Time is running out to defuse £2.4bn shortfall

22 Apr 24

Charities can’t go on subsidising public sector contracts, writes Dan Corry.

There is a huge clock and people are busy working to meet the deadline.CREDIT-Shutterstock-1794881554


There’s a growing awareness of the crisis in local government finances. But there’s another ticking time-bomb – the subsidies that charities and the social sector are providing.

Our new research, State of the Sector 2024: Ready for a Reset, estimates that charities are propping up the public purse by £2.4bn a year by making up shortfalls in public sector contracts. With charities’ other sources of income under pressure, this puts services delivered by charity contracts at risk. Services ranging from mental health support and care for those who are unwell or unable to work to tackling poverty and reducing homelessness.


The findings come from our national survey of charity leaders. 62% of charity leaders told us they cross-subsidise these contracts by using other sources of funding, such as money from fundraising, to successfully deliver them.

The majority of charities that deliver contracts (67%) cross-subsidise them most or all of time. The median amount a charity receives from government for its service is 65% of the value of the contract. I wonder whether that comes as a surprise to public sector leaders – I suspect not.

From this, we can make a robust assessment of the total amount the charity sector subsidises public services every single year.

We estimate that charities are subsidising government services by £2.4bn every year. This is equivalent to 24 times the size of the emergency support package that the chancellor provided charities last year to cope with the cost-of-living crisis. It’s also more than half the size of the total contributions to the Levelling Up Fund, the government’s flagship fund meant to tackle regional inequalities across the UK.


There are many reasons why charities cross-subsidise their services. Our previous research shows that some organisations can afford to do so, and do so intentionally to improve the quality of a service. Others do it without realising, or because the needs they see leave them with no choice.

Nevertheless, charities are facing huge funding pressures, alongside rising needs and costs. Many may be unable to indefinitely continue to cross-subsidise with money fundraised from the public.

This represents an ongoing and, in all likelihood, unsustainable risk to vital local public services, on which people rely. Some bodies may reach crisis point and have to close services or even the whole organisation. At this point, people who rely on these services will go without support, and some may have to resort to already stretched emergency services instead. As the National Council for Voluntary Organisations has pointed out, this is already beginning to happen for a minority of organisations. The government must take action.

One way to start would be to increase contracts in line with inflation – although we know that is hard for cash-strapped councils. Respondents to our survey told us that only one in four (27%) have had their contracts uplifted in line with inflation.


The government urgently needs to address this issue by working with charities identify potential risks in public service delivery, including cross-subsidisation of contracts.

It needs to co-develop a new approach to delivery, which recognises the wider value that charities bring in communities and makes use of their unique advantages as a partner in service delivery to tackle needs around the country.

We also surveyed the public about their views on charities. 54% want the government to give more support to charities to work in poorer areas. Only a small minority of the public (15%) think charities are ‘too political’. Overall, 56% of the public think that charities get the balance ‘about right’. This includes 63% of Conservative voters and 61% of Labour voters.

So, in an election year, there may also be some votes to be found in supporting the charity sector.

Image credit | Shutterstock 

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