The Scottish Council for Voluntary Organisations is the membership organisation for Scotland's charities, voluntary organisations and social enterprises. Charity registered in Scotland SC003558. Registered office Caledonian Exchange, 19A Canning Street, Edinburgh EH3 8EG.
SCVO Briefing: Medium Term Financial Strategy
Summary
- SCVO and colleagues across the voluntary sector welcomed the Scottish Government’s commitment to deliver Fairer Funding for the sector by 2026, including exploring options to implement multi-year funding deals.
- Years of underfunding and poor funding practices, and crises such as the pandemic, and the cost-of-living crisis, have put the voluntary sector under increasing pressure, exacerbating financial and operational challenges.
- Eight out of ten Scottish voluntary organisations report that financial difficulties rank among their most significant challenges.
- These pressures will be exacerbated by the Chancellor’s increase to employers’ National Insurance Contributions (NICs) from April 2025, which SCVO estimates will cost medium and large voluntary sector employers in Scotland over £75 million per year.
- Any cuts to public services and changes to working-age health-related entitlements will further increase pressure on the voluntary sector and the essential services and support our sector provides.
The Medium-Term Financial Strategy can recognise, resource, and support the voluntary sector and our essential services by:
- Recognising the voluntary sector as a significant employer and economic actor.
- Ensuring grants and contracts Scottish Government, their agencies, and other public bodies award, cover the full costs of employing staff, including at least the Real Living Wage, increased NICs costs, and inflation-based uplifts on par with those offered to public sector staff.
- Aligning the Scottish Government’s “Fairer Funding” principles with SCVO’s definition of Fair Funding, including long-term action on the Scottish Government’s commitment on multi-year funding.
- Providing Scottish Government departments and local authorities the medium-term financial certainty which will support them to offer multi-year funding.
- Ensuring that action on fiscal transparency will support Scottish Government, Parliament, the voluntary sector, and wider civil society to scrutinise progress on the Scottish Government’s Fairer Funding commitments and understand funding flows to the voluntary sector more broadly.
Fair Funding
It is widely recognised that Scotland’s voluntary sector is facing unprecedented challenges. Years of underfunding and poor funding practices, and crises such as the pandemic, and the cost-of-living crisis, have put the voluntary sector under increasing pressure, exacerbating financial and operational challenges.
Voluntary sector costs are climbing, funding is falling, and demand for services continues to increase. SCVO’s recent research shows the amount of public money provided to third sector organisations froze between 2021 and 2023, falling by £177 million in real terms - a real terms cut of 5%. This has contributed to, eight out of ten organisations in Scotland reporting that financial difficulties rank among their most significant challenges while nearly one in ten of Scotland’s 46,500 voluntary organisations are unsure whether they will still be operating in 12 months’ time.
Scotland’s voluntary sector plays an essential role in supporting people and communities across Scotland experiencing poverty and inequality and is central to the Scottish Government’s ambitions to end child poverty, grow the economy, tackle the climate emergency, and improve public services.
To support this work and build a sustainable voluntary sector, Fair Funding -a long-term, flexible, sustainable, and accessible approach to voluntary sector funding- is urgently needed.
SCVO welcomes the Scottish Government’s continuing commitment to deliver Fairer Funding for Scotland’s voluntary sector by 2026. The medium-term financial strategy presents a significant opportunity to progress these ambitions. This approach should be aligned with SCVO’s definition of Fair Funding, much of which was endorsed in the Social Justice and Social Security Committee’s Pre-Budget Scrutiny report which focused exclusively on voluntary sector funding and recognised the sectors essential contribution to Scottish society.
The Committee received extensive evidence from the voluntary sector on the impact of unsustainable and uncertain funding on organisations, their staff and volunteers, and ultimately the services and support they provide people and communities across Scotland, concluding that there is a need to prioritise multi-year funding of at least three years for the voluntary sector.
Multi-year funding is an essential element of Fair Funding, and essential to the sustainability of the voluntary sector, the services and support we provide people and communities, and security for staff and volunteers.
For over a decade, the Scottish Government has recognised the need for multi-year funding, committing to longer-term funding for the voluntary sector across multiple government strategies. In April 2023, the Scottish Government’s policy prospectus, New leadership - A fresh start, renewed these ambitions, committing to delivering Fairer Funding for the sector by 2026, including exploring options to implement multi-year funding deals. This was followed in May 2023 by a commitment in the Medium-Term Financial Strategy to adopt multi-year spending plans. In the 2024/25 Scottish Budget decisions about multi-year funding were deferred to the Medium-Term Financial Strategy.
Action is now needed. While SCVO welcome the Fairer Funding pilot launched be the Scottish Government in February 2025 - which commitments more than £120 million to pilot projects focusing on essential services and eradicating child poverty over two years - this is a very small part of the government’s overall £1 billion investment in the voluntary sector.
The Scottish Government has described the pilot as the first step in mainstreaming multi-year funding agreements more widely across the voluntary sector. To make continued and more substantial progress on multi-year funding over the next five years, and broader progress on Fair Funding, it is essential that multi-year funding is included within the Medium-Term Financial Strategy. Similarly, the MTFS can provide local authorities with the financial certainty they need to enter into multi-year agreements with voluntary organisations. Between one quarter and one third of voluntary organisations receive funding from local authorities.
Multi-year funding delivered alone, or badly, however, will not be sufficient to deliver the fair, flexible, sustainable, and accessible funding landscape that voluntary organisations, our public services, people and communities need and deserve. Fair Funding is needed. The MTFS must consider wider Fair Funding elements and how these can be progressed over the next five years, such as ensuring grants and contracts cover the full costs of employing staff and offer inflation-based uplifts.
The strategy should also take action to offer transparent and understandable fiscal information to support voluntary organisations, civil servants, scrutiny bodies, and others, to better understand Scottish Government decisions, and funding flows, and to engage with government on the potential impacts on voluntary organisations, their staff and volunteers, the communities they work with, and the Scottish Government’s wider ambitions.
The upcoming UK Government Spending Review should support the Scottish Government to take action on their Fairer Funding commitments and provide the Scottish Government a welcome opportunity to demonstrate its commitment to a more strategic approach to financial planning, including voluntary sector funding.
SCVO looks forward to engaging with the Scottish Government on these issues and Fair Funding more broadly.
Testimonials
| “Planning in the current climate is extremely difficult - funding agreements which cover 3 - 5 years would enable us to plan staffing and resources to meet needs.” Registered Charity “The longer-term funding allows us to give much better value for money, we can plan long term, employ staff on more secure contracts therefore allowing us to utilise staff more efficiently.” Registered Charity “The lack of inflationary increase to our funding is the most unfair aspect of our current arrangements, we effectively suffer a cut in funding year on year.” Registered Charity “Everything we do is dependent on funding, and amounts are often not confirmed until very late in the financial year”. Registered charity “Due to annual funding from Scottish Government, which doesn’t cover our core costs, recruitment is often on short-term contracts or is subject to ongoing funding, of which there is no guarantee”. Voluntary sector intermediary |
The voluntary sector is a significant employer
The pressures impacting the voluntary sector will be exacerbated by the Chancellor’s decision in the Autumn Budget to increase employers’ National Insurance Contributions (NICs).
The voluntary sector is a significant economic actor, employing around 136,000 people in Scotland - 5% of Scotland’s workforce. The sector delivers vital public services – like social care and youth work, as well as a host of essential services that people and communities across Scotland rely on.
SCVO estimates that these changes will cost medium and large voluntary sector employers in Scotland alone £75 million per year, plus inflation. Some organisations face additional costs of hundreds of thousands of pounds.
The Chancellor has recognised that public services should be insulated from the additional cost pressures associated with increased national insurance costs. Yet despite the voluntary sector’s significant contribution to the public service landscape, both directly and indirectly, relief for these increases has been limited to the public sector and government departments.
SCVO welcomes recognition from the First Minister and MSPs across the Scottish Parliament, that the Chancellor’s intention to increase employers’ National Insurance Contributions will have a significant impact on the voluntary sector in Scotland and the First Minister’s calls for support for the sector.
SCVO will continue to press the UK Government to reverse its decision on these increased costs for the voluntary sector. In the meantime, the Scottish Government must ensure that their financial commitments to voluntary organisations cover these new costs – and that other public bodies have the funds to do the same.
Similarly, while SCVO welcomes the increase to both the National Living Wage and National Minimum Wage - Fair Work for the voluntary sector workforce, including at least the Real Living Wage, is an SCVO priority- the First Minister should also support and resource voluntary organisations in receipt of public funding, through grants and contracts, to deliver on their wider Fair Work ambitions.
Case-study
| Turning Point Scotland is a large social care provider working across 18 local authority areas. Supporting between 8,000 and 12,000 people at any one time. We employ 1,200 people, and have an annual turnover of £44 million. We are entirely commissioned to deliver public services on behalf of Local Authorities and Scottish Government. The National Insurance increase will cost us £1.1 million per year; £274,000 in relation to the rise in employer NI contributions, £778,000 associated with the lowering of the NIC threshold. This equates to a 2.7% increase to our payroll costs. Every service that we operate will go into budgetary deficit – none of our services will receive enough money to cover the costs of providing that service. One service we provide is already looking at a £60,000 deficit for next year – with these changes that deficit will become £160,000. Without a radical change, none of our services will be financially viable. Many will face closure in the very near future. If that change does not come from the UK or Scottish Government, we will need to make those changes with our service commissioners– what will be lost? Will we have to reduce the number of staff? Will we have to disinvest in training, development and support? Will we have to cut pay? Every cut will impact on the number of people we can support, the quality of the support we provide, the attraction and retention of our workforce, and the safety and viability of our services. We consider ourselves a financially healthy organisation in terms of both cash and reserves, but without action to address the impact of these changes, we will not survive in our current state. We risk losing many of the services that we deliver, and we know that our sister organisations in the social care sector are facing the same, if not a worse outlook. The impact on Scotland’s social care system and the people who rely on it cannot be overstated. |
Conclusion
Scotland’s voluntary sector is an employer, a partner, and a vital social and economic actor central to delivering on the Scottish Government’s missions to end child poverty, grow the economy, tackle the climate emergency, and improve public services. The Medium-Term Financial Strategy is an opportunity to recognise and support the sector’s contribution and address the pressures facing the sector.
The MTFS can and should take much needed and meaningful steps towards a Fair Funding system that offers long-term, flexible, sustainable, and accessible funding by aligning their Fairer funding principles with SCVO’s definition of Fair Funding and progressing the Scottish Government’s commitment to Fairer Funding, including promised action on multi-year funding deals. The MTFS should also provide local authorities with the financial certainty they need to offer multi-year funding agreements. Without action in the MTFS, it will be impossible to realise these commitments and make progress towards creating the sustainable voluntary sector people and communities across Scotland rely on.
Ahead of the MTFS the Scottish Government should also consider what action can be taken to make progress on the many recommendations in the Social Justice and Social Security Committee’s Pre-Budget Scrutiny report 2025/26.
Fair Funding can and should cover the full costs of employing staff. Scottish Government must ensure grants and contracts they, their agencies, and other public bodies award cover the full costs of employing staff, including at least the Real Living Wage, any increased NICs costs, and inflation-based uplifts on par with those offered to public sector staff.
