Financial relations between government
and the third sector
16. As we have noted, some £11 billion in public
funding flowed into the third sector in 2005/06. This financial
support was usually for one of three things:
- Support for a third sector organisation in the
round, to be spent however is seen as fit;
- Support for a particular project or service proposed
by a third sector organisation; or
- Payment to a third sector organisation to deliver
a specified service on behalf of the public sector.
17. Government has a long history of making funding
available to third sector organisations, both to support their
ongoing existence and to support specific activities which government
feels can make a complementary addition to its own aims and objectives.
Since 1968, for example, the Department of Health's Section 64
grant programme has provided funding for projects that will complement
statutory services and make a difference to health and social
care in England in specified priority areas.[10]
The programme also provides unrestricted grants to contribute
towards core administrative costs of national voluntary organisations
operating in the health and social care sector.[11]
18. Programmes such as these often support innovative
ideas which go on to become statutory services in the way we have
outlined. Rt Hon Ed Miliband MP, Minister for the Cabinet Office,
reflected how this kind of process had been instrumental in developing
childcare services which have increasingly been funded by the
State.[12] In practical
terms the role played by a public body in this kind of relationship,
whether through an unrestricted grant or a funding arrangement
which is more specifically tied to the delivery of a particular
project or activity, is similar to that of any other private donor
wishing to provide support for a good cause. The NAO calls these
"donor type" relationships, building on the work of
Julia Unwin who refers to them as "giving" relationships,[13]
but the critical distinction is that the idea or requirement for
the project comes from the third sector itself.
19. The alternative to this "giving" relationship
is for third sector organisations to deliver services for which
the idea or requirement comes not from the organisations themselves
but from the State, as a customer rather than a sponsor. Sometimes
this is a natural step when the State takes on responsibility
for services first developed in the sector. As Joyce Moseley from
Rainer described, her organisation developed bail and remand services
for young offenders before it was a statutory responsibility,
and then went on to deliver some services on behalf of government
when it did become a statutory service.[14]
The Doncaster Supporting People Provider Forum similarly explain
how Supporting People services delivered on behalf of government
"grew up" in the sector in the same way.[15]
20. As well as adopting and continuing to run services
developed outside the statutory sector, government's move towards
improving public services through competition and external provision
provided third sector organisations with the opportunity to deliver
mature, existing services previously delivered on a large scale
by public authorities. Some major areas where this has occurred
have included social care services and social housing. More recently,
contracting out in areas such as waste and leisure services have
provided opportunities for the foundation and growth of social
enterprises. In either case the nature of the relationship is
substantially different from the donor-type relationship outlined
above. Here, demand for the service is coming from the State,
which specifies what it requires and buys those services from
a third sector provider. In practical terms the role of the third
sector organisation is no different to a private sector provider;
indeed they may be competing against such private providers to
deliver such services. The NAO calls these "procurement type"
relationships, while Julia Unwin refers to them as "shopping"
relationships.[16]
21. The extent to which third sector organisations
choose to partner with the State, whether under donor-type or
procurement-type relationships, has an effect on the shape of
the sector. The Charity Finance Directors' Group describes how
'two types of charities are emerging: those that raise significant
income through government funding…and those operational charities
that raise a majority of their income through voluntary donations.'[17]
A range of the frontline witnesses we heard from demonstrate this
spread of approach:
- The social enterprise Turning
Point told us they received 97% of their funding from contracts
and grants from central or local government;[18]
- Barnardo's receive 55% of their funding from
the State;[19]
- The Emmaus UK Federation received just 2.4% of
its funding in 2007 from the State.[20]
22. In recent years there has been a significant
growth in public funding flowing to the third sector through the
range of relationships we have outlined. Stuart Etherington, the
Chief Executive of the NCVO, told us that public sector funding
had expanded from around £4 billion to around £10 billion
in the 10-year period up to 2005-06.[21]
Crime Reduction Initiatives, an organisation delivering substance
misuse outreach and treatment services on behalf of government,
described how they and their users had benefited from this expansion,
as funding their work through voluntary donations could be problematic
as their service users' 'behaviour and life styles evince little
public sympathy.'[22]
Even Barnardo's, which in contrast enjoys tremendous public profile
and sympathy, told us that 'much of the work we do could not be
done if there were not a public commissioner willing to pay for
it.'[23]
23. Most of the recent growth in the public funding
of the third sector has been driven by an increase in the procurement
type relationships. Table 1 demonstrates the extent to which "shopping"
relationships are outgrowing "giving" ones:
24. It is clear that the State is commissioning
more services from the third sector than ever before, and is increasingly
doing so through procurement-type relationships. These commissioning
trends, and their impact on the third sector, are at the heart
of this report.
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