Scottish Budget Scrutiny: Evidence to the Finance and Public Administration Committee

SCVO were invited to give evidence to the Finance and Public Administration Committee on the 9th of January 2024 as part of the Committee’s scrutiny of the 2024-25 Scottish budget. SCVO were also invited to suggest key issues that the Committee should be made aware of. 

For SCVO, and Scotland’s voluntary sector, the key issues are:

• The voluntary sector has a key role to play in relation to all three of the Scottish Government’s missions
• To enable voluntary organisations to play their role in relation to those missions, their financial sustainability must be secured
• In so far as we can tell, the Scottish budget does nothing to support this, despite assurances from the First Minister and Deputy First Minister that it would
• The lack of transparency in the budget significantly hinders our ability to assess the impact of budget decisions, and to hold government to account

We also recommend the Committee takes account of the views of voluntary organisations with expertise in the three mission areas on the impact of budget decisions.

Scotland’s voluntary sector and the Scottish Government’s three missions

The voluntary sector in Scotland is a major employer, a partner in delivering public services, and a vital contributor to society and the economy.

The Scottish voluntary sector:

•    Includes over 46,500 voluntary organisations.

•    Employs over 135,000 paid staff- 5% of Scotland’s workforce.

•    Works with over 1.2 million volunteers.

•    Had an annual turnover of £8.5 Billion in 2021.

The sector has a key role to play in delivering the Scottish Government’s three missions.

• Equality: Tackling poverty and protecting people from harm

Voluntary organisations provide practical and emotional lifelines for people and communities when times are tough (e.g., food banks) and support them on their journey out of poverty (e.g., access to benefits). Our sector supports people into work and helps them to stay there, campaigns against the root causes of poverty, and supports individuals and communities to improve their lives. The Tackling Child Poverty Delivery Plan 2022-26 recognises this, and sets out that the Scottish Government would use the Spending Review ‘to provide multi-year funding for the third sector where possible to do so, enabling more sustainable, joined up, strategic planning for the sector.’

• Opportunity: A fair, green and growing economy

With a turnover of £8.6billion, Scotland's voluntary sector is a major economic actor. Our sector plays a central role in local economies, employing over 135,000 across Scotland - 5% of Scotland’s workforce. The sector plays a crucial role in keeping people economically active by providing employability support, mental health support, and wider support for people, families, and communities, such as childcare. Voluntary organisations also bring added value to the economy by working with Scotland’s 1.2 million committed volunteers and by bringing fundraised income into vital areas, from service provision to environmental and medical research. Similarly, Scotland’s 6,000 social enterprises contribute to society and the economy by investing profits and surpluses in social and environmental missions. Our sector, like the public and private sector, is central to the wellbeing economy the Scottish Government aspires to, a transition that will require all three sectors to work together.

• Community: Prioritising our public services

Without the voluntary sector, our public services would be significantly diminished. Through direct provision of public services in areas like social care and youthwork, or 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 our public service infrastructure and must be valued as such. Our sector also adds value to Scotland’s local and national systems by bringing access to fundraised income and volunteer time that is not available to other actors.

Financial sustainability for the voluntary sector

As the Committee understands from previous SCVO evidence, 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. Wave six of the Scottish Third Sector Tracker found that:

• 71% of organisations have financial problems
• Nearly 1 in 3 organisations have cut or modified programmes to save costs
• 66% of organisations are facing increasing demand
• 1 in 5 organisations do not have capacity to meet that demand
• 10% of organisations are uncertain about their future viability.

While of course organisations in all sectors are under significant financial pressure, it is worth noting that the the Fraser of Allander Institute (FoA) Scottish business Monitor has found that businesses in the voluntary sector have greater cost pressures and concerns around these pressures than the rest of the business community.

To help alleviate some of these pressures, we called on the Scottish Government ahead of the budget to

• make progress on its commitment to Fairer Funding for the sector by 2026 by:
  • explaining what it means by Fairer Funding – ideally aligning with the Fair Funding principles SCVO worked with the sector to develop – and developing timelines and goals for this work to allow progress to be monitored
  • addressing poor fund management by Scottish Government departments, in particular ensuring that decisions about spending in 24-25 are communicated in time for voluntary organisations to plan effectively
  • making progress on their commitment to multi-year funding for the sector
  • confirming 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.
• 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.
• 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.  In particular, we hoped to see the consequentials of the £10m committed by Wesminster to support the sector with rising energy costs passed on to Scottish voluntary organisations.
• Ensure transparent monitoring of and reporting on public sector funding of the voluntary sector. There is no accurate picture of how funding flows to voluntary organisations and from which budget lines. To ensure the sector, scrutiny bodies, MSPs and Ministers can understand the impacts of commitments on voluntary organisations, transparent monitoring – in the Budget and beyond - is crucial.

What we can tell from the budget

Disappointingly, in so far as we can tell, the budget does very little to progress these asks. We therefore anticipate further financial difficulties for voluntary organisations in the year to come, undermining their ability to deliver on the Scottish Government’s missions, and crucially, to support people and communities through the costs crisis.

The budget document states that “our work on efficiency levers will include a review of grant models in operation, guided by our commitments to Fairer Funding for the Third Sector.”  While we are pleased to see this, the framing of the review of grant models around ‘efficiency’ is concerning in that it suggests a cost saving impetus for this work, rather than recognising the key role of the voluntary sector or the increasing demands on their services as the people and communities they work with face increasing pressures.  It is also worth noting that last year’s budget commitment that “adopting Fairer Funding practice is something we intend to progress in the next financial year” has not resulted in any discernible action by Scottish Government to progress this. 

At The Gathering in November, the First Minister told the voluntary sector that “we are very much in that Budget process as we speak, and I can absolutely give you firm assurance that work, consideration, of how we give you stability in terms of funding, multi-year funding, is very much underway”, adding that the budget “absolutely will include, a greater number of at least two-year grants where we can, and if we can go further we will seek to absolutely do that”.  Yet the Deputy First Minister confirmed that this budget is for one year only – instead deferring any multi-year outlook to the forthcoming 2024 Medium-Term Financial Strategy.  Given the failure of the 2022 multi-year spending review to deliver on this ask despite extensive lobbying by SCVO and our members, we are concerned that this merely kicks the issue into the long grass.

The late budget process – and ongoing financial challenges - will inevitably result in delays to funding allocations within Scottish Government departments, which we expect in turn to lead to delays in voluntary organisations having their funding for 24-25 confirmed.  Experience suggests that this will include some organisations not learning about their funding until several months into the new financial year, resulting in them having to issue redundancy notices to staff.

No announcement of financial support to the voluntary sector with rising costs was made.

What other voluntary organisations took from the budget

While our own analysis of the Scottish budget concentrates on the overall impact on Scotland’s voluntary sector, individual voluntary organisations with expertise in particular areas have commented on how they believe the Scottish budget will impact on those areas of work.  While we cannot speak for these organisations, and recommend that the Committee hears from them directly, it may be useful to note the following responses from Scottish voluntary organisations (this list is not exhaustive):

• Children’s charities including Child Poverty Action Group, Action for Children and Save the Children questioned the budget’s ability to help meet child poverty targets, particularly calling for a greater increase to the Scottish Child Payment
• Oxfam Scotland suggested that short term budgeting will not resolve the long term issues inherent in the Scottish Government’s missions
• Independent Age stated that measures in the budget did not go far enough to support older people living in poverty
• The Poverty Alliance believed the budget fails to deliver the fundamental changes we need to address poverty
• Shelter Scotland criticised cuts to the housing budget

Difficulty in analysing the budget

There are limitations to how much we can contribute to the Committee’s detailed questions, as the way in which the Scottish budget is constructed and delivered makes it extremely difficult for us to assess the impact of the budget on Scotland’s voluntary sector.

Funding to the voluntary sector comes from across Scottish Government departments – the Third Sector budget line is only a very small proportion of the total that we estimate comes from the Scottish Government each year to the sector.  Ministers and civil servants regularly use SCVO’s estimates to highlight the scale of government funding for the voluntary sector - an estimated £480m a year. Official figures are not available from the Scottish Government, which we believe is a significant gap in the Scottish Government's understanding of funding flows to the voluntary sector. Neither is data on Fair Funding criteria, such as how much funding is delivered on a multi-year basis or includes uplifts, collected. The fact that the Scottish Government does not centrally record how much funding it provides to the sector is a significant barrier in our ability to assess how the sector fares from year to year.

In addition, the timing of this year’s budget makes it difficult for us to gather the information we need from across the sector about how different budget lines look.  With less than a working week in the run up to Christmas between the budget announcement and the submission of this briefing, it is extremely challenging to provide a comprehensive picture of the potential impact on the sector, and its ability to contribute to the Scottish Government’s missions.

These are difficulties that we face year on year, in seeking to hold the Scottish Government to account on whether its support for the sector is anything more than warm words.  On budget day, the Deputy First Minister visited a voluntary organisation, The Larder, promising that the budget “will prioritise supporting services like the Larder” – there is very little that we can see at this stage to support those claims, but it will not be until the Summer, when we hope all voluntary organisations funded directly by the Scottish Government will know their financial positions, that we will be able to have even an outline sense of what the impact was.

The Committee’s own inquiry on effective decision making has emphasised that transparency is essential for political accountability, and at the moment the lack of transparency in the budget process prohibits our ability to fully understand the impacts of the budget or to hold Scottish Government to account.  We have made significant calls around the need for greater transparency in Scottish Government funding to the voluntary sector, which have been endorsed by the Social Justice and Social Security Committee, and would welcome the Committee’s support on this matter too.