics: “Strategic”, future-focused approaches to “bounce back” and pursue transformative change in response to pressures (like developing new income streams, applying for new funding, adapting existing activities, etc.). Use of adaptive tactics indicates continuous learning, demonstrating greater long-term resilience capacity.

Organisations often used a mix of both tactic types, so the analysis examined how crisis pressures and organisational characteristics related to the use of each tactic type over time.

Key Insights: Diverse Third Sector, Diverse Resilience

Staffed Organisations: Intense Pressure and Adaptive Pivots Through Crisis

Staffed organisations’ use of the different tactic types changed over the course of the crisis, as inflation rose to 11.1% in October 2022, before falling back to 3.6% as of June 2025. In addition to these time pressures, Staffed organisations’ resilience tactics were influenced by organisation size, volunteer capacity, organisation type, their main activity, and their leader’s perceptions.

• Crisis Intensity: Staffed organisations used more adaptive tactics while inflation rates were most elevated. They also relied on more reactive tactics at the crisis peak (Wave 5) but used 16% less than at the start of the crisis as inflation fell during Wave 7. This indicates that staffed organisations were more adaptive before, during, and immediately after the peak of the crisis. They only additionally relied on reactive tactics at the very peak of the crisis.
• Size (Annual Income): Larger organisations used both more reactive and adaptive tactics than smaller ones. While any organisation with an annual income over £100k used 30-39% more adaptive tactics than smaller organisations, the larger the organisation, the more reactive tactics they used, with major organisations (£10m+) using ~2x as many as micro-organisations (≤£25k).
• Volunteer Capacity: Organisations with at least 20 volunteers used more adaptive tactics than organisations without volunteers. Volunteer capacity did not affect reactive tactic use.
• Organisation Type: General voluntary organisations with staff used -38% fewer reactive tactics, showing less reliance on fire-fighting in response to crisis pressures.
• Main Activity: Interfaces/intermediaries and non-registered charities used fewer adaptive tactics (-13% and -17%, respectively), suggesting that they were less likely to seek transformative change in response to the crisis.
• Leader Outlook: Organisations with leaders who had a higher perceived achievement of planned services used less (-14%) reactive tactics, and slightly more (+5%) adaptive tactics.
• Financial Difficulties: Finally, staffed organisations with greater financial difficulties used more reactive (+37%) and more adaptive (+10%) tactics, showing greater reliance on short-term solutions and relatively less ability to take adaptive, long-term-orientated action in response to these pressures.

Volunteer-Run Organisations: A Different Rhythm of Resilience

Crisis intensity and organisation-specific factors also influenced volunteer-run organisations’ tactic use, but in distinct ways from staffed organisations.

• Crisis Intensity: Volunteer-run organisations showed no significant change in their use of reactive or adaptive tactics during the crisis peak. Compared to the start of the CoLC, tactic use only significantly decreased in later waves (-31% less reactive in Wave 9; -34% less adaptive in Wave 10), as inflation stabilised. Given their smaller size and lower overhead costs, these organisations may have been less immediately sensitive to changing financial pressures than staffed organisations.
• Size (Annual Income): Like staffed organisations, larger volunteer-run organisations used more adaptive tactics than smaller ones, using ~ +38% more adaptive tactics than micro-organisations (which had annual incomes of ≤£10k).
• Volunteer Capacity: Unlike staffed organisations, volunteer-run organisations’ number of volunteers did not affect their use of reactive or adaptive tactics.
• Organisation Type: Unlike staffed organisations, volunteer-run organisations’ type did not affect their use of reactive or adaptive tactics.
• Main Activity: Markedly different from staffed organisations, volunteer-run organisations focused on health or social care used less adaptive tactics than other organisations (-38% and -49% less, respectively).
• Leader Outlook: Organisations with leaders who had a higher perceived achievement of planned services relied less on reactive tactics (-19%).
• Financial Difficulties: While experiencing greater financial challenges caused staffed organisations to be less adaptive, facing greater financial challenges pushed volunteer-run organisations to act more adaptively (+33%).

Qualitative Insights: Ongoing Political and Funding Challenges

While the quantitative analysis measured how organisations reacted and adapted to the crisis, the Expert Advisory Group provided key insights into the political and funding environment the sector faced through the crisis to today.

• Diversity of the Third Sector: The Group supplemented the quantitative analysis of the sector’s diversity, noting key differences between how smaller, more community-embedded organisations may act with more urgency than larger, more resourced ones. While all TSOs share a strong commitment to mission, they adapt to challenges in different ways, underscoring the need for tailored support across the sector.
• Restrictive Funding Environment: The dwindling availability of flexible and core funding has reduced organisations’ abilities to invest in adaptive approaches to resilience. While the Third Sector Resilience Fund during the COVID-19 pandemic provided temporary support in this vein, the CoLC lacked a similar measure, despite ongoing struggles.
• Third Sector-Scottish Government Relations: Participants had mixed views on the sector’s relationship with government. While some expressed frustration with how funding notifications are delayed each year, putting smaller organisations at greater risk at the start of the financial year, and the uncertainty of the government’s current funding pilot truly providing multi-year contracts. Others acknowledged positive government efforts but were critical of the overall pace of change and bureaucratic delays.
• Fair Funding: All participants emphasised the power of government implementing Fair Funding principles, noting that doing so would solve 80% or more of the problems the sector faces currently, as these issues have a domino effect on other aspects of their work. They emphasised that many Fair Funding principles could be implemented to better support organisations, even if overall funding amounts do not increase.

Implications: Supporting a Resilient Sector

• Policy Implications: Implementation of Fair Funding is key to supporting organisations in a comprehensive and sustainable manner. Additionally, moving toward more timely notification of funding confirmations is essential to support organisations without drastic policy change or increased funding, especially for more financially vulnerable organisations at the start of each financial year. Government should also tailor policy and support by organisation type, capacity, and mission to support adaptivity and innovation, reducing the need for pure survival tactics.
• Sector Implications: EAG participants spoke to the power of peer-support groups across the sector to both facilitate continuous learning and collaboration as well as provide human-level support through difficulties. This analysis points to what organisations may be best to focus on in convening such groups, such as those working in health or social care (volunteer-run) or non-registered charities (staffed), who were more reliant on reactive tactics.
• Further Research Opportunities: Further research should acknowledge the diversity of the sector – by staffing status, organisation type, main activities, leader perceptions, and more - understanding why these subgroups used more/less reactive and adaptive tactics throughout the crisis and beyond.