Scrutinising the Third Sector Funding Principles

The Social Justice and Social Security Committee published a report on third sector funding principles as part of the pre-budget scrutiny.

In advance of the publication of the Scottish Budget, the Scottish Parliament Committees have to undertake a pre-budget scrutiny. This scrutiny will help develop and influence any spending proposals.

The Social Justice and Social Security Committee wanted to examine the action being taken to support the third sector after hearing continued concerns about funding challenges faced by the sector. This report looks at issues including how the Scottish Government’s approach to fair and efficient funding can support the third sector.

Earlier this year, our Chief Officer, Sara Redmond, wrote an article about the important economic role the third sector plays in Scotland, yet it can also too often be overlooked. As the ALLIANCE has experienced first hand, increasing demand and wider economic issues have been significant challenges to overcome. For example:

• the COVID-19 pandemic led to greater demand for third sector services and support
• the impact of the cost of living crisis on household budgets has led to individuals and families seeking help when they did not need it before
• third sector organisations are spending more on their running costs as inflation has seen prices rise.

Many funding arrangements remain static and fail to account for rising costs. SCVO found that 88% “of organisations reported taking actions to mitigate financial challenges that they had experienced since December 2023.” Of the action recorded, the most common were applying for new funding from new funders and using financial reserves. SCVO also reported that of the 39% of organisations who have used their reserves since December 2023, 60% believe that their usage is unsustainable.

As a result and as our Senior Policy Officer, Allan Faulds, told the Committee:

“All third sector want from the budget is a commitment to the third sector—that is, to recognising the value of the charitable and voluntary organisations across the UK—and an investment in public services to ensure that there is less need for the third sector to step in and support people when there is, in effect, a public service failure to provide people with the things that they need”.

However, the third sector still experiences negative impacts from the ongoing lack of funding capacity. Due to the amount of concerns raised on this, among it’s recommendations, the Committee believed the Scottish Government, should be looking at options to prioritise multi-year funding in advance of the UK Government’s Spending Review.

A shift towards more flexible, unrestricted core funding would be a positive step, as this would enable organisations like the ALLIANCE to cover their core costs, adapt to changing circumstances, and engage in long-term planning.

Read the Committee’s report and recommendations in full here.

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