Response to Equalities, Human Rights, and Civil Justice Committee pre-budget scrutiny: (The impact of the Scottish Budget on the public)

About our response

SCVO welcomes the opportunity to respond to questions 5 and 7 of the Equalities, Human Rights and Civil Justice Committee. Our submission draws on evidence from: 

• SCVO’s engagement with the Committee and its predecessor, the Equalities and Human Rights Committee.
• Parliamentary records and Scottish Government publications. 
• SCVO support services (funding, digital, membership support, and information). 
• SCVO policy submissions, engagement, and research with the sector throughout 22-23. 
• The Scottish Third Sector Tracker 
• SCVO’s State of the Sector statistics 2022. 

Summary of our response

Scotland's voluntary sector is an employer, a partner, and a vital social and economic actor which employs over 135,000 paid staff and works with more than 1.2 million volunteers to support people and communities across Scotland. It should be of significant concern to the Scottish Government and Scottish Parliament that this crucial sector remains under severe pressure. The pandemic, inflation, and the resulting cost-of-living and running cost crises have strained sector finances and increased demand for the support and services of many organisations, with 1 in 10 voluntary organisations going into another unpredictable winter uncertain whether they will still be operating in 12 months.  

The cost-of-living crisis is a long-term issue likely to be with us for years. The many challenges this crisis brings will impact the most vulnerable in society, many of whom rely on voluntary sector services. Fair and transparent funding is essential to ensure that voluntary organisations can continue to deliver vital services and support, offer Fair Work, support volunteers, and contribute to quality outcomes for people and communities across Scotland.

Voluntary organisations are central to achieving Scotland’s National Outcomes, including the three policy priorities set out by the First Minister in the Policy Prospectus, “New leadership - A fresh start”:

• Tackling poverty and protecting people from harm;
• Creating a fair, green and growing economy;
• Prioritising our public services. 

The latest data from the Scottish Third Sector Tracker shows that the running cost crisis has pushed the resilience of voluntary organisations to the limit; 67% of those surveyed reported financial challenges. Even more alarmingly, 92% of respondents working directly with the public highlighted worsening emerging needs.

To support the sector and these communities, greater funding levels across grants and contracts that keep pace with inflation are urgently needed. However, a fair deal on funding is about more than additional money. The problems within the sector’s funding environment are multi-faceted and entrenched after years of poor funding practices that have left organisations vulnerable to shocks, impacting the sustainability of organisations and the services and support they offer. As a result of these pressures, this year the Poverty Alliance’s Challenge Poverty Week policy asks echo SCVO’s calls on the need for Fair Funding to support organisations that are often at the frontline of efforts to challenge poverty in Scotland.

The Committee can support the vital work of the voluntary sector by recommending the Scottish Budget 2024/25 includes the following commitments and actions:  

• Multi-year funding across several Scottish Government funds in the 2024/25 funding round to demonstrate progress towards the Scottish Government’s 2026 fairer funding commitment. The Scottish Government should report on the impact of this change to inform and develop a multi-year funding model as standard by 2026.

• Align Scottish Government’s Fairer Funding principles with SCVO’s definition of Fair Funding – developed through significant research and engagement with the voluntary sector.

• Ahead of the 2024/25 Scottish Budget and annual funding round, review and significantly improve the Scottish Government’s grant-making systems to address poor fund management approaches and create a framework for regular re-evaluation to ensure timely decision-making, communications, and payments.

• Resource Living Wage uplifts in grants and contracts as part of expanding the Scottish Government’s Fair Work First criteria to ensure that the policy is not unfunded and that the Scottish Government does not expect voluntary organisations to subsidise government funding that does not cover the real Living Wage or provide inflation-based uplifts.

• Annual inflation-based uplifts for public grant funding and contracts regardless of the type of delivery partner, recognising the impact of rising inflation on the voluntary sector workforce and the need for pay uplifts for voluntary sector staff on par with those offered to the public sector.

• Ensure that voluntary organisations in Scotland benefit from the full Barnett consequentials of the additional support the UK Government provides to charities and communities in England and communicate decision-making on these matters transparently. 

• Adopt a comprehensive approach to financial transparency around grant funding to support organisations and the public to understand spending decisions and ensure decisions progress the Scottish Government’s equality priorities and National Outcomes. SCVO proposes several solutions in our response.  

Question 5: Do you want to say anything more or different about how the spending decisions of the Scottish Government affect you, or other people?

Tackling poverty and inequalities and addressing other systemic issues, such as climate change and a just transition to a wellbeing economy, are intrinsic to the work of the charities, community organisations, and social enterprises that make up Scotland’s voluntary sector.

The crucial role of the voluntary sector in meeting the Scottish Government’s strategic priorities is well documented, including in the Tackling Child Poverty Delivery Plan and the Covid Recovery Strategy. It is also widely recognised that voluntary organisations are intrinsically linked to the Scottish Government’s National Outcomes and are central to its work to improve equality, inclusion, and human rights for people across Scotland. The Scottish voluntary sector: 

• Includes over 46,500+ voluntary organisations. 
• Extends across a range of priority areas.
• Contributes to all 11 National Outcomes.
• Provides essential support and services to people and communities across Scotland.

Voluntary organisations provide practical and emotional lifelines for people and communities and support them on their journey out of poverty. The sector also supports people to be economically active by providing employability, mental health, and wider support for people, families, and communities.

Similarly, without the voluntary sector, public services would be significantly diminished. Through direct provision of public services in areas like social care and youth work and working with communities to keep people active, engaged, and healthy in a way that prevents them from needing to access statutory services, Scotland’s voluntary organisations are a vital part of Scotland’s public service infrastructure.

SCVO appreciates the financial pressures facing the Scottish Government; however, Scottish Government spending decisions significantly impact the voluntary sector, creating an unsustainable funding environment that deeply affects voluntary organisations, their staff and volunteers, the communities they work with, and their contributions to the National Outcomes.

As the Committee understands from previous SCVO evidence, current challenges, such as rising inflation and the resulting cost-of-living and running costs crises, impact both the sector and the communities organisations work with. These challenges have the biggest impact on the most vulnerable in society, many of whom rely on voluntary sector services. As a result of this relationship, the Poverty Alliance’s latest Challenge Poverty Week policy asks echo SCVO’s calls on Fair Funding to support organisations that are often at the frontline of efforts to challenge poverty in Scotland.

In the Spring 2023 Third Sector Tracker, 66% of respondents reported an increase in demand for their services and within the communities they work with:

• 92% of respondents working directly with the public highlighted worsening emerging needs.
• 74% of respondents reported that over the last four months, the negative impacts associated with the rising living costs had worsened.
• Fuel poverty eased slightly, a 5% decrease, but organisations reported that housing issues or homelessness had increased by 6% and unemployment, redundancy, and lack of work increased by 5%.
• Only 5% of organisations reported that the needs within their communities had not increased. 

Organisations that work with families and children or provide social care were most likely to report increased needs among their communities, particularly financial and health challenges.

Continuing to mistake the sector’s short-term perseverance through crises for long-term resilience will undermine the sector’s ability to continue supporting people and communities and providing the many additional services that make up the fabric of Scottish society. Years of underfunding and poor funding practices, followed by Covid 19, inflation and the resulting cost-of-living and running costs crises, have put the sector under increasing pressure, exacerbating financial and operational challenges and impacting the sector’s ability to adapt.

 Wave five of the Scottish Third Sector Tracker found:

• 10% of organisations are uncertain about their future viability.

• 39% found it difficult to plan ahead.

Similarly, the latest Fraser of Allander Institute (FoA) Scottish business Monitor found that businesses in the voluntary sector have greater cost pressures and concerns around these pressures than the rest of the business community. Voluntary organisations were also found to operate in a more challenging recruitment environment.

In the Spending Review Framework, the Scottish Government recognised that in the current climate of rising inflation and the resulting cost-of-living crisis, demand for public services will be high, and the voluntary sector will continue to play a crucial role.

Despite this and the sector’s significant contribution, the voluntary sector remains underappreciated and under-resourced.

In October 2021, SCVO gave evidence to the Equalities, Human Rights and Civil Justice Committee. We discussed the need for multi-year funding, timely decision-making and payments, and the impact of the funding environment on voluntary organisations and their staff. We had previously shared similar concerns with the committee’s predecessor. The committee recognised these pressures and called on the Scottish Government to consider how a shift to a more sustainable, multi-year funding model for voluntary organisations could be achieved, both by government and across the public sector. The 2023/2024 Scottish Budget and the Resource Spending Review have not progressed these calls. The Scottish Government’s policy prospectus New leadership - A fresh start, has committed to delivering Fairer Funding by 2026, including exploring options to implement multi-year funding deals; the need for progress in these areas is becoming increasingly urgent.

At the FM’s anti-poverty summit, attendees reiterated many of SCVO’s calls for Fair Funding, describing short-term funding as a crisis that undermines resilience. Attendees described precarious funding arrangements where no inflation increases were provided and  overcomplicated funding processes. The Children, Young People, Families and Adult Learning (CYPFAL) Third Sector Fund in particular, has been highlighted as a particular source of significant concern and frustration. Rather than reporting progress, many voluntary organisations have described this year as the “worst ever” for organisations funded by the Scottish Government. Organisations have shared with SCVO numerous and varied issues that are, concerningly, spread across departments and funding streams throughout the Scottish Government. Organisations have described the financial and practical impacts of:

• Receiving grant letters weeks, and in some cases, months, after the beginning of the financial year.
• Changes to the language used around what is and is not eligible spend.
• Business plan templates that have little relevance to the work of the funded organisations.
• New additional requirements and expectations being placed on organisations, including the introduction of approaches that focus far more on outputs rather than outcomes.
• Inconsistency in approach and the evidence required across Scottish Government departments.
• A lack of knowledge and understanding of the voluntary sector from the civil servants and grant managers. 

Voluntary organisations also continue to experience delayed payments –even more so than in previous years - leading to significant strain on their operations, including a risk of redundancies, difficulty recruiting and retaining staff and negative impacts on their ability to deliver the services that are so vital to communities across Scotland and achieving the National Outcomes. We are also concerned to hear of several departments indicating that even though decisions and payments have been delayed, no extension of the timescales for projects will be given and monies unspent by March 2024 will have to be returned to Scottish Government.

SCVO welcomes the continued positive dialogue with the Cabinet Secretary for Social Justice. However, the Scottish Government’s operational approach to managing available funding continues to exacerbate an already tough funding environment. The widespread and growing nature of these problems suggests a direction of travel that sets a concerning precedent across Scottish Government and public bodies.

The Scottish Budget is an opportunity for the Scottish Government to take the urgent action needed to recognise the many contributions of the voluntary sector and provide the Fair Funding our sector needs to offer Fair Work, support volunteers, and continue to provide the services and support people and communities rely on by implementing the following recommendations:

Recommendation: Implement multi-year funding across several Scottish Government funds in the 2024/25 funding round to demonstrate progress towards the Scottish Government’s 2026 fairer funding commitment. The Scottish Government should report on the impact of this change to inform and develop a multi-year funding model as standard by 2026.

Recommendation: Align Scottish Government’s Fairer Funding principles with SCVO’s definition of Fair Funding – developed through significant research and engagement with the voluntary sector.

Recommendation: Ahead of the 2024/25 Scottish Budget and annual funding round, review and significantly improve the Scottish Government’s grant-making systems to address poor fund management approaches and create a framework for regular re-evaluation to ensure timely decision-making, communications, and payments.

Recommendation: Resource Living Wage uplifts in grants and contracts as part of expanding the Scottish Government’s Fair Work First criteria to ensure that the policy is not unfunded and that the Scottish Government does not expect voluntary organisations to subsidise government funding that does not cover the real Living Wage or provide inflation-based uplifts.

Recommendation: Commit to annual inflation-based uplifts for public grant funding and contracts regardless of the type of delivery partner, recognising the impact of rising inflation on the voluntary sector workforce and the need for pay uplifts for voluntary sector staff on par with those offered to the public sector.

Recommendation: Ensure that voluntary organisations in Scotland benefit from the full Barnett consequentials of the additional support the UK Government provides to charities and communities in England and communicate decision-making on these matters transparently.

Question 7:  What do you think would make it easier for people to understand and have their say on how well public money is used?

As financial pressures intensify, it is crucial that the Scottish Parliament and other bodies can grasp the Scottish Government’s spending decisions and what this means for progress across priority areas. Transparent funding is vital to understand the Scottish Government’s investment, not only in the voluntary sector, but all sectors. This clarity allows groups such as voluntary organisations, civil servants, and scrutiny bodies (including Audit Scotland and the Scottish Parliament) to understand the government's decisions, funding distribution, and budget alterations, and to engage with the government about the effects of these choices, whether they are positive, negative, or neutral. This understanding can, in turn, support the public and the many communities the sector works with to understand how public funding is spent.

The Scottish Exchequer acknowledges that current financial information is fragmented, hard to access, and complex. This complexity has led government Ministers and civil servants to often rely on estimates provided by SCVO to gauge the extent of direct funding from the Scottish Government to the voluntary sector, estimated to be around £480 million annually.

However, official data on this subject is notably absent from Scottish Government records, marking a significant gap in its understanding of how funds are distributed to the voluntary or "third" sector. When responding to a recent Parliamentary Question regarding this issue, the Cabinet Secretary for Social Justice, Shirley-Anne Somerville, admitted that although the Scottish Government does allocate grants to the voluntary sector across various portfolios to improve a wide range of outcomes, this spending is not all specifically classified as to whether or not it is allocated to third-sector organisations to deliver services. Data on Fair Funding criteria, such as multi-year funding commitments or funding uplifts, is also not collected.

During pre-Budget scrutiny last year, the Equalities, Human Rights and Civil Justice Committee recommended that the Scottish Government’s approach to budget transparency should align with the core principles of human rights budgeting, encompassing data transparency, participation, and accountability. Other similar calls from committees of the Scottish Parliament include:

• The Finance and Public Administration Committee’s inquiry on effective decision making encouraged the Scottish Government to routinely publish timely information on the decisions it takes including the options considered, those discounted and why the decision has been made. The Committee also asked the Scottish Government to make clearer links between spending priorities and the National Outcomes.

•  The Social Justice and Social Security Committee stressed the necessity for improved data collection to help target new and existing social justice policies effectively and to meet service delivery needs.

SCVO welcomed commitments in the Scottish Budget 2023/24 to increase transparency around public finances and we acknowledge the work of the Scottish Exchequer as part of the Open Government Action Plan (2021-25). More recently, in the policy prospectus, New leadership - A fresh start, the First Minister recognised that transparency must underpin delivery to ensure that Scottish Government can be held to account. Voluntary organisations, being primary users of fiscal data, must be part of efforts to identify the actions needed to ensure fiscal data is transparent and accessible and reveals the extent to which the Scottish Government is delivering the Fairer Funding principles needed to support a sustainable voluntary sector, as committed to in the Policy Prospectus, New leadership - A fresh start.

Transparency can be significantly boosted by publishing grant data in user-friendly formats. The UK Government for example is “committed to increasing transparency, enabling taxpayers to hold the state to account both on how their money is being spent and how decisions are made which affect their lives.”  To meet its commitment to transparency, the Cabinet Office publishes a Government Grants Register and grants data on the 360Giving platform, ensuring that published awards data meet the 360Giving data standard. 

The Scottish Government can mirror this approach, ensuring alignment with the 360Giving data standard. Adopting the 360Giving data standard would facilitate publishing awards to the 360Giving platform making the data more accessible and allowing Scottish Government awards to be viewed as part of the bigger picture that includes UK Government grants, lottery grants, and independent grant funders.     

SCVO recognises the challenges that surround making changes to data infrastructure and that the gold standard will not be delivered in a short time. To reach a suitable standard and enable a better understanding of how well public money is spent Scottish Government should commit to:  

Recommendation: Adopt a comprehensive approach to financial transparency around grant funding to support organisations and the public to understand spending decisions and ensure decisions progress the Scottish Government’s equality priorities and National Outcomes.To achieve this the Scottish Government should:   Publish awards to the 360Giving data standard including basic identifier core fields such as recipient name, organisation, and charity number.  As an interim measure, include all significant spend, not just amounts over £25,000, in the monthly reports the government currently publishes and improve categories to ensure data is useful and accessible.  Collect information across all government departments and produce a breakdown of Scottish Government funding to all sectors (voluntary, private, and public), by department and budget line.   Calculate and publish the Scottish Government’s total direct funding of voluntary, private, and public sector from grants and contracts.  Within this data, Scottish Government should record Fair Funding progress by collecting and publishing what proportion of grants and contracts are:    Delivered on a multi-year basis.  Include annual uplifts.  Accommodate payment of the real Living Wage, including annual increases to this rate. Communicate funding intentions at least three months in advance and make payments no later than the first day of the new financial year.