Building a picture
March 2009
Ian Mocroft reviews what has been happening to statutory spending in the voluntary sector
This article summarises some of the data on financial trends drawn from work done for the former Finance Hub (a CapacityBuilders project) in 2007, using publicly available sources. There are gaps in this data and many of the data series’ ended in 2003 to 2004 with more recent ones not yet available; nevertheless, the analysis builds a useful picture.
Background to data availability
Why the lack of consistent historical data? The root of the problem lies in the fact that analysis of the voluntary sector is relatively new; compared with the long-established work on the economy, which goes back over a hundred years to the Victorian period.
The old fashioned view of the voluntary sector is based on ‘charity’: it is a special case of households’ activity. The statistics on national income (see the ONS Blue Book [1]) combine the data on non-profit-making institutions serving households with that of the household sector.
The more modern view of the voluntary sector starts to emerge with the work of the Wolfenden Committee on Voluntary Services, 1975 to 1978, some 30 years ago. In this, voluntary bodies are more like citizen-led firms, gaining an income, and producing goods and services. Statistics have not kept up; there are relatively few, and most started only recently; for example Wolfenden commissioned a ground-breaking NOP survey on participation in volunteering as recently as 1978. The Charities Aid Foundation publications on trends began in 1977, NCVO Almanacs in their present form in 1996 and the Charity Commission aggregate data was available from about 1997 (online from 1998).
In the Finance Hub work, we started by trying to compare the voluntary sector with the economy. The crude comparisons are impressive: the Charity Commission for England and Wales counted charities’ income as about £38bn in 2005, which was equivalent to 3 per cent of GDP then; but that is not actually a valid comparison. First, ‘all charities’ includes some government agencies paying money to other charities, and also grantmaking trusts paying money to other charities. The NCVO UK estimates remove statutory agencies from their figures as far as possible, to produce a figure of just over £26bn, equivalent to 2.4 per cent of GDP in 2003 to 2004. [2] However, that is still not the same as saying the voluntary sector contributes that much to the economy. We do not simply add together the incomes of the farmer, the miller and the baker in order to compute their economic contribution; we look at the value added by each.
This requires:
- a proper analysis of the value added by first the service-providing voluntary sector, and second the grant-making sector. This would require a wholesale re-analysis of the entire Charity Commission data-base, and important additions for non-registered community bodies and non-profit-making companies limited by guarantee; or
- the disaggregation of non-profit-making institutions serving households from the household sector in the Blue Book.
Though we cannot measure the economic contribution of the sector, we can be reasonably certain that the sector has grown rapidly in recent years, faster than both GDP and the public sector. Between 1998 and 2005, income growth rates [3] in real terms were:
GDP 21%
Public sector 32%
Registered charities 62%
Public sector 32%
Registered charities 62%
If the voluntary sector has grown in size, this is reflected in the number of persons it employs. Their numbers are growing faster than in the private sector and the public sector, which itself expanded greatly in the period after 2000.
The rates [4] were:
Private sector 6%
Public sector 12%
Voluntary sector 28%
Statutory expenditure
The main components of this are spending by central government and its agencies (such as the Arts Councils and the Learning and Skills Council), local government, and the NHS.
Central government
In 1979, the newly-elected Thatcher government signalled its approval of the voluntary sector. The sector hoped that the rhetoric of disliking the state and liking the voluntary sector would bear fruit. However, there was a realisation that nobody knew what the government as a whole spent on the voluntary sector; there was, and still is, no legal or public accounting requirement to explain this spending separately. There has to be a specific research exercise surveying the whole government machine, with the
co-operation of hundreds of civil servants. The authority for this was an ‘arranged parliamentary question’ (now replaced by fact-gathering for a ministerial statement).
This is reasonably reliable, largely because of the way the government is organised. As a rough characterisation, the government is compartmentalised, with small sections of staff responsible for one policy. For most of these sections, it is not difficult to identify spending on voluntary bodies, though a few, with handfuls of payments to voluntary bodies out of thousands struggle to produce an accurate return.
Central Government departments’ and agencies’ spending on the voluntary sector grew from £2.4bn in 1998/99 to £4.5bn in 2003/04 in real terms (see figure 1 below), including central government funding of housing associations.
Figure 1: Central government expenditure on third sector organisations 1982/83 to 2003/04 at constant prices (2002), corrected for missing data
If we remove the spending on housing associations, central government departments’ and agencies’ spending on the voluntary sector grew rapidly in the ‘New Labour’ period: it doubled in real terms between 1998/99 and 2002/03, outstripping both GDP and the public sector’s own growth. Despite the slight dip in 2003/04, we expect the figures to rise well into 2005/06.
However, only a tiny proportion of central government spending (non-housing) goes to the voluntary sector: the total constituted about 0.4 per cent of central government expenditure in 1998/99, rising to its highest level in recent years: 0.8 per cent in 2002/03. This low proportion reflects the scale of central spending on things the voluntary sector does not do, such as the huge social security and defence budgets.
Local government
Measuring local government spending on the voluntary sector is particularly complex. Again, there is no statutory requirement to list all payments to voluntary organisations separate from payments to firms or individuals. The former DHSS and DFEE used to require councils to state how much their social services and education departments had spent on voluntary organisations; this stopped around 1993 to 1994. Grants are dealt with differently from fees (payments for procured and commissioned services); many councils record grants awarded to voluntary bodies publicly, but few record fee payments to the sector separate from those paid to firms. With the rise in commissioning of services since the 1990s, fees have formed an increasing proportion of council spending on the sector, though the use of the terms ‘grant’ and ‘fee’ is not consistent between councils, and even between departments in the same council.
CAF surveyed all councils in the UK, using a paper return, for most years since about 1982 to 1983. This was not a statutory return, and response declined from about 85 per cent in the early years to as low as 50 per cent by 2004. Worse, there was a wealth of evidence, from case studies and informal contact, that fee payments were not recorded very well in recent years.
We established a complex method of estimating local government spending to take account of both low response and under-reporting of fees. If we accept the method’s validity, council spending on the voluntary sector more than doubled from 1998/99 to 2003/04 (see figure 2 below).
Figure 2: Estimates of UK local government spending on VCOs, 1984/85 to 2003/04 at constant (2002) prices
It was not possible to use the complex estimation method to produce new estimates for the years 1998/99 to 2000/01 when no survey occurred; up-rating the 1997/98 survey data for inflation will produce only a ‘flat-line’ graph in these years. However, local government’s own total of expenditure increases rapidly from 1998/99 onwards.
Local government makes more use of the voluntary sector than central government: just over 1 per cent of council spending in the mid 1980s, rising to about 2 per cent in 1998/99 and about 4 per cent in 2003/04 (excluding housing), with spending still concentrated on adult social services, children, families and education.
Though the surveys and estimates are not satisfactory, there have been improvements recently: Wales has its own survey, carried out by the Local Government Data Unit Wales, which asks councils for totals spent on the sector (though this does not cover every year). The Scottish government requires the Scottish council social work departments to disaggregate all external spending, and communities and local government now has a 30 per cent
survey of English councils asking for totals of grants made by each council department (but not fees) [5]. According
to the DoH [6] about 70 out of the 149 English social services departments, the biggest spenders, could identify grant and fee totals separately.
survey of English councils asking for totals of grants made by each council department (but not fees) [5]. According
to the DoH [6] about 70 out of the 149 English social services departments, the biggest spenders, could identify grant and fee totals separately.
These improvements still do not give universal coverage of council spending as this would require a mandatory change in recording practices.
NHS spending
NHS spending is difficult to pin down. CAF carried out surveys of NHS bodies for some years in the 1980s, but these suffered a steep decline in response and ceased as the NHS began its extensive changes in organisation. The NHS bodies separated spending on voluntary organisations from spending on firms and other statutory bodies in their accounts until about 1996, at which point this practice ceased. The accounts still showed figures for aggregate external purchasing of health care, permitting an estimate based on the bold assumption that proportions of voluntary/private/other statutory spending stayed the same as in 1996.
This produced a figure of £1.3bn in England for 2004/05 [7]. Since then, the DoH has produced its own estimate of £1.1bn spent in England in 2005 [8]. However, for 2006/07, the NHS (England) produced a new form of accounts which returned to the admirable practice of showing spending on the voluntary sector separately: £369m in 2006/07. Something has clearly gone awry as the figures are wildly different. Either the newer accounts do not include everything, or the DoH estimate was wrong; or the NHS has lost responsibility for a major bloc of spending. To rectify this, some small studies with the DoH are needed.
Organisational measurement
Despite the problems, we can be fairly certain that spending on the voluntary sector by both central government and councils has gone up; even local government grants have gone up, according to the CLG figures (see note 6).
Re-working various public sources, our best estimate for statutory spending on the non-profit-making sector is about £9.6bn in 2003/04 (not including housing association funding). This is broadly similar to the NCVO estimate for statutory income to ‘general charities’: £10bn in 2003/04, and rising annually. However, representatives of the sector say that it is suffering funding cuts. How can both be true? There are some possible explanations.
- National bodies. Large sums go to big national bodies: for example, CAF recorded the three large children’s charities (NCH, Barnardo’s, Children’s Society) receiving together over £280m in ‘public bodies’ grants’ in 2004/05. Similarly, Leonard Cheshire received £120m in that year, and Mencap is recorded as receiving £136m in ‘trading, fees and contracts’. [9] This is largely because money is going to commissioned social services, the most expensive being residential care, with costs of at least £300 per week for the elderly, while highly dependent users may cost £2,000 per week and more. This is the least visible part of the sector.
- New organisations. The government appears to like new organisations, establishing bodies such as the various ‘Hubs of Expertise’ rather than using existing infrastructure. In community development, the government appearsto like new partnerships as a way of doing things. If we add together the various (nominally) voluntary partnerships which can be identified, the total is £1bn expenditure.
- Hive-offs. Over the past twenty years, large parts of the state sector have been ‘voluntarised’. These include social services establishments: e.g. Kent Community Housing Trust was formed in 1990; nine Kent CC residential homes were transferred to it in 1992. It is now a major voluntary contractor to KCC, Medway, Bexley and Greenwich, providing a range of services to vulnerable groups such as children leaving care, with nearly 1,000 staff and an income of over £27m.
In other cases, entire departments have been voluntarised, e.g. housing – Broomleigh housing association, one of the largest, is a large-scale voluntary transfer association set up in 1992, when the London Borough of Bromley transferred its council housing activities (some 17,000 dwellings) to it.
The sector has grown in scale and prominence, but, as yet, we do not have definitive, high quality data on it, although I have suggested some starting points in this article.
[2] The UK Voluntary Sector Almanac 2006
[3] Charity Commission: Public expenditure statistical analyses 2006
[4] ONS Labour Force Survey as quoted in the successive NCVO Almanacs
[5] Local Government Financial Statistics: England, DCLG/ONS, various years
[6] Third Sector Market Mapping, IFF Research, DoH, 2007
[7] The Voluntary and Community Sector: Data on Financial Trends, Finance Hub, 2007.
[8] Third Sector Market Mapping, IFF Research, DoH, 2007
[9] Charity Trends 2006, CAF/Caritas Data, 2006
[3] Charity Commission: Public expenditure statistical analyses 2006
[4] ONS Labour Force Survey as quoted in the successive NCVO Almanacs
[5] Local Government Financial Statistics: England, DCLG/ONS, various years
[6] Third Sector Market Mapping, IFF Research, DoH, 2007
[7] The Voluntary and Community Sector: Data on Financial Trends, Finance Hub, 2007.
[8] Third Sector Market Mapping, IFF Research, DoH, 2007
[9] Charity Trends 2006, CAF/Caritas Data, 2006
Author: Ian Mocroft
Ian Mocroft is a consultant at Third Sector Prospect and been researching the sector for 30 years. He was also involved in the evaluation of the Home Office ‘Make a Difference’ programme. Ian has carried out surveys of central government expenditure on the sector since 1998, and improved the data to produce a consistent series of government figures over a 20-year period.
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