The Scottish Council for Voluntary Organisations is the membership organisation for Scotland's charities, voluntary organisations and social enterprises. Charity registered in Scotland SC003558. Registered office Caledonian Exchange, 19A Canning Street, Edinburgh EH3 8EG.
SCVO Briefing: Scottish Government Spending Review
Summary
The Spending Review can recognise, resource, and support the voluntary sector and our essential services by aligning the Scottish Government’s “Fairer Funding” principles with SCVO’s definition of Fair Funding including:
- Multi-year funding: funding that provides a minimum three-year standard across all government departments, agencies and public bodies. This must include measuring and reporting on the number of grants and contracts delivered on a multi-year basis.
- Flexible funding: funding that is unrestricted, covers core costs, and enables organisations to plan, adapt, and meet good governance requirements. Funders must build in flexibility in project design, monitoring, and timescales.
- Sustainable funding: funding that includes inflation-based uplifts and full cost recovery — covering core operating costs and the full costs of employing staff (including increases costs associated with the UK Government’s increase to employer National Insurance Contributions), with payment of at least the Real Living Wage and parity with public sector pay, addressing long-standing disparities between the public and voluntary sectors.
- Accessible funding: funding with streamlined, proportionate, and consistent processes for applications, reporting and payment — with timely decisions, clear guidance, and adequate lead-in times.
- Transparent funding: funding that enables organisations and the public to understand, participate in, and scrutinise funding decisions — with clear delivery goals, timelines, and accountability mechanisms to track progress on Fair Funding across government.
Fair Funding
Too often and for too long voluntary organisations, providing vital services to people and communities across Scotland, are treated as the poor relation to mainstream public services, contending with budget cuts, short-term funding cycles, late payments, incoherent decision-making, poor communication, inadequate grant management, and other challenges. This must change.
The biggest challenges facing the voluntary sector today are financial. For some organisations the consequences have been devastating. Over the course of this parliamentary term, some voluntary organisations have had no choice but to let staff go, reduce services, or even close their doors altogether. The Scottish Third Sector Tracker has run throughout the current parliamentary term, capturing the experiences of voluntary organisations across 10 waves of data collection. The Tracker found:
- Since April 2023 (wave 6), financial challenges have dominated the top three challenges.
- Uncertainty about the future and cash flow constraints have also reached record levels.
- 56% of organisations say access to reserves is essential to short and medium-term survival — rising to 63% for those with paid staff.
- Roughly one-third have been unable to deliver as planned in each wave of the Third Sector Tracker.
- The ability to meet demand for core services fluctuates but remains a persistent challenge for around one in five organisations.
- On average 13% of organisations are cancelling or postponing recruitment, with this trend increasing.
- Redundancies are rising from an average of 5% to 11% of organisations.
Reform is long overdue. For over a decade, the Scottish Government has recognised the need for multi-year funding. In this parliamentary term, the Scottish Government has repeatedly promised to make improvements to the funding landscape — but delivery has fallen short.
- April 2023: The policy prospectus “New leadership – A fresh start” committed to delivering Fairer Funding by 2026, including exploring multi-year funding deals.
- May 2023: The Medium-Term Financial Strategy (MTFS) committed to multi-year spending plans.
- December 2023: The Scottish Budget deferred decisions on multi-year funding to the 2025 MTFS.
- June 2025: The 2025 MTFS again failed to deliver a multi-year funding framework — leaving the sector still waiting for progress.
The Scottish Parliament’s Social Justice and Social Security Committee has recognised the urgent need to reform third sector funding. The Committee received extensive evidence from the voluntary sector on the impact of unsustainable and uncertain funding on organisations, their staff and volunteers, and ultimately the services and support they provide people and communities across Scotland. The Committee concluded that there is a need to prioritise multi-year funding of at least three years for the voluntary sector. The final report on third sector funding principles focused on the principles of fair, flexible, and sustainable funding. The Scottish Government was urged to: prioritise multi-year funding; shift towards more flexible, unrestricted core funding; and improve consistency and efficiency across public sector funding processes.
SCVO welcomed the “Fairer Funding” pilot launched by the Scottish Government in February 2025 - which commits more than £120 million to pilot projects focusing on essential services and eradicating child poverty over two years. The Scottish Government has received positive initial feedback from those participating in the pilot. Over just six months of the two-year pilot, multi-year funding has already been shown to offer many of the organisations participating some of the benefits of multi-year funding: stability; supporting their ability to plan into the future; consistency of service provision; supporting staff recruitment and retention; and attracting new funding investment. SCVO and colleagues across the sector have shared these, and many other benefits of multi-year funding for many years. A wealth of recent evidence on the benefits of multi-year funding, and Fair Funding more broadly, is also already available through the Third Sector Tracker, the Social Justice and Social Security Committee’s Pre-Budget Scrutiny report 2025/26, and SCVO’s Fair Funding work.
Even at this early stage the Fairer Funding Pilot Feedback Survey highlights where the pilot does not go far enough, funding is static, notifications delayed, and longer funding cycles needed to ensure the full benefits are realised. SCVO have raised these issues within our Fair Funding asks, developed through significant engagement with the sector. The pilot was described by the Scottish Government as the first step in mainstreaming multi-year funding agreements more widely across the voluntary sector, it is already clear the Scottish Government must go further.
The Scottish Government must use the multi-annual Scottish Spending Review to commit to Fair Funding, including:
- Multi-year funding: funding that provides a minimum three-year standard across all government departments, agencies and public bodies.
- Flexible funding: funding that is unrestricted, covers core costs, and enables organisations to plan, adapt, and meet good governance requirements.
- Sustainable funding: funding that includes inflation-based uplifts and full cost recovery — covering core operating costs and the full costs of employing staff (including increases costs associated with the UK Government’s increase to employer National Insurance Contributions), with payment of at least the Real Living Wage and parity with public sector pay.
- Accessible funding: funding with streamlined, proportionate, and consistent processes for applications, reporting and payment.
- Transparent funding: funding that enables organisations and the public to understand, participate in, and scrutinise funding decisions.
SCVO looks forward to engaging with the Scottish Government on these issues and Fair Funding more broadly and stress that by embedding SCVO’s Fair Funding principles across the Scottish Government’s own departments, agencies, and bodies, the Scottish Government can set a clear example for the whole public sector to follow.
Testimonials
| “Planning in the current climate is extremely difficult - funding agreements which cover 3 - 5 years would enable us to plan staffing and resources to meet needs.” Registered Charity “The longer-term funding allows us to give much better value for money, we can plan long term, employ staff on more secure contracts therefore allowing us to utilise staff more efficiently.” Registered Charity “The lack of inflationary increase to our funding is the most unfair aspect of our current arrangements, we effectively suffer a cut in funding year on year.” Registered Charity “Everything we do is dependent on funding, and amounts are often not confirmed until very late in the financial year”. Registered charity “Due to annual funding from Scottish Government, which doesn’t cover our core costs, recruitment is often on short-term contracts or is subject to ongoing funding, of which there is no guarantee”. Voluntary sector intermediary |
Conclusion
Scotland’s voluntary sector is an employer, a partner, and a vital social and economic actor central to delivering on the Scottish Government’s missions to end child poverty, grow the economy, tackle the climate emergency, and improve public services. The Spending Review is an opportunity to recognise and support the sector’s contribution and address the pressures facing the sector.
The Spending Review can and should take much needed and meaningful steps towards a Fair Funding system that offers long-term, flexible, sustainable, and accessible funding by aligning the Scottish Government’s Fairer funding principles with SCVO’s definition of Fair Funding and progressing the Scottish Government’s commitment to Fairer Funding, including greater progress on multi-year funding deals, as committed to by Scottish Government in the Medium-Term Financial Strategy. The Scottish Government should also consider what action can be taken to make progress on the many recommendations in the Social Justice and Social Security Committee’s Pre-Budget Scrutiny report 2025/26.
The Spending Review should also provide local authorities with the financial certainty they need to offer multi-year funding agreements. Without action it will be impossible to realise the Scottish Government’s commitments and make progress towards creating the sustainable voluntary sector people and communities across Scotland rely on.
