Five reasons why we should fund using grants

It’s difficult these days to avoid reading blogs and articles where the virtues of social investment are being lauded. Likewise, contracts long ago took over grants as the main mechanism for funding social outcomes. Whether its government ministers or social entrepreneurs with plans to service the next billion of the world’s poor, the debate about how best to deliver social outcomes is increasingly framed around the need to move away from grants. Grants are bad. Corrosive, even. They create dependency. They’re a waste of money. I’m sure that we’ll soon be reading blogs telling us to stop giving our children pocket money and to instead loan them a fiver so that they instead run an income generating (presumably digital) sweet shop. Meh.

For what it’s worth, I think that the tools social investment provides us with are incredibly useful: my American friend Steve Goldberg is an especially good writer on the potential of social finance. And when I first started in the voluntary sector, I remember Nicholas Deakin’s remarks that contracts were often a boon for voluntary organisations as they offered certainty and led to a focus on delivering what mattered (although I suspect he was mindful of Goodhart’s Law).

My grumble is that we’re thinking of these approaches as ‘either/or’, rather than ‘and’. My other grumble is that grants seem to be a perfectly appropriate funding mechanism for other bits of government: so, if the taxpayer can grant fund the world’s biggest web-based retailer, or small businesses to take on apprentices, why not voluntary organisations to deliver social outcomes? So, I was mightily heartened to read that the new head of the Big Lottery Fund, Dawn Austwick, is arguing that grants are great. I think we all need to follow Dawn’s lead and reframe the debate, as this excellent NAVCA-led campaign tried to do a few years ago. And I love the way that CEP’s Phil Buchanan has reframed the grant dependency debate.

So, what arguments can we use with funders and commissioners on a day to basis? Dawn outlined two arguments: grants support early intervention; and grants make a difference at the beginning and end of a project.

Here’s my starter for ten

1. Grants are OK

I know, we shouldn’t have to start with this. The government’s own auditor, the National Audit Office, says grants should be used if they provide the best value for money. This includes grant in aid and strategic grants. And for when the inevitable ‘we can’t…’ comes, here are the only reasons they cannot. What the NAO says, goes. So, in addition to these web pages, NAO guidance is also available on tablets of stone.

2. Grants provide value for money

I shall note in passing that grants are not the flip side of competition (the seeming only show in town for producing value for money). But the aforementioned Goodhart’s Law means that contract design and monitoring is an expensive business (and arguably counter-productive). And the contracting skill set is not widely held in government. Grant agreements should be simpler and therefore cheaper: and there are many templates around, such as this from Mango or this from the Participatory Budgeting Unit. I think we need a library of these.

3. Grants encourage a diversity of suppliers, particularly small organisations

See previous point re competition. There’s lots of evidence that contracting excludes small organisations. In the case of large contracts, there is increasing evidence that contracts increase the dependency of commissioners on a small number of prime contractors. And that’s working well, isn’t it?

4. Grants enable social innovation

The obvious point here is that those seeking returns on investment are less tolerant of risk: and that innovation is a high priority for the current government. Note an interesting variant on grants here: the use of prizes, such as the x prize. I very much doubt we’ll fly a spaceship to Mars using payment by results.

3. Grants help social organisations attract other sources of income

The evidence here isn’t uniform, but there is evidence that grants can ‘crowd in’ other sources of income – one study reckons that is especially the case for small organisations. This paper argues that there is strong evidence that government grants crowd in private donations – the mechanism being what economists call a signalling effect. So, the act of grant making shows donors that your organisation is delivering worthwhile social outcomes.

What do you think?

This is hardly a definitive list! Share your points with me and I’ll add them to the list – and hopefully together we’ll come up with something up to date and compelling. And one last word: anyone involved in the world of funding social outcomes should probably be made to read this: The Grantmaking Tango, by Julia Unwin.

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Karl Wilding is chief executive of NCVO.

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