SCVO Response: Finance and Public Administration Committee Pre-Budget Scrutiny 2027-28 - the affordability & sustainability of Scotland's tax & spending plans

About SCVO  

The Scottish Council for Voluntary Organisations (SCVO) is the national membership organisation for the voluntary sector.  

Along with our community of around 4,000 members and supporters, we believe that a thriving voluntary sector should be at the heart of a successful, fair and inclusive Scotland. 

About this response

In preparing this response, SCVO has drawn on evidence from our research, policy development and engagement with voluntary organisations across Scotland. Throughout this submission we refer to several published evidence sources which the Committee may wish to consider alongside our response.

SCVO has chosen to focus its response on those questions where we can draw on evidence from our research, policy work, and engagement with voluntary organisations across Scotland, alongside relevant external evidence. We have not responded to questions where we do not consider ourselves best placed to comment.

Question 1: Are the spending allocations outlined in the 2026 Scottish Spending Review the most effective approach to strengthen public finances?

Too often and for too long, voluntary organisations that provide vital services to people and communities across Scotland are treated as the poor relation to mainstream public services, having to contend with budget cuts, short-term funding cycles, late payments, incoherent decision-making, poor communication, inadequate grant management, and more.

Although the Scottish Spending Review is welcome, giving the Scottish Government the long-term outlook to make progress on its commitment to deliver improvements, including multi-year funding for Scotland’s voluntary organisations, we need to see real progress and recognition of SCVO’s Fair Funding asks beyond multi-year funding. And in the meantime, it is essential that, in the weeks following the Scottish Budget, the Scottish Government supports local authorities and voluntary organisations by meeting their commitments to timely notifications and payments.

The voluntary sector is essential in the delivery of public services across Scotland and should be recognised and engaged with as an equal partner. The voluntary sector must also be considered as part of the solution to Scotland’s long-term fiscal challenges. To achieve this, the Scottish Government must:

• Embed Fair Funding principles, including multi-year funding and full cost recovery, so that voluntary organisations are not held back by short-term, inadequate, delayed or poorly managed funding. Fair Funding is essential to ensure organisations can plan, retain staff, and deliver high-quality services.
• Ensure a comprehensive and proportionate approach to financial transparency around Scottish Government funding to support organisations and the public to understand spending decisions.
• Work with SCVO and the voluntary sector to establish a new, formalised partnership with the sector, as committed to by the Scottish Government.
• Adequately involve the voluntary sector in Public Service Reform, and put in place fundamental longer-term reform, to ensure that our public services, and crucially our communities, do not lose out on the ingenuity, experience, and reach of voluntary organisations.
• Ensure that the voluntary sector in Scotland is recognised as a major economic force, employing over 136,000 – 5% of the Scottish workforce.

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Question 3: Does the 2025 Medium-Term Financial Strategy (MTFS) recognise and clearly set out the scale of the fiscal challenges facing the Scottish budget, and are the actions identified in the Fiscal Sustainability Delivery Plan (FSDP) likely to address the forecast shortfall?

Scotland’s voluntary sector is an essential social and economic actor, supporting the delivery of public services and picking up demand that statutory services alone cannot meet. Voluntary organisations also bring additional value to Scotland’s systems through fundraised income and volunteer time – resources not available to other sectors.

Crucially, the voluntary sector plays an essential role in the delivery of preventative services, which are recognised as key to improving health and wellbeing outcomes and reducing expensive ‘failure demand’. For example, as explored on the Sector’s role in the economy section of the SCVO website:

• Cyrenians’ Hospital InReach service: Within its first 18 months, this pilot project reduced hospital readmissions by over two-thirds.
• Children’s Hospices Across Scotland (CHAS): Working with the University of York’s Health Economics Consortium, CHAS demonstrated that for every £1 of statutory funding received, they delivered £6.24 in public value – generating over £49 million in economic benefit annually from an £18 million spend.
• Place2Be: A study found that for every £1 spent on early intervention services for children’s mental health in Scottish primary schools, society benefits by £5.50 – highlighting the value of preventative support in under-resourced areas.

These examples demonstrate the capacity of voluntary sector services not only improves outcomes but also delivers significant public value and cost savings.

To address Scotland’s fiscal sustainability challenges, the Scottish Government must act to safeguard the resilience of Scotland’s public services and the wellbeing of its communities. Essential to this is a resilient voluntary sector – one that is supported through Fair Funding and is treated as an equal partner. Unfortunately, this was not reflected in recent Medium-Term Financial Strategies, and work in this area is urgently needed.

As SCVO stated in its response to the publication of the 2025 Medium-Term Financial Strategy: “this Strategy, like many promises made by Scottish Government over the years, once again asks the Scottish voluntary sector to wait for support, while 81% of charities and voluntary organisations face financial challenges and more than one in 10 have no choice but to stop one or more strands of work.”

“Our sector makes a significant contribution to the Scottish economy and the government’s ambitions to end child poverty, grow the economy, tackle the climate emergency, and improve public services. To support this, our sector needed action, not warm words and empty promises.”

Question 4: What do the next MTFS and update to the FSDP need to include to show that the Scottish Government is on track?

The 2025 Medium-Term Financial Strategies (MTFS) presented a significant opportunity to progress the Scottish Government’s own long-standing commitments to "Fairer Funding”. Yet, despite the MTFS including a welcome commitment to two-year pilots for around fifty voluntary organisations, further progress remains unclear, with limited recognition of SCVO’s Fair Funding asks beyond this.

The benefits of multi-year funding are already widely known and understood: better staffing, stability, and future planning for the services people and communities rely on. The Scottish Government’s own research confirms this. Multi-year funding alone, however, will not provide the sustainable funding environment the voluntary sector so desperately needs.

As SCVO shared ahead of the Spending Review, the Scottish Government’s Fairer Funding Pilot Feedback Survey highlights where the pilot does not go far enough, where funding is static, notifications delayed, and longer funding cycles needed to ensure the full benefits are realised. SCVO has raised these issues within our Fair Funding asks, developed through significant engagement with the voluntary sector. The Scottish Government described the pilot 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. 

Four in every five households in Scotland interact with charities and the voluntary sector every year, and yet the financial climate means the sector is more fragile than ever before, with charities and voluntary organisations having to scale back their operations or close for good. At a time when demand for support from the voluntary sector is rising, we need a funding landscape that is fair, flexible, sustainable, and accessible to ensure that organisations can provide the services and projects that are vital to communities across Scotland and further afield. This can only be achieved by guaranteeing Fair Funding that includes longer-term funding models, ensures processes are proportionate, accessible, and consistent, and provides more unrestricted funding with in-built uplifts to reflect rising cost of delivery.

The Scottish Government’s four priorities, set out by the First Minister in the last parliamentary term, are eradicating child poverty, growing the economy, ensuring sustainable public services, and tackling the climate emergency. Progress against these priorities will be undermined without a strong, secure, and sustainable voluntary sector. But our sector will only continue to become more insecure and less sustainable, the longer the Scottish Government, local government, and other public authorities take the political choice not to implement Fair Funding in full.

A fundamental component of Fair Funding is ensuring funding is sustainable, meeting the full costs of delivery. That must include achieving Fair Work - grants and contracts should cover the full cost of employing staff, including at least the Real Living Wage and inflation-based uplifts on par with those offered to public sector staff. While the MTFS in recent years has recognised the value of multi-year pay deals for public sector workers, it has consistently failed to acknowledge the voluntary sector’s essential role in public service delivery or the need for parity in funding practices.

The MTFC could also have taken action to offer transparent and accessible fiscal information to support voluntary organisations, civil servants, scrutiny bodies, and others to better understand Scottish Government decisions, and funding flows, and to engage with government on the potential impacts on voluntary organisations, their staff and volunteers, the communities they work with, and the Scottish Government’s wider ambitions. This lack of clarity simply makes it harder for voluntary organisations to plan, retain staff, and, crucially, deliver to communities across Scotland.

To combat this, the Scottish Government could:

• Collect funding information across all government departments and produce a breakdown of Scottish Government funding to the voluntary, public, and private sectors by department and budget line.
• Publish annually the Scottish Government’s total direct investment in voluntary organisations from grants and contracts.
• Within this data, Scottish Government should monitor progress towards fairer funding including collecting and publishing what proportion of grants and contracts are: 
  • Delivered on a multi-year basis.
  • Core or projected funding, include annual uplifts.
  • Accommodating payment of the real Living Wage, including annual increases to this rate.
  • Communicating funding intentions at least three months in advance and make payments no later than the first day of the new financial year.

Question 5: What actions should the Scottish Government take to grow the tax base and increase labour market participation, productivity, and Scotland’s economic growth?

As already outlined in this response, the voluntary sector’s economic contribution continues to be less well understood and captured than the significant contribution it makes to the communities it serves. The sector is the glue that holds those communities together, bringing innovative solutions, upholding human rights, supporting the most vulnerable, engaging in prevention, nurturing creativity, and pressing for system change. But it is also a sector that, due to its role in the economy, needs to be considered equally alongside the private and public sectors.

The Scottish Government must recognise that, as a sector employing around 5% of Scotland’s 2.67 million workers, the voluntary sector is a significant employer. In 2023, the sector spent £3.2 billion in staff costs, up from £2.9 billion in 2021, costs that will undoubtedly have since risen further following the UK Government’s increase to employers’ national insurance contributions and increased inflation over recent years.

The Scottish Government must consider actions that allow it to respond to inflationary pressures in the Scottish Budget, including in relation to the cost of living and rising costs for voluntary organisations. The cost pressures on the voluntary sector in Scotland are simply unsustainable, leading to an erosion of services as charities and voluntary organisations are forced to scale back their operations or close their doors. SCVO’s recent research shows the amount of public money provided to third sector organisations froze between 2021 and 2023, falling by £177 million in real terms – a cut of 5% - and recent rises in employers’ National Insurance Contributions brought in by the UK Government have cost the sector at least £78 million.

The threat to the very existence of charities and voluntary organisations is real. In 2020, 454 charities closed for good. In 2023, it was 1143, increasing to 1288 by 2024. Last year, 875 charities were wound up. The situation is dire – however, by embedding Fair Funding principles, including multi-year funding and full cost recovery, so that voluntary organisations are not held back by short-term, inadequate, delayed or poorly managed funding, the Scottish Government could help ensure the security urgently required by voluntary organisations across Scotland. This must include the implementation of inflation-based uplifts in the face of multiple cost of living and rising cost crises, and consistent increases to inflation.

Against the backdrop of a worsening voluntary sector pay gap, and despite performing better than the private sector, 9% of people employed by ‘not for profit’ organisations were paid below the Real Living Wage in 2025 and, as set out in SCVO’s 2025 Scottish Voluntary Sector Workforce Survey, only 39% of paid staff in the sector feel that they are paid fairly, with more than one in five saying their salary does not cover basic needs. In addition, a quarter of staff are employed on fixed-term contracts or more casual arrangements – a rate far higher than in other sectors. This is compounded by funding uncertainty, which respondents consistently describe as the most stressful aspect of their work.

Fair Work First, described by the Scottish Government as the “flagship policy for driving high quality and fair work”, seeks to achieve its objectives by applying fair work criteria to grants and other funding. And while leaders across the voluntary sector are committed to providing fair, meaningful, and rewarding employment, the structural conditions they operate within constrain this ambition.

As the Workforce Survey finds:

• Scotland’s funding landscape is undermining workforce sustainability, with funding insecurity reported to be the main factor impacting on the recruitment and retention of staff, as well as staff wellbeing.
• Poor funding practice continues to undermine Fair Work.
• While workload pressure and associated stress sit within a broader context of wellbeing and resilience challenges across all sectors of the UK’s workforce, workforce wellbeing must be a priority for leaders and trustees.
• Leaders in the voluntary sector have also reported significant workload pressures, with stress levels particularly pronounced among chief executives and senior managers.
• Reform of Scotland’s public sector funding landscape remains a priority and Fair Funding is foundational to sustaining leadership capacity and stability.

Strengthening the sustainability of the workforce should be considered a priority for the Scottish Government but will depend on formalising more equitable ways of working between the voluntary and public sectors, alongside proportionate, community-led commissioning approaches and progress on Fair Funding.

In addition, despite the instrumental role that the voluntary sector plays in delivering for people and communities, experiences of engagement with public bodies are inconsistent. Different public bodies have different approaches to engaging with voluntary organisations and, even within organisations, approaches vary significantly. SCVO has welcomed the Scottish Government’s commitment to a Third Sector Partnership on the back of our calls, and the impetus shown in progressing this agenda so soon after the election with a parliamentary debate on 'Strengthening Scotland's Partnership with the Third Sector' that took place in June. A new, equitable and sustained partnership is needed to support and deliver consistent and effective outcomes, including economic growth, for people and communities.

Question 6: Are the planned efficiencies realistic and deliverable at a scale sufficient to make public services sustainable?

Cuts to public services impact people across society, especially those on the lowest incomes who rely on them most. This then has the knock-on effect of increasing pressure on the voluntary sector and the essential services and support it provides.

According to the Scottish Third Sector Tracker, 97% of voluntary organisations are facing challenges, including difficulty fundraising (40%), rising costs and inflation (38%), volunteer shortages (33%), financial or cash flow constraints (32%), and delays or reductions in funding (29%). At the same time, recruitment and retention challenges continue across the sector, with thirty-eight percent (38%) of organisations reporting moderate to significant challenges recruiting paid staff and fifty-six percent (56%) reporting moderate to significant challenges recruiting volunteers.

It is in this context of pressures and challenges that thirty-eight percent (38%) of respondents to the Third Sector Tracker reported that their organisations had delivered most, but not all, of what was planned over the previous six months. And yet, at the same time, we know from SCVO’s The resilience of Scottish voluntary organisations 2025 report that around 60% of organisations across the voluntary sector are reporting rising demand for the services that they provide quarter over quarter. It is, then, unsurprising that cuts to public services that lead to people seeking out support provided by the voluntary sector will only compound this growing demand on a sector already massively under pressure.

The findings from the Scottish Third Sector Tracker make it clear that Scotland’s voluntary sector continues to demonstrate resilience and adaptability in the face of persistent financial and operational challenges. Organisations are continuing to deliver services, support communities, and respond to emerging needs despite a backdrop of funding uncertainty, rising costs, recruitment difficulties, and increasing demand. The findings also point to growing pressures that may challenge the sector’s long-term sustainability, with many organisations feeling they are being asked to do more with fewer resources while simultaneously filling gaps left by shrinking public services.

It is because of this that Scotland’s voluntary sector must be at the heart of any serious programme of public service reform. The high-level commitments in the Scottish Government’s Public Service Reform Strategy are welcome, but greater detail is needed on what meaningful involvement of the voluntary sector will look like. This must include timelines, indicators, and reporting structures. And in the longer term, fundamental reform is needed to unlock the voluntary sector’s full potential to deliver for Scotland’s people and communities. Failure to do so will mean that our public services and, crucially, our communities lose out on the ingenuity, experience, and reach of voluntary organisations — a missed opportunity Scotland cannot afford.

Taken together, the findings of the Third Sector Tracker consistently suggest a sector that remains committed, innovative, and responsive, but that continues to face significant structural challenges. As organisations look ahead to the future, sustainable funding, stronger partnerships, improved access to opportunities, and support for organisational capacity are likely to remain critical factors in maintaining the sector’s ability to deliver for Scotland’s communities. This, once again, returns us to the clear point that, only by introducing Fair Funding for the voluntary sector in full, building a tangible, productive partnership agreement with that sector, and involving the sector effectively in Public Service Reform, can the Scottish Government provide the urgent support required not just for Scotland’s essential sector, but the countless individuals, families, and communities who stand to lose out if it does not.

Question 8: Preventative spend has been a goal for several years, but the intended outcomes have not been fully achieved. Why do you think this is the case and how might a Preventative Budgeting Tool help track progress with achieving outcomes?

The Preventative Budgeting Tool introduced by the Scottish Government is a welcome first step which could be implemented more widely to progress transparent funding. Further work is needed, however, to collect funding information across all government departments and produce a breakdown of Scottish Government funding to the voluntary, public, and private sectors by department and budget line.

Achieving a preventative approach is essential to not just to improving outcomes for individuals, families, and communities, but in reducing pressure on public finance. It is for that reason that SCVO fully supports a wider preventative approach, while acknowledging that progress in this area has been limited to date.

The voluntary sector’s role in prevention cannot be overstated, playing an essential frontline role in prevention. By working at the grassroots levels, charities and community groups tackle root causes of health inequalities, homelessness, social isolation, and so much more, before they escalate into acute crises, reducing costly strain on public services. As, as detailed earlier in this response regarding Cyrenians, CHAS, and Place2Be, the data supports this.

Despite this, the voluntary sector continues to be undermined in the role it plays. Prevention is crucial but is incredibly difficult to achieve against a backdrop of increasing demand, escalating pressures, and unsustainable, short-term funding practices. It is, once again, vital that the Scottish Government recognises the urgent need for Fair Funding to be implemented in full and the importance of a partnership agreement with the voluntary sector, to ensure that the sector is finally valued as the indispensable partner it is.

If the Scottish Government continues to fail to recognise the voluntary sector as equitable to the private and public sectors, continues to disregard the many pressures and challenges facing the voluntary sector, and continues to take the decision not to implement Fair Funding in full, it will only persist in permitting the ongoing, unsustainable conditions which the voluntary sector faces. As a result, the voluntary sector’s invaluable preventative work will become increasingly unsustainable in the face of those pressures and challenges, as well as the increased demand caused by cuts to public services.