Too small to fail: How small and medium-sized charities are adapting to change and challenges

Small and medium-sized charities are a vital part of civil society in Britain today, and with an income of around £7 billion in England and Wales alone they account for one-fifth of the sector’s income.

This report, the first in our programme of research on 'The Future of Civil Society in the North', reviews the available evidence on the value of small and medium-sized charities (those with annual incomes of between £25,000 and £1 million), and on how recent changes to public policy have impacted upon them. It draws upon evidence published by academics, thinktanks and third-sector organisations, as well as material gathered through a wider call for evidence issued as part of this project.

Smaller charities have considerable strengths: many are rooted or embedded in their local areas, and play a key role in building and nurturing social networks. They also boost local social capital by building local capacity and developing links both within particular communities and between them and other networks and bodies, and are considered uniquely well-placed to engage directly with those who are hardest to reach.

However, despite its valuable work, successive reviews have found little evidence of a distinctive ‘offer’ from the voluntary sector as a whole, or from small charities in particular, and there is a lack of rigorous evidence to support many of the claims that are made for it. Furthermore, while smaller charities can develop their own frameworks of evidence to help attract funding, their often limited capacity makes this a challenge, and there are limits to how some aspects of their work can be usefully quantified in any case. Those that are able to produce the most reliable and comprehensive evidence base are not necessarily those that are most embedded in their communities.

Against a backdrop of rising demand and the long-term reduction in grants in favour of contracts, the income that the voluntary sector as a whole receives from government has fallen, and smaller organisations have been hit particularly hard. At the same time, the nature of public service delivery has changed significantly since 2010, with a shift towards the use of competitive commissioning models in which all types of provider compete to deliver public services. There is compelling evidence to suggest that large organisations, including some large charities, are increasingly dominating the market for public service provision, to the detriment of small and medium-sized organisations.

Given these findings, this report presents the following recommendations.

1. Small and medium-sized charities should be offered more and better support from umbrella organisations to help them evidence their impact, and develop their capacity for monitoring and evaluation.
2. Commissioning and procurement teams within local authorities, clinical commissioning groups and other public agencies should be made more accountable for delivering social value.
3. In-keeping with its commitment to prioritising diversity of scale in its general procurement agenda, the government should pledge to increase the proportion of central government spending that goes to small and medium-sized charities, as it has done already for smaller private companies. Local authorities could also benefit from setting their own similar targets for contracting with smaller organisations in both the private and voluntary sectors.
4. Those organisations that have moved or are moving away from grant-giving in favour of commissioning or more complex forms of social finance should review the impact that this has on small and medium-sized charities that might not be able or willing to engage with such forms of funding, but may still provide greater social value-for-money than those that are more adept at bidding for funding and providing formal evidence of outcome improvements.