Response to Finance and Public Administration Committee Pre-budget Scrutiny: Managing Scotland’s Public Finances – A Strategic Approach

SCVO welcomes the opportunity to respond to questions from the Finance and Public Administration Committee's Pre-budget Scrutiny focused on a strategic approach to managing Scotland’s Public Finances.

Question 1: Are these the right priorities for the Scottish Budget 2025-26 and, if not, where should the Scottish Government focus its attention?

The Scottish Council for Voluntary organisations (SCVO), supports the priorities set out by the First Minister to guide the Scottish Government’s decision-making on policy and the budget. These are eradicating child poverty, growing the economy, tackling the climate emergency, and delivering better public services.

Voluntary organisations are central to delivering on all of these policy priorities.

Eradicating child poverty

The voluntary sector plays an essential role in tackling poverty, including child poverty. 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 Scottish Government clearly recognises this, stating in the Tackling Child Poverty Delivery Plan  that “Government cannot tackle poverty alone, and neither would we want to.” The delivery plan continues that “in order to provide the support that families need we must draw on the experience and knowledge of our third sector partners and community organisations across the length and breadth of the country – empowering them to take action and support those in need.”

Growing the economy

With a turnover of £9.2 billion, Scotland's voluntary sector is a major economic actor. Our sector plays a central role in local economies, employing over 133,000 across Scotland - 5% of Scotland’s workforce. The sector supports people to be 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 over 1 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, alongside the public and private sectors, is central to the wellbeing economy the Scottish Government aspires to, a transition that will require all three sectors to work together.

Tackling the climate emergency

The voluntary sector has played a leading role in pressing decision-makers to take serious action to tackle climate change.

Voluntary organisations are also essential to responding to the climate emergency. For example, across Scotland community-led climate action projects are taking steps to embed climate solutions at a local level. As we grapple with the impacts of climate change - including extreme weather - the voluntary sector will increasingly support people and communities.

Through SCVO’s Growing Climate Confidence project, voluntary sector organisations can find help to reduce emissions and engage their community. We support organisations to take their very first steps in reducing carbon emissions while helping them to embed sustainability within their work.

Better public services

The voluntary sector is rightly recognised by the Scottish Government as playing a crucial role in the delivery of 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 youth work, 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.

Question 2: What taxation and spending decisions should the Scottish Government take to make most progress against each of the First Minister’s four priorities, within the current financial climate?

SCVO continues to call on the Scottish Government to make progress on Fair Funding, ensuring that the funding landscape is fair, flexible, sustainable, and accessible. This would allow many voluntary organisations to provide the best support, services and projects that people and communities in Scotland rely on. Given the essential role of voluntary organisations to the delivery of public policy and public services- as set out in answer to the previous question- adopting SCVO’s Fair Funding principles would maximise the ability of voluntary organisations to deliver on the Scottish Government’s strategic priorities – including child poverty.

For many years, SCVO has been engaging with voluntary organisations to understand the many challenges of voluntary sector funding, and the solutions to them. The evidence we have collected demonstrates the urgent need for a Fair Funding approach to investing in the voluntary sector. SCVO’s Fair Funding asks align with the questions being asked by the Committee. Our calls are primarily directed at the Scottish Government, but the wider principles apply to all funders, including local government.

The Scottish Government has committed to implementing “Fairer Funding” by 2026. Beyond the assurances provided on multi-year funding, prompt notification of funding decisions, and improvements to grant-making processes, what the Scottish Government’s commitment to Fairer Funding includes is unclear and, over a year on, little progress has been made. Many of the issues SCVO previously raised with the Committee, both in 2024 and 2022, remain unresolved. Yet, the need for progress is increasingly urgent.

To make an impact, the Scottish Government’s multi-year funding ambitions must go further than an increase in the number of two-year grants delivered or providing funding notifications by the end of the financial year. Commitments to multi-year funds are also undermined where funding is announced as multi-year, only for the goalposts to change in the second year, as has happened with the Investing in Communities Fund.

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, SCVO asks the Committee to recommend the Scottish Government 2025/2026 Budget commits to aligning the Scottish Government’s “Fairer Funding” principles with SCVO’s definition of Fair Funding, including:

• Longer-term funding of three years or more (i.e. beyond just increasing the number two-year grants as suggested by the Scottish Government).
• 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 and pay uplifts for voluntary sector staff on par with those offered in the public sector.
• Accessible, streamlined, proportionate, and consistent approaches to applications and reporting, timely processing and payments, and partnership between the grant-maker and grant-holder.
• A comprehensive and proportionate approach to financial transparency around grant funding to support organisations and the public to understand spending decisions.
• Establish transparent delivery goals, timelines, and accountability mechanisms – such as reporting and stakeholder groups - to ensure progress on Fairer Funding can be scrutinised by the voluntary sector and Parliament.

It is important that Scottish Government, and indeed other public sector bodies, understand that investment in the voluntary sector is not simply a cost. Our essential sector takes pressure off public services and prevents higher levels of spend further down the line. Within the first 18 months of a pilot project The Cyrenians Hospital InReach service, for example, reported a reduction in readmission rates to hospital of over two-thirds. Unfortunately, the current siloed system of Scottish Government portfolios doesn’t recognise that relatively small sums spent in one portfolio can generate significant savings in another.

Question 4: What progress has the Scottish Government made against these specific goals in relation to public service reform?

In terms of valuing the voluntary sector as an equal partner in public service delivery, and properly resourcing voluntary organisations that are in receipt of public funding, progress has been frustratingly slow.

Scotland's voluntary sector is an employer, a partner, and a vital social and economic actor. As the Committee will be aware, voluntary organisations are crucial to, and a partner in, the delivery of public policy and public services across Scotland. In its response to the Christie Commission on the future delivery of public services, in 2011, the Scottish Government stated that our sector “has a crucial role to play in delivery, because of its specialist expertise, ability to engage with vulnerable an flexible and innovative approach”. We seldom see that recognition put into practice.

The experience of the Covid-19 pandemic showed what was possible. The immediate response was shaped by powerful collaborations between communities, the voluntary sector and national and local government. Barriers to effective partnership-working across sectors were overcome in the short-term to the benefit of our communities, demonstrating what can be achieved on a large scale when we are empowered to work together towards a common goal. As the pandemic receded, so too has innovative practice on the part of the Scottish Government and other public bodies, with a return to business-as-usual. Too often, the system has returned to hierarchical, transactional relationships rather than a focus on outcomes and joint endeavour.

Well over a decade after the publication of the Christie Commission, voluntary organisations cannot continue be viewed as “the poor relation of mainstream public services”, a sentiment identified by the Auditor General for Scotland. Voluntary organisations, as well as people and communities in Scotland, deserve better. Any serious programme of public service reform must address this comprehensively, treating the voluntary sector as an equal partner. In practice, our sector must be meaningfully involved in the design of the services they deliver, with a clear, shared focus on outcomes.

Within the budget process, we must see a shift in funding culture and practice. Where voluntary organisations are funded – either through grants or contracts – to deliver public services, too often they are faced with short-term, inadequate funding, late payment, or even payment in arrears. Organisations contend with complex reporting and monitoring, onerous terms and conditions and more. SCVO are aware of one public body that requires hours of work to complete 60-page applications where the chance of receiving a grant is less than 50%.

It is widely understood that our sector is facing unprecedented challenges. Crises such as the pandemic and the cost-of-living crisis have put the sector under increasing pressure, exacerbating financial and operational challenges.

The Scottish Government has committed to “Fairer Funding” by 2026. Despite this renewed focus, there has, however, been little progress. For example, on timely notifications and prompt payment, we continue to hear from organisations facing unacceptable delays - with some organisations reporting in August 2024 that their funding for 2024-25 has not been confirmed. Despite this organisations are expected to continue to deliver and employ staff.

On multi-year funding, the Scottish Government committed to increasing the number of two-year grants in the 2024-25 budget. This commitment falls short of SCVO’s ask of longer-term funding of three-years or more. Yet even this commitment has not been delivered, with multi-year funding deferred, instead, to the forthcoming Medium-Term Financial Strategy. The Chancellor of the Exchequer has recently outlined plans for a multi-year Spending Review of at least three years to take place in October. A multi-year Spending Review should give the Scottish Government the confidence to progress their commitment to longer-term funding agreements for voluntary organisations.

Even where voluntary organisations have been awarded multi-year funding, SCVO have heard of instances where agreed funding arrangements have then been reneged on by the Scottish Government. The ‘Investing in Communities Fund’ – a three-year fund – is a recent example of this. Recipients were initially told at the beginning of year two, 2024-25, that funding was uncertain, and funds were temporarily provided on a rolling month-by-month basis. This late decision-making meant that voluntary organisations faced considerable uncertainty.  Funding was eventually confirmed for the year, but with a 5% cut. While we accept that grant conditions need to adapt to financial conditions, it is imperative that this takes place only in exceptional circumstances. Delaying and cutting grants part way through a multi-year funding agreement defeats its purpose.

Question 6: The Scottish Government recently published its Public Sector Pay Policy 2024-25 which offers pay metrics above forecast levels of inflation. What are the implications of its multiyear framework on Public Sector bodies and on the Scottish Budget for 2025-2026? And for the subsequent two years?

Voluntary organisations are crucial to, and a partner in, the delivery of public policy and public services across Scotland. As a major employer in Scotland- employing over 133,000 people- the voluntary sector is also central to achieving the Scottish Government’s ambitions to become a Fair Work Nation by 2025.

SCVO believes in the principles of Fair Work, but it must be recognised that the voluntary sector faces barriers to implementation.

While cost-of-living pay increases have, rightly, been delivered for Scotland’s public sector workers, action has not been taken to ensure voluntary sector staff can receive pay increases equal to their public sector counterparts.  SCVO research shows that many organisations in receipt of local or national government funding have received no uplift in over ten years. One organisation reported no uplift for 13 years, a 27% cut in real terms. 

Such practice has left many voluntary organisations struggling. The Third Sector Tracker raises concerns that many organisations may be relying on reserves to uplift wages, which is clearly unsustainable.

Additionally, many voluntary organisations are struggling to keep pace with salary increases needed to attract and retain staff.  The pay gap between the sectors is well-documented. For example, The Coalition of Care and Support Provider in Scotland (CCPS) cite a 20% pay gap between NHS support workers and voluntary sector social care support workers who are starting out in their career. Similarly, recent research from GCVS and colleagues at Strathclyde University found that fewer than half of respondents feel that they are fairly paid for the work that they do, and fewer still feel they have parity of pay with other sectors. 

Where voluntary organisations are in receipt of public funding or contracts, the Scottish Government and public bodies must ensure inflation-based uplifts on par with the public sector are built in, allowing organisations to keep-up with rising costs.

The sector should also be supported to deliver Fair Work First commitments, including the Real Living Wage. SCVO encourages the Committee to recommend that the Scottish Government resources the Real Living Wage in grants and contracts to ensure the Scottish Government’s Fair Work First policy is funded and that voluntary organisations do not have to subsidise government funding to pay the Real Living Wage.