Blog: A sector on the edge

Blog: A sector on the edge
SCVO, by Ruchir Shah

Pulled and pushed, cajoled and constrained. We can’t carry on like this.

This week SCVO releases its latest digest of statistics on the size, shape and profile of the third sector in Scotland. SCVO has been doing this since 1998, and these stats have been the go-to bible for the state of Scotland’s third sector by politicians, governments, academics and policy wonks ever since.


The key message here is that the sector is battling to keep away from the precipice. Financially, it’s been near the edge for a while.


If you look beyond the balance sheets of a handful of the largest charities and housing associations, for most of our sector there’s been little slack between income and expenditure to keep a healthy balance of reserves and the demand for what our sector does has only been moving in one direction.


It used to be the case that we would report each year that the sector had grown in income, increased in staffing and widened in scope of activity. These years, 1997-2007, were the boom years.


As devolution unfolded, our sector found itself gaining an increasing role in both public service delivery and ‘social enterprise’.


It doubled its overall annual income and became a major employer of over 5% of Scotland’s workforce – almost as big as the NHS.


Then back in 2008 in the wake of the financial crisis, it was investment income that was the first to be hit. Much of the sector’s cash assets and pension liabilities were invested in the stock and global banking markets, and like others it lost out in the various crashes that followed. Recall the Icelandic banking crisis anyone?


The subsequent downturn in the economy then hit the trading arms of many of the sector’s charities and social enterprises, just as it did with SME businesses. Suddenly the Government’s new mantra of making the third sector enterprising started to look a bit dated.


Budget austerity and the public sector spending squeeze naturally took its time to work through to frontline spending. We can see further strong evidence of this in SCVO’s latest stats.


Yet demand for our sector’s services is now likely to skyrocket in the wake of a further round of UK welfare cuts and public service budgets remain squashed.


The Institute of Fiscal Studies has estimated that 80% of the welfare cuts are still to come.


These latest stats show that rather than shedding staff, it has focused more on reducing the number of hours worked by its employees while continuing to achieve a modest growth in total employment.


An excess of expenditure over income for many charities, and particularly the smaller organisations, suggest that rather than closing shop, the sector is largely using what assets they have left to keep services running as long as possible. This is unsustainable beyond the short-term.


A financially weak third sector is simply bad news for Scotland and its communities.


See more here