By David Williams
28 January 2011
As local authorities struggle to finalise their budgets, one thing is clear. The end of ring-fenced funds might give councils more freedom but it is going to hit the voluntary sector hard
However uncertain our times become, the law of unintended consequences will always hold. When the October Comprehensive Spending Review set out plans to remove ring-fences from £7bn of local government funding, it was widely welcomed as a common-sense move that would enable councils to make the most effective use of their diminishing resources.
Three months on, as local authorities attempt to finalise their budgets for 2011/12, dire implications are becoming clear, particularly for councils’ partners in the voluntary sector. Finance directors, under pressure to preserve core services such as social care and waste collections, are confronted with two things: funding settlements tighter than many expected; and a smaller number of grants targeted at specific community programmes.
Full national data does not yet exist, but Karl Wilding, head of research at the National Council for Voluntary Organisations, says trends are emerging. ‘The removal of ring-fencing is leading to more emphasis on communities of place than on communities of interest,’ he says. This will affect organisations that represent marginalised groups, such as people with a particular illness or disability, who previously would have received specific pots of money to do specific things. Now, he says, as ring-fences are removed the argument is that ‘councils will focus more generally on issues they believe affect the whole population’.
In urban areas, particularly those with high levels of deprivation, it is the abolition of the Working Neighbourhoods Fund that poses the most significant threat. The fund allocated £1.5bn to 61 authorities in the three years to 2010/11. Now it has gone, councils are faced with the choice of discontinuing the work it has been paying for, which is often not seen as ‘core’, or cutting their own staff and services.
Newcastle City Council, for example, received £9.3m from the WNF in its 2010/11 settlement. The cash paid for employment and worklessness schemes, and initiatives tackling problems such as crime, domestic violence and obesity. Many were based on charity contracts. But in 2011/12, the authority has to find £40m of savings – worth about 15% of its net revenue spend.
Like most authorities, Newcastle has yet to finalise its budget. But to ease the pain for local charities, it has set up the Newcastle Fund, which voluntary organisations can apply to for funding. The £10m fund will stretch to 2014/15, and charities will be able to bid for grants lasting anything up to four years.
Although the £2.5m a year on offer is a substantial increase on the £1.5m the council previously gave out in grants to charities through its general budget, it still represents only about a quarter of the cash that had been available through the WNF.
City treasurer Paul Woods tells Public Finance: ‘It’s protecting some of the money lost through WNF, and gives charities certainty of funding over a four-year period. We think it’s a positive outcome but we can’t compensate for the broader loss of funds. It does look as though there will be an impact on the voluntary sector potentially as big as the impact on council services.’
Across the country, non-statutory services such as youth clubs, and advice services such as Connexions, will be vulnerable to cuts. But in many areas the difficulties will extend further, deep into essential services like adult social care.
There will be £2bn of new money for councils in England to spend on social care in collaboration with primary care trusts. It was this sum that allowed Health Secretary Andrew Lansley, in an ingenious piece of political book-keeping, to announce he wasn’t cutting the NHS budget, at the same time as enabling Communities Secretary Eric Pickles to claim the average formula grant cut was a mere 8.9%. Although there will be new work for charities in ‘re-ablement’ and supporting people to live at home, the new £2bn is actually ring-fenced – meaning it cannot be spent on running standard day-to-day services, or maintaining long-running contracts with third sector providers.
Local Government Association estimates suggest that social care needs an annual increase of 4% nationally to keep pace with an ageing population. But in Blackburn with Darwen Borough Council, the service will lose about 15% of its budget in 2011/12, with half of the target savings expected to come from reducing the cost of commissioning. That means renegotiating or pulling out of contracts, incurring more costs than if the cuts had to be handled over a longer period of time.
‘We have notified all third sector recipients of council grant funding that potentially 100% of that money could be at risk from April 1,’ says Tom Stannard, the council’s director of policy and communications.
‘Across the council and the primary care trust, we have at least £8m a year going into grants, or service level agreements, or contracts with charities… about 80% of our Area Based Grant is going. If we’re losing the funding that we are currently financing an arrangement with, we’ve no choice but to notify them that it’s going to go.’
Three London boroughs have taken similar action. Stannard expects some small to medium-sized charities that have relied on those contracts will struggle to survive in 2011/12.
Wilding says household-name organisations such as Barnardo’s should prove resilient, even though 85% of its income is from various public sector contracts. But, like Stannard, he is concerned for smaller local charities, many of which have little in the way of cash reserves and rely for a high proportion of their income on one or two contracts with their local council.
‘Councils might in some areas find they end up with a monopoly or a duopoly of potential suppliers. That’s going to drive up the cost of services, and drive down the quality’, says Wilding.
So a further unintended consequence of those front-loaded cuts is that capacity in the third sector will fall off just as the government, through its Big Society agenda, hopes more voluntary bodies will be getting involved in local services. In an effort to mitigate this, ministers have made available a £100m ‘transition fund’ to help charities learn vital new skills such as bidding for contracts. And many councils are helping voluntary organisations to cope with reduced funding by working more collaboratively.
Grahame Lucas, finance director at Worcester City Council and president of the Society of District Treasurers, says this can make savings of 15% or more.
One example is day centres. In Worcester, these are run on a day-to-day basis by a range of voluntary groups, but the service is overseen centrally by the council. ‘In future,’ says Lucas, ‘those voluntary groups will be joined together so it becomes one organisation, taking full responsibility for the service. There’s certainly money to be saved that way.’
The challenge of reducing costs sharply without destroying a service or its providers is only one of the balancing acts that finance directors are now being asked to pull off. Many will already be acutely aware that the decisions they are making now will have unpredictable knock-on effects for their communities.
