Government is one of the two key sources of income for the voluntary sector, alongside income from individuals. Income from government comes in two main types – voluntary income (grants) and earned income (contracts or fees) – although there is a wide variety of funding models used by authorities.
The definition of government covers any statutory body, including central government departments, local authorities, devolved and regional government, the EU and international governments, town and parish councils, NHS Trusts and a range of non-departmental public bodies (NDPBs). Generally transactions are simply between the statutory authority and the voluntary organisation, but more complex relationships such as subcontracting, match funding and direct payments also occur.
In 2012/13 the sector received £13.3 billion from government bodies, of which 83% was earned through contracts or fees. The majority of the sector’s income from government comes from relationships with local government, with £6.8 billion coming from this source. Central government and the NHS accounted for £5.8 billion, while the remaining £696 million came from the EU, international governments and international agencies like the UN.
- Income from government has fallen as austerity hit
- Local and central government have both seen falls in income
- Grants from government are at one-third of the level seen ten years ago
- Employment and training, culture and recreation and community development have been hardest hit
- Variation by region
- Variation by size
- Funding in proportion to all government spending
Income from government has fallen as austerity hit
The data allows us to build a picture of income from government over a number of years, including the first three years of the 2010-2015 Conservative and Lib Dem coalition government.
Until 2009/10, income from government grew and was a key factor in the growth of the sector over that period. In 2001/02 the sector received £10.2 billion from government, and this had grown to £15.2 billion by 2009/10.
Since 2009/10, however, income from Governmenthas fallen every year, following the pattern of general government spending which has fallen over the same period. In real terms the sector’s income from government in 2012/13 was £1.9 billion less than the peak seen in 2009/10. The majority (£1.2 billion) of this fall occurred between 2010/11 and 2011/12 (the first full year after the government’s spending review), with a fall of around £500 million between 2011/12 and 2012/13.
Preliminary estimates for 2013/14 suggest income of £12.9 billion; if confirmed, these would show that the falls seen in income from government so far have continued.
Local and central government have both seen falls in income
These cuts have been shared between central and local government. Since 2009/10 funding from central government has fallen by £1 billion, compared to a fall of £800 million for local government funding.
Falls in central government funding have been consistent in the three years seen since 2009/10, while the fall in local government was concentrated in 2011/12, and has slowed in 2012/13. This may reflect the funding arrangements for local government finance operating on two or three year funding cycles.
Grants from government are at one-third of the level seen ten years ago
A trend of the last decade has been a switch from grants to contracts, although this ratio has stabilised since income from government has started falling. In 2003/04 grants peaked at £6 billion, over half of all income from government. Since that time contracts have grown in importance as grants have fallen. In 2012/13 grants made up just 17% of income from government (£2.2 billion).
The ratio of grants to contracts has seen only a small change since 2009/10, showing that both grants and contracts have fallen. Grants have fallen at a slightly quicker rate than contracts over that period, although they are starting from a lower base.
Employment and training, culture and recreation and community development have been hardest hit
Splitting the data into subsectors shows that different sectors have seen different trends in government funding. To a certain extent these trends have followed government’s own spending priorities.
Organisations working in social services have seen the largest fall in funding, from £5.1bn in 2010/11 to £4.7bn in 2012/13. Other sector’s with large impact include employment and training, which saw a fall of nearly “400m between 2010/11 and 2012/13, and culture and recreation with a fall of £244m. Some areas have been more protected from spending cuts (although not completely immune) – health and international organisations have only seen a small fall in funding over that time.
Variation by region
The proportion of income from government varies by the region that organisations are based in. Organisations based in East Midlands and the North West receive the largest proportion of their income from the government, at 47% and 43% respectively. London-based organisations and those based in the South East and South West, have the lowest proportion of income from government, each receiving less than 31% from government sources.
Turning to the change in income from government over time, organisations based in London and the North East and North West saw the largest proportional falls in government income between 2011/12 and 2012/13. Each of these three regions saw a fall of more than 6%. Charities in two regions, the South East and South West, saw a small rise in the aggregate income from government.
Variation by size
Organisations of all sizes receive income from government, from all levels of government and in the form of both grants and contracts. Larger organisations are more likely to receive income from government – it makes up 38% of funding for major organisations with incomes above £10m and 32% of income for large organisations (income between £1m and £10m). Small and micro organisations (those with income below £100,000) are much less likely to receive funding from government, with only 16% of their funding coming from government sources.
Perhaps surprisingly, the proportion of income that comes from local and central government appears to stay steady across all sizes of organisations. Income from local government forms 51% of income across all bands, and even small organisations receive 48% of their income from government from central government. The only band that significantly varies is major organisations, where international and European sources account for 8% of their income from government.
These proportions notwithstanding, over half of all funding from government received by the voluntary sector is received by major organisations, including 56% of local government funding.
Funding in proportion to all government spending
The £13.3 billion the voluntary sector receives from government forms a significant part of its incoming resources, even after the reductions seen in recent years. However when looking at the whole of government, grants and contracts with the voluntary sector form a minor part of the government’s finances.
The Whole of Government Accounts, published by HM Treasury, present a rounded picture of the entirety of government finances. The headline figures report that the government spent £717.3bn in 2012/13. This suggests that government spending on the voluntary sector accounts for 1.8% of total government spending.
However, this figure includes everything that government spends and so does not provide a nuanced picture of where the voluntary sector fits into government finances. The figures are broken down further and show that the government spends £182.3bn on purchasing goods and services, and £56.3bn on grants and subsidies. Comparing these figures with the figures for voluntary sector grants and contracts suggests that the sector accounts for 6% of the government’s contracting, and 4% of grants and subsidies. A further breakdown by tier of government gives a figure of 4% of central government contracting and 10% of local government contracting.
These numbers imply that while government is a key part of the voluntary sector funding landscape, the voluntary sector is a minor player in the totality of government funding. However, for individual departments, agencies and local authorities the voluntary sector plays a large role in the delivery of services and as a partner of government.