New research launched today reveals that small and medium-sized charities (with an income between £25,000 and £1m) have been hardest hit by cuts to public funding of the voluntary sector since 2008 and that the damage will be most felt by vulnerable people in the local communities they serve. This evidence is compiled from two new independent reports by NCVO and IPPR North, funded by Lloyds Bank Foundation, and shows for the first time the deep and long lasting effects of reductions in government funding on local charities and the people they support.

Funding from local and central government for small and medium sized charities reduced by up to 44% between 2008/09 and 2012/13, a higher proportion of their income than larger organisations, this new research revealed. Government funding has shifted towards more competitive commissioning and contracting models which have allowed larger charities and organisations to dominate the market to the detriment of small and medium-sized charities and the individuals they reach.

Income loss was uneven across geographical regions, with small and medium-sized charities in the North East, North West and West Midlands having lost the highest proportion overall. Income declined for every sector, with legal services, social services and health seeing particularly large reductions. Those smaller charities working in deprived neighbourhoods are more likely to have been affected, as well as those who work with Black and Minority Ethnic communities.

Small and medium-sized charities have worked hard to combat the cuts, increasing income from individuals by up to 21% but this has not been enough to offset losses of government income of up to 38%, resulting in an overall shortfall. Survival tactics have included mergers, takeovers, diversifying income sources, increased partnerships, reducing costs and ultimately services. Charities in the £100,000 to £500,000 income bracket, for example, nearly halved the proportion of their spending on staff costs, making them more reliant on volunteers.

This matters because the research highlights how small and medium-sized charities play a part in tackling disadvantage that the bigger charities, business and the public sector cannot. These charities play a critical, valued but often unseen role, including being flexible and responsive to need, embedded in the community, and offering a holistic service to those facing the greatest disadvantage.

The research also showed that the combination of cuts and changes to how funding is distributed is reflected in volatility in charity finances, with half of smaller charities experiencing an income fluctuation of at least one fifth, often due to their reliance on a single grant or contract. Once the funding has gone and the charity has had to reduce its services, the additional donations and volunteer capacity that the charity had brought in are lost too and are not always possible to claw back. At its worst, a single funding decision can make the difference between survival and shutdown.

Given the further reductions in Government spending, particularly at local level set out in the Spending Review, and a continuing move to contracting and commissioning which favours larger charities and private companies, smaller charities will find it increasingly hard to survive and the people they reach will be placed at greater risk. In response Lloyds Bank Foundation has called for urgent action led by central Government to ensure that those small and medium-sized charities that are vital to tackling disadvantage in communities across the country are able to survive and thrive: 

  1. Public commissioning has to be reformed to ensure resources reach small and medium-sized charities
  2. Funders, both independent and public, need to take steps to reduce the volatility of small and medium sized charities’ income.
  3. Funders, both independent and public, need to support charities to build their capacity.

Paul Streets OBE, Chief Executive of Lloyds Bank Foundation for England and Wales said,

“Small and medium-sized charities are the lifeblood but too often unsung heroes of our communities; reaching, engaging and helping disadvantaged people in a way that larger organisations often cannot. Despite this and despite valiant efforts to raise new income, many small and medium-sized charities have been hit hard by cuts to funding from central and local government and the move to large-scale commissioning and contracting.

Whilst a few larger charities have prospered, many small and medium-sized charities have been forced to close and others are fighting hard for survival – putting at risk the services and support they provide and the added value they bring in from volunteers and their local communities. With the long-term squeeze continuing on local government funding, the Government must heed the warnings in this research and act to reform how it funds and commissions otherwise we will all wake up one day and be shocked at what we have lost.”

Karl Wilding, Director of Public Policy at NCVO, said,

‘We know public service markets are skewed in a way that means they suit big businesses far better than smaller charities. Short time scales, growing contract sizes and inappropriate transfer of risk all put charities on the back foot in public service provision. This is showing through now in these results, with only the very largest charities having been able to manage in this environment. Such poor commissioning practice means that the expertise of specialist, local charities is being lost to public services.

‘I hope funders of all types will use these new findings to think about what they can do to help support smaller charities to develop secure income streams.’

Ed Cox, Director of IPPR North said,

“Small and medium-sized charities too often provide the ultimate “you don’t know what you’ve got ‘til it’s gone” services. Their care, compassion and unique local knowledge is tricky to measure objectively, yet their absence can be keenly felt by communities if these groups close down. And in the current climate, that’s a real worry.

These groups need to see more support from umbrella groups to track their real social value. Likewise, a pledge for government to place equal footing with small and medium businesses would go a long way to helping these charities help those who need help the most.”


1. NCVO’s report, ‘Navigating Change: An Analysis of Financial Trends for Small and Medium-Sized Charities’ explores how small and medium-sized charities have been affected by the changing financial landscape since 2008/09, drawing on NCVO’s unique historical dataset of charity financial accounts. The report provides a detailed analysis of where small and medium-sized charities get their money from, how they spend it and how their finances have changed since the recession. The full report will be available at 4.15pm on 10th February

2. IPPR North’s report, ‘Too Small to Fail: How Small and Medium-Sized Charities are Adapting to Change and Challenges’ reviews the current literature on small and medium-sized charities. It explores the reported strengths and weaknesses of smaller charities, and the social and economic value that such charities provide. It also examines the impact of changes to public funding models on the sector. The full report will be available at 4.15pm on 10th February