The latest report from the Northern Rock Foundation Third Sector Trends Study provides a digest of findings on the state of the third sector in the North East. It began as a longitudinal study in 2008 and has continued to review progress since then.
There are around 6,900 formally registered third sector organisations (TSO's) in the North East, 83% of which are registered charities. However, there are also many small unincorporated voluntary and community organisations bringing the total to nearer 15,000. A significant % operate purely at village or neighbourhood level, mainly the smaller VCS organisations. The report ably illustrates the initial and growing impact of the changing funding climate on the sector.
What's changed since 2008
There are around 750 fewer full time equivalent employees working in the sector since 2008 with around 36,250 employees. However volunteer numbers have risen by 6,000 despite the NE still being the region with the lowest level of volunteering nationally.
The inequalities agenda comes into play when we see that TSO's in the poorest areas were 4 times more likely to have lost significant income in the last 2 years compared with the richest areas. Alarmingly in this period of austerity measures and reduced public sector funding, 42% of organisations in the poorest areas said they were still heavily dependent on public sector funding as opposed to 10% in the richest areas. Given that local authorities are likely to experience greater levels of cuts in the forthcoming comprehensive spending review and on an ongoing basis, and with forecasts that the biggest impact will be in 2017, this is a worrying statistic.
Smaller TSO's have also become more reliant on grants going from 27-39%, but surprisingly earned income has also risen. However, the number of organisations going down the social investment route and taking on loans and investment is still relatively small. Knowing the make up of the VCSE in the North East and the high percentage of relatively small informal organisations, we need to recognise that social investment will never be the solution or indeed appropriate for many organisations.
Given the rather depressing nature of the picture painted by this report, it is surprising and indeed worrying that many organisations said that they were confident about the future. This optimism in the face of adversity is laudable but in my view rather blinkered.
Other aspects of the report highlight that the 'squeezed middle' are the ones in real trouble here, as many of the smaller organisations at local level with turnover under 50k are getting by, as they always have, feeling less of the impact of reduced public sector funding as they've never been dependent on it. The squeezed middle are described as organisations with a turnover of between £50-250k in the report but I would argue it perhaps extends to those with a turnover up to £1m. The report describes these organisations as not demonstrating that they are adapting to a new funding climate or developing long term business plans and exploring diversification, collaboration, and potential different income streams. Some may need to review their organisational form and geographical boundaries. Are they too small to survive? Who do they have synergy with locally and is merger an option?
Larger organisations are demonstrating they have done and continue to do all of the above so they are keeping pace with change and surviving. Indeed some of the larger players are getting bigger still as more and more funding opportunities demand lead bodies demonstrate the ability to carry a significant financial risk and also drive organisation increasingly into consortia for bidding and delivery purposes.
Clearly we are not out of the woods yet as austerity measures continue and public sector funding continues to reduce. So what do we need to do? There is no magic wand that will bring us the silver lining in the near future, but how do we minimise the impact of continued funding cuts and survive these challenging times?
The answer has to be that we plan for the changing marketplace, we up skill our managers and trustees to equip them with the business skills and change management skills required to survive. We encourage funders to invest in organisational capacity development, not necessarily aligned to becoming 'social investment ready' recognising social investment won't be the solution for all.
The sector has always been good at being flexible and adapting to new funding streams and the ones that survive in the current climate will be those who are open to change and potentially taking a few risks. Perhaps the positive here is that the financial squeeze forces us to be more innovative and creative, but we also need funders to invest in the process of change to give us half a chance of succeeding.