State of the Sector 2013

Commentary

The third sector is clearly making a real difference to the lives of people in Scotland and is heading in the right direction again despite a challenging economic environment. This isn’t just good news for the staff and volunteers who work within the sector, it also has a very real impact on service users, communities, and the people the third sector works with and supports. It looks as if the sector has turned a corner. After a decline in size since the economic crash of 2008, which was followed by a period of no growth, this year 2 in 5 organisations who responded to our survey reported that they have grown in size, with another 2 in 5 remaining the same size as in 2012. This is a positive step forward for the sector, which demonstrates the resilient nature of many third sector organisations, its sustainability and its ability to overcome challenges. The majority of respondents report that their organisations are planning to take positive steps to meet the challenges of the year ahead.  Respondents are more optimistic about the general financial situation in Scotland for the coming year, with only 36% expecting it to worsen compared with 62% last year. Not only that, but a quarter also anticipate that their organisation’s financial situation will improve – an increase on recent years, when only 10% of organisations expected to see improvements. In terms of staffing, positive pay practices are found across the sector, with over 3 in 4 respondents stating that their organisations pay all their staff at least the Scottish Living Wage. This means that despite pressures from funding shortages, the sector as a whole continues to ensure its workers are paid fairly. 30% of organisations responding report using flexible, low-hours contracts. Not surprisingly to anyone who knows the sector well, funding remains a concern. It is worrying that despite an expected increase in demand for the work of our sector in the coming year, this is not matched by an anticipation of increased organisational income. Only 27% of organisations believe they will see an increase in income, and just 22% expect to see rises in paid staff numbers. However, data from our recruitment website goodmoves indicates an increase across the sector in the number of jobs and in the number of part-time jobs, so it’s not all bad news. One of SCVO’s biggest gripes in recent years has been the issue of long-term funding. If organisations can’t plan one, two or three years ahead, how can they possibly hope to support those affected by long-term, complex issues such as homelessness, drug abuse and mental ill-health?  Unfortunately, 38% of respondents report they are unable to confidently plan ahead given their current funding arrangements, and just 8% of respondents can plan ahead more than three years. This is true for organisations of all sizes. With the support of local and national government, the third sector is primed to continue to respond to increasing demand.  If, by working together, we can gain sustainability and security in funding, we will be able to even better support the communities we work with and plan solutions that produce long-term results. We are helping more people than ever before, making a huge difference to the lives of hundreds of thousands of people across Scotland. Despite challenges – including the biggest financial crisis in recent years – the sector continues to innovate, develop new services to cope with demand and respond as best it can to the challenge of welfare reform, employability (an increasingly important issue) and local cuts. As one respondent sums-up: “We continue to experience ever increasing demand for our services while funding remains mostly stagnant.  Sustaining this and ensuring a quality service continues to be provided at the same time is challenging.  We are told the Third Sector and volunteering are more essential than ever - funding must start to reflect this better if the full potential of the Third Sector and volunteering is to come to fruition for the good of all our communities.”

Growth in last 12 months

After a tough few years, many organisations reported faring better in 2013 than in 2012, with more reporting growth than in the last 2 years. 41% of respondents in 2013 reported that their organisation grew in size, compared with only 31% in 2012. The picture is beginning to look healthier again after the sharp cuts that hit the sector in 2011, but 15% of organisations still reported reductions in size, while 43% remained static. Smaller organisations were more likely to have stayed the same size, while the largest organisations saw the most change, with many large organisations experiencing growth but a significant number reporting a reduction in size. Figure 1 Figure 2

Planning for the future

Anticipation of increased demand continues to be very high, with 77% of respondents expecting to see demand for their services rise. Respondents also continue to anticipate rising costs, with 60% expecting expenditure to increase (Figure 3). However, meeting this increased demand and higher spend may prove challenging, as only 27% believe they will see an increase in income, while nearly a third (30%) expect to see their income drop. Only 22% anticipate increases in paid staff, meaning that few will have any additional capacity with which to meet the anticipated increase in demand (Figure 3).  This pattern of increased demand coupled with no corresponding increase in income and staff has been a key feature for the third sector in recent years (see Figures 4 and 5 below). Having said that, data from our recruitment website goodmoves suggests an increase across the sector in the number of jobs and in the number of part-time jobs available.  goodmoves has seen an increase in both its market share and the number of jobs advertised through it, so it is now better reflecting the state of work opportunities in the sector as a whole compared to in previous years. Nevertheless there is a clear trend towards more part-time posts, with goodmoves seeing an 8% increase in part-time posts advertised since 2010. This indicates the sector is dealing with increased demand by employing staff in less than full-time posts. Furthermore, only 19% of respondents expect to see any pay increase for staff, reflecting the static wages that have been another common feature for the sector for a number of years (Figures 3 and 7). This reflects what we have seen in charity finances, where reduced and static incomes despite increased expenditure on core costs and service provision have led to a squeeze on staff pay and pressure on staff numbers. 72% of respondents expect to see increased competition for resources, slightly down from previous years, while almost the same number (68%) hope to see collaboration with other organisations increase, slightly up on previous years (Figures 8 and 9). The majority of respondents report that their organisations are planning to take positive steps to meet the challenges of the year ahead (Figure 10). The three key areas that organisations are looking at are: developing new income sources (72%), developing new projects (71%) and extend existing services (57%). Very few respondents this year reported that they had any plans to close services, merge or wind up. Figure 3   Figure 10

All graphs are available as data tables.

Planning ahead – funding

38% of respondents reported being unable to confidently plan ahead given their current funding arrangements - just 8% of respondents can plan ahead more than three years.  This is a serious issue for the sector, as a lack of long-term funding makes it harder for the sector to deliver better outcomes and more sustainable public services for Scotland’s communities. As one respondent describes: “The cuts that the local authority are making, both to services for our customers, and to the funding for organisations like ourselves. This affects not only the support that our organisation can give the public, where it is crucially needed, but also negatively impacts on the match funding we can hope to secure - as local authority have moved to one year only agreements and are reducing their core support.” Another respondent worries about the “End of 3 major grants we receive. We don't know if we will be able to sourced continued 3-year funding from them. If not this will put our charity at risk of closing”. Figure 11

Financial confidence

For the coming year, the mood in the sector is showing an upturn from last year but is still downbeat, with the majority of organisations anticipating that things will stay the same or worsen. Figure 12

Financial situation for own organisation

A quarter of respondents (24%) anticipate that their organisation’s financial situation will improve. This figure shows an improvement on recent years, when only 10% of organisations expected to see improvements (see Figure 13 below), but is still very low. Most organisations remain pessimistic, with over a third expecting the situation to worsen for their organisation in 2014 and 42% expecting their situation to stay the same.

General economic situation in Scotland

Respondents this year were also more optimistic about the general financial situation in Scotland for the coming year, with only 36% expecting it to worsen compared with 62% last year (Figure 14).  13% hoped to see things improve, up from only 4% in 2012.

Financial situation for the third sector

However, only 6% expect the situation for the third sector as a whole to improve, with over half (58%) expecting it to worsen. Although this appears bleak, it does show a significant improvement on last year, when 81% thought the situation would worsen, and only 1% thought things for the sector might improve (Figure 15). This negative prediction for the third sector’s finances was unanimously reported by respondents across the board, from the smallest organisations to the largest. Figure 13 Figure 14 Figure 15

Funding issues

The top funding concerns for 2014 are general funding shortages, lack of long-term funding and sustainability of funding – see Figure 16. Most funding challenges were the same across the board, with only some minor variations depending on the size of the organisation. For the largest organisations funding cuts, securing public sector grants and contracts and increasing trading income are particular issues.  Small and medium sized organisations are more likely to have particular concerns around covering core costs and securing grants from charitable trusts (Figure 17). Figure 16 As one respondent describes, a large concern is: “Ensuring that we continue to receive core funding from our main sponsors.  When these items go out to tender, there is always the issue of commercial companies undercutting our prices, as they use untrained and poorly paid staff, where we have a fully trained and competent team, who deserve to be paid accordingly.” Another respondent describes how: “We have a 34% increased demand for service but are continually having our grant cut.” Figure 17

Key issues for 2014

Once again, funding is the stand-out issue for the coming year.  It is clear that sustainable funding continues to be a real challenge for our sector, which damages the third sector’s ability to deal with long-term, complex problems as well as it might. Other areas of concern are sustainability, maintaining services, tendering processes, capacity and meeting demand. Several respondents also mention the potential impact of the referendum. Figure 18 Some respondents described their key issues: “More people using our services and not [having] enough financial resource to sustain the need.” “Speaking up clearly and honestly about what it's actually like 'on the ground' as both public and third sectors struggle to maintain services to individuals and communities in the face of growing need and the impositions of UK & Scottish Government's austerity policies.”  “Securing ongoing funding and getting local authorities to WORK in partnership instead of treating us as irrelevant and dictate to us even push us out of existence.”

Staffing issues

84% of respondents work in organisations with paid staff and were asked to comment on two staffing related issues – flexible contracts with few guaranteed hours and the living wage. Three quarters of respondents’ organisations pay the living wage.  Of the 16% who do not, most stated they would like to but that there were affordability issues – smaller organisations are less likely to be paying the living wage than larger organisations – see Figure 19.  A number of respondents spoke of plans to move to the Living Wage in the coming year or two, and a few noted that those currently not paid the Living Wage are Community Jobs Scotland placements.  Some respondents also noted that their funder, for example the local authority, pays hourly rates below the living wage. Figure 19 Figure 20 As one respondent describes: “We pay all employees at least the minimum wage but cannot pay all of them the living wage. When the Council identifies a need for additional support for learning staff to support children attending our Nursery (a partner provider with the Council), the hourly rate they provide (for us to employ someone specifically to do this job) is below the living wage. How hypocritical!” In other staffing issues, 30% of respondents report using flexible contracts with few guaranteed hours – 22% at organisation’s request and 8% at employee’s request. Most respondents said that this is due to sessional workers or to cover sickness while maintaining standards, and many respondents defended their use. Some respondents also noted the overlap with ‘sessional staff’, which sector organisations have been using for years. Figure 21 Smaller organisations in the sector are as likely as large ones to be using flexible contracts with few guaranteed hours, primarily for reasons of affordability and flexibility. As one respondent explains: “For some of our staff roles it is essential to have people able to step in at short notice when other staff are absent (e.g. sickness). Due to PVG and other requirements often these people need to be staff members.” A number of respondents were critical of the use of such contracts in the third sector. Figure 22

Respondent profile

268 organisations completed the Sector Forecast survey, which ran from 25 September to 15 November 2013. Every year, SCVO asks its members and wider stakeholders what they think the next year holds for their organisation and the sector as a whole. A wide range of organisations responded to the survey, from very small to very large. Due to the size and shape of the sector, the survey responses slightly over-represent larger organisations (100k-£1m, and Over £1m), and under-represent the smallest organisations (£0-£25k) which make up around 2/3 of the sector. Figure 23 Responses came from organisations working at the local level through to national and international, with a slight skew towards National respondents. Figure 24 Respondents themselves also represent a wide range of roles.  The majority of respondents are Chief Officers / Managers, but other roles including Board members are also well represented. Figure 25

All graphs are available as data tables.