Rising pressure on local authority grant-making for VCSE organisations

Councils rely on charities to provide fundamental public services, often filling key gaps in public services. NCVO has previously reported that charities delivered £16.8bn worth of public services in 2020/21 alone, spending 30% of the charity sector’s total income on these services.    

Local authorities and VCSE organisations rely on each other, and changes in one will undoubtedly affect the other. So, let’s unpack some of the recent challenges facing councils and explore the implications for VSCE organisations and the communities they serve.    

Much-needed council services under huge pressure 

Councils must deliver a vast list of statutory services, such as education, adult social care, and planning and housing services. However, in recent years, they have been hit by large budget cuts and cost increases.   

The rise in departmental costs, such as children’s and adult social care, as well as the fluctuations in the economically active population since the pandemic, have resulted in increased cost pressures on public services. The Local Government Association has reported that increasing cost pressures on councils have meant that they scale back or close a wide range of local services, with this ‘squeeze’ reverberating across local communities.   

As such, authorities must make difficult decisions and prioritise funding based on the greatest needs. Ultimately, this hits VCSEs and their beneficiaries in the long run. The VCSE Sector Barometer estimated that 28% of the charities working with local authorities predict their funding will fall by the end of 2024.   

Further to this, Pro Bono Economics predict that council funding to charities has fallen by an estimated £13.2 billion since 2010 and that funding from local authorities is responsible for 13p of every £1 of charity income, further illustrating the significant contribution local government spending makes to the VCSE sector. Insufficient VCSE funding is a false economy, particularly in an age where a third of sector income derives from public service delivery, but ‘Contracts aren’t covering the true costs of delivering public services, let alone providing any surplus to improve support to communities’ (NCVO, 2024). 

As the purse strings are tightened, VCSE organisations are often turned to as an alternative source of support; however, without sufficient funding, the beneficiaries of those organisations will receive a reduced response to their needs or will need to find support elsewhere, as funding streams from local government continue to decline. This paints a bleak picture for those in need, to whom VCSE organisations are a vital source of uplift, and must be a key consideration when allocating funds at local government level.     

Increase in councils facing bankruptcy   

Today, many councils struggle to manage their finances, in the face of rising costs and demands for some statutory services. This is evident in the rate of Section 114 notices being raised since 2021. Section 114 notices effectively declare that a council is in effect bankrupt (because their expenditure will exceed their income within the financial year). Once a finance officer issues a Section 114 notice, the local authority may not incur new spending (IFG, 2024). Since 2020, 10 councils have been issued Section 114 notices (IFG, 2023), including large authorities such as Birmingham City Council and Nottingham City Council.  

Day-to-day, this means greater insecurity for VCSEs. Charitable organisations that are tenants of local authorities that have issued S114 notices have been warned that they are at risk of being evicted from their premises by councils selling off property (County Councils Network). The threat of bankruptcy also prompts authorities to increase their revenue where they can (e.g. increasing council taxes), transferring the cost to residents, businesses and VCSE organisations in the authority’s catchment, who experience inflationary pressures elsewhere (OBR, 2023).  

Guidance on navigating S114s for VCSEs suggests that these organisations need to find new and effective ways to project their voice and maintain influence across the echelons of local authority organisations. Building the right relationships and evidencing your contributions are key to navigating councils in deep financial crisis.   

Ultimately, councils are increasingly entering survival mode, which leaves little room for proactive planning for supporting VCSE organisations. Recent research has found that 1 in 5 English councils is at risk of being issued a S114 notice by the end of 2025. This paints a bleak picture in an environment where 40% of surveyed charities have stated that their relationship with councils is ‘critical’ to their survival (Pro Bono Economics).   

Learn more about VCSE grants  

So what needs to change? Clearly, public funding is critical to VCSE organisations and the social economy which they serve, so this needs to be reflected in policy. To start, further Section 114 emergency financial support will be key in ensuring stability for local authorities. Multi-year funding settlements will enhance this in an unsteady economic environment, mitigating the risk that is borne from short-termist planning. Ringfencing additional support for VCSE organisations is key to future-proofing their capacity so they can continue to support our communities.  

DSC’s 2023 Grants for Good report was a landmark exploration of grant-making trends from local authorities to the VSCE sector. It found that the UK’s councils awarded 40,223 grants totalling £333 million in 2020/21. This research indicated a rise in local government grants, possibly linked to the Covid-19 pandemic. DSC’s second edition of Grants for Good, coming soon in 2025, will investigate how local authority grant-making has changed since 2020/21. 

To learn more about local authority grant-making, download DSC’s Grants for Good report, and keep an eye out for the next edition. 

To find out more about how DSC’s friendly research team can help you to help others, visit our website or get in touch with research@dsc.org.uk to schedule a free consultation.