The axeman cometh?

So, the phoney war is now over. We are now beginning to see some flesh on the bones of what has been widely anticipated as the single biggest retrenchment in fiscal policy in most people’s living memory. The ever-reliable Institute of Fiscal studies, in their pre-election report, summed it up thus: Conservative plans imply cuts to spending on public services that have not been delivered over any five-year period since the Second World War.

I’m keen to explore that in a bit more detail so that we can have an informed debate in the sector about the scale and impact of cuts. So, with a little help from our friends at IFS and Her Majesty’s Treasury…,

Let’s walk through the numbers

1. How big are the cuts going to be in total?

The IFS suggested in their pre-election briefing that all three major political parties had a major job on their hands to repair the public finances, but that none of them had identified the majority of the cuts. This slide sums it up nicely:

In other words, over the course of the next parliament, assuming that the coalition government sticks to Conservative tax and spending plans, there is some £55 billion of tightening to be achieved. Despite a significant amount of noise about making the public sector better, this isn’t going to butter many crumpets: 82% of that £55 billion was to be identified as the election loomed. The coalition have made a start, of which more in point 4, but here is a chilling thought: if some departments are protected from cuts (health, education, overseas aid), then this £53bn equates to 22% of the remaining department’s spending over this parliament.

2. How much public funding does the voluntary sector receive?

We estimate that in 2007/08, the latest year for which we have data, the sector received £12.8 billion income from the state in the form of grants and contracts. This doesn’t include any money from national lottery distributors. These data are from NCVO’s Almanac. IFS estimate that the size of the fiscal tightening required will take spending back to 2003/04 levels.

Based on our trendline, this implies a cut of £3.2 billion to the sector each year. Now, this is where it starts to get a bit messy: this assumes that all spending is equal, which it plainly isn’t; it assumes that spending is not a political decision, which it plainly is; and it assumes that the ‘sector’ as a whole is going to be hit, which it isn’t. Its important to remember at this point that the NICE decade wasn’t that, er, nice for quite a few VCOs. Non Inflationary Continuous Expansion wasn’t experienced by many VCOs. More to the point, a majority of the sector do not have a direct financial relationship with the State in any of its forms. We estimate that 40,000 VCOs are the recipients of this £12.8 billion. How hard, therefore, will the cuts be for this group?

3. Who is most dependent upon statutory funding?

It’s important to again note that we are dealing with averages and aggregate numbers, and that this masks a certain amount of reality. With that in mind, it’s worth reflecting on which bits of the sector are dependent upon government funding. Let’s start with size: and what’s clear from this is that large and major organisations face the biggest risk. Almost three quarters of organisations with an annual income of more than £10 million receive a grant or a contract. Over 1 in 2 medium-sized organisations – those with an income between £100,000 and £1 million – are also at risk. For the sector as a whole, one third of its income is exposed. Small and micro organisations receive a much smaller proportion of their income from statutory bodies.

Still with me? Good. Here’s a breakdown by sub-sector. This is slightly trickier to interpret because it shows the other sources, but hopefully you’ll get the message. The blue bar shows the proportion of funding from each source – so 70% of the income of the employment and training sub-sector is from statutory sources. What it’s showing is that the sub-sectors most at risk are employment and training, education, law and advocacy (i.e advice services) and so on.

4. And what about the £6 billion cuts announced earlier this week?

It’s almost the end of May and the coalition has just announced £6 billion of ‘in year’ cuts that will be removed from this year’s budgets. The Guardian’s DataBlog has kindly put these in a Google spreadsheet, whilst the press release highlighting the main detail is here. To a certain extent there is still a lack of detail as I write, plus I will say again that cuts aren’t going to be equal. So, in our hypothetical world, what could happen? The table below explores this, using Treasury data on cuts and our estimates of departmental funding from the OTS survey of central government funding. You can download this table as a spreadsheet here.

This isn’t an exact science, partly because the OTS survey was done in 2005/06 when the departments were different. But it should give us an idea of where and how the cuts could be distributed. What it does suggest is that the sector would face in year cuts of £148 million in total, equivalent to 0.4% of total sector income this year, or 1.2% of statutory income. We do have some detail about specific programmes – train to gain and the future jobs fund are not going to be around much longer – but it’s not yet possible to quantify what proportion of these would have been taken forward by VCOs. With £1.165 billion of cuts for local authorities this year alone, it is hard to see the sector emerging unscathed: the sector receives £6.6 billion in grants and contracts from local government every year.

5. So what?

These figures are hypothetical: as such, I can see myself looking very silly in a few days time! What we really need to be able to do is build this picture up from the ground: in short, crowdsource the cuts. Tomorrow we’ll be putting up a link to enable you to do this, plus we’ll be asking you to help us with the crowdsourcing by encouraging your colleagues to help us fill it in. Then, we’ll map the data and help you understand literally where the axeman cometh.