After years of underfunding and upheaval, the pandemic and cost-living crisis are the latest chapters in a longer story of instability and unpredictability in voluntary sector funding.
The cost-of-living crisis has, for many organisations, increased demand for the essential services and support the sector provides while organisations, like households, struggle with rising costs.
This increasingly unsustainable situation intensifies SCVO’s calls for a fair funding approach to voluntary sector funding, developed in collaboration with organisations across the sector. Fair funding – a long-term, flexible, sustainable, and accessible approach to funding – is central to a sustainable voluntary sector which can offer Fair Work, support volunteers, meet demand, and delivery quality outcomes.
In December 2022, the Deputy First Minister announced as part of the Scottish Budget that the Scottish Government would adopt fair funding principles in investing in the voluntary sector during the coming year. This paper focuses on the actions that the Scottish Government could take to ensure that funding arrangements with voluntary organisations are fair. The fair funding actions we encourage are also relevant to funders across the statutory and independent sectors.
A long-term, flexible, sustainable, and accessible approach to funding
Fair funding is central to a sustainable voluntary sector in Scotland. It includes, but is not limited to, longer-term funding of three years or more, flexible unrestricted funding, timely payments, more accessible application processes, sustainable funding which incorporates inflation-based uplifts, and transparent approaches to monitoring and reporting.
In Scotland, the many benefits of multi-year funding are understood and recognised by the Scottish Government and parties across the Scottish Parliament. However, there has been little progress implementation. Flexible, sustainable, and accessible approaches to funding are less well understood.
To support Scotland’s vital voluntary sector to adapt to current and future societal and economic challenges, and to address years of poor funding practices, fair funding that incorporates the following is urgently needed:
- Longer-term funding of three years or more
- Flexible, unrestricted core funding, which enables organisations to provide security, plan effectively, and fulfil good governance requirements
- Sustainable funding that includes inflation-based uplifts and full costs, including core operating costs
- Funding that accommodates paying staff at least the Real Living Wage
- Accessible, streamlined, proportionate, and consistent approaches to applications and reporting, timely process and payments, and partnership between the funder and fundee
To ensure security and reduce wasted capacity, the voluntary sector needs a longer-term funding model
Short-term funding significantly impacts on the effectiveness of the voluntary sector by creating ongoing uncertainty and insecurity on a scale unparalleled by any other sector. Voluntary organisations:
- Struggle to plan for the long-term
- Face barriers in recruiting, retaining, and developing staff and volunteers
- Are unable to offer secure jobs, undermining Fair Work aspirations
- Are trapped in a cycle of dedicating time and resources to sourcing funding
Annual funding challenges also distract from providing the services people and communities across Scotland rely on. Similarly, the Scottish Government dedicates significant time and resources to annual processing and decision-making when often there is little change year-to-year.
The Scottish Government should:
- Commit to a longer-term funding model for the voluntary sector across all Scottish Government departments
- Define multi-year funding for voluntary organisations as a three-year minimum commitment
- Ensure these practices are adopted by public bodies and third-party organisations responsible for disseminating funding on behalf of the Scottish Government
- Measure the number of Scottish Government grants and contracts which are delivered on a multi-year basis and the impact of this on voluntary organisations and the services they provide
A sustainable sector needs sustainable funding practices and approaches, including annual inflation-based uplifts and support for the Real Living Wage
Ensuring that organisations can secure funding for all the costs involved in running a project or service, known as full cost recovery, is central to sustainable funding. Similarly, a lack of inflation-based uplifts creates an unsustainable environment with organisations expected to provide the same support – or often, more support – with less. SCVO has spoken to many organisations who have not received an uplift for many years, including one who reported no uplift for 13 years, a 27% cut in real terms.
A lack of uplifts, which is a common feature across the funding landscape, is unsustainable and unfair for organisations, staff, volunteers, and the communities they work with.
Unsustainable funding for the voluntary sector also undermines pay security. Without inflation-based uplifts in voluntary sector contracts and grants, organisations can be unable to uplift wages. In the current context, rising inflation and the resulting cost-of-living crisis are exacerbating this issue. The Scottish Government’s plans to extend the Fair Work First criteria to include the Living Wage, while welcome, has the potential to put further financial pressure on voluntary organisations. Annual inflation-based uplifts are essential to support organisations to meet the rising costs of staying open, uplift wages, meet and pay the new Living Wage rate, and support volunteers and their expenses.
The Scottish Government should:
- Commit to ensuring that all multi-year funding arrangements have annual inflation-based uplifts inbuilt, at a level as close to inflation as possible
- Commit to ensuring that all public grant funding and procured contracts have both the real Living Wage and annual uplifts to the real living Wage built in
- Commit to working towards introducing more opportunities for voluntary organisations to recover full costs, including core operating costs, for projects and services.
The voluntary sector needs the stability of unrestricted core funding to plan ahead and to generate the capacity needed to seek out further funding.
Voluntary sector funding is often restricted to specific projects or outcomes. SCVO consistently hears from organisations who successfully secure funds for specific projects yet struggle to meet core costs for bills and vital roles. For those that do secure core funding, often it only covers a fraction of what is needed.
Funding should, wherever possible, be unrestricted to allow organisations to flexibly meet their key objectives and adapt to the emerging needs of the people and communities they work with. Unrestricted funding offers voluntary organisations greater stability, the ability to plan for the longer-term and respond quickly to social and economic changes, and the capacity required to seek additional funds or generate their own funding.
Flexible funding should also take a flexible approach to targets, which often measure the value of an organisation through numbers or outcomes. Better communication and stronger relationships between funders and organisations would also lead to better recognition of the sector’s value.
The Scottish Government should:
- Commit to ensuring that all funding streams avoid the common default of only providing restricted funds
- Commit to working with the voluntary sector to ensure that future grant arrangements include meaningful, productive discussions on the make-up of restricted and unrestricted funding
- Commit to working with the voluntary sector to co-design and develop approaches across Scottish Government departments that allow for flexibility in approach and monitoring
- Commit to working with the voluntary sector to ensure that future contracts and grant arrangements include the setting out of mutually agreed expectations aimed at improving relationships between funders and fundees, as set out in Principles for Positive Partnerships
The sector needs streamlined and consistent approaches to accessing funding to ensure a level playing field for all organisations
Across the Scottish Government and wider funding landscape, inconsistency leaves organisations committing capacity, which is often already limited, towards navigating different and difficult funding applications and approaches. A series of changes to the way funding processes in Scotland are administered would alleviate the funding burdens faced by voluntary organisations:
The approach to applications, assessments, monitoring, and due diligence needs to be streamlined and simplified to ensure that no organisation is disadvantaged
Providing clearer guidance and a more structured format at the application stage would support organisations to provide the most relevant information, resulting in less chasing for missing information
Applications and monitoring should be proportionate to the size of grant or contract awarded and the type of work being delivered to avoid creating unnecessary barriers and financial costs.
Providing organisations with timely communication and prompt payment of funds would help to prevent funding gaps and uncertainty
Transparent monitoring and reporting are also central to accessible funding. Funding transparency enables the voluntary sector to work more effectively with the Scottish Government and local government to assess the positive, negative, and neutral impacts of potential or agreed spending decisions, and will allow a better understanding of how the sector is funded.
The Scottish Government should:
- Commit to undertaking improvements in practice for all Scottish Government departments and funds delivered by others on behalf of the Scottish Government
- Ensure funding decisions are issued no later than December and funds paid no later than the start of the tax year in April
- Work with the voluntary sector to ensure that good practice, both from within the Scottish Government and elsewhere in the funding landscape, is highlighted and shared.
SCVO will be monitoring the progress that the Scottish Government and other funders make to deliver on our calls for a fair deal on funding. We will do this by listening to the experiences of voluntary organisations across Scotland. The Scottish Government can play an active role in supporting improvement by adopting our calls on budget transparency.
To enable colleagues across the voluntary sector to understand spending decisions and assess their impact, the Scottish Government should work towards developing a transparent approach to monitoring and reporting which:
- Collects information across all Scottish Government departments to form an accurate picture of how much funding flows into the voluntary sector and from which budget lines
- Calculates and publishes the Scottish Government’s total direct funding of voluntary organisations from grants and procured contracts
- Calculates what proportion of grants and contracts are delivered on a multi-year basis, uplifted to keep pace with inflation, and accommodate payment of the real Living Wage
About the voluntary sector
In 2021, Scotland’s voluntary organisations had a combined annual turnover of over £8.5 billion and employed over 135,000 staff, while 1.2 million people volunteered.
For most people in Scotland, voluntary organisations are a part of everyday life. They are critical to Scotland’s wellbeing, prosperity, and success. Voluntary organisations:
- Provide good quality jobs and support into employment
- Tackle digital exclusion, provide childcare, social care and housing, and support the most disadvantaged people and communities
- Undertake vital medical and environmental research
- Run most of Scotland’s theatres, museums, galleries, and sports clubs
- Campaign for change, ensuring the voices of people and communities are head
A sustainable voluntary sector in Scotland is central to these contributions but, to be truly sustainable, the sector urgently needs Fair Funding.
Sheghley Ogilvie, Policy and Public Affairs Officer
Jason Henderson, Policy and Public Affairs Officer