A manifesto for building and supporting communities

What’s the issue and why does it matter?

Local communities are likely to continue to face significant financial challenges over the next Parliament. Under current spending plans, local authorities are having to reduce their expenditure, with implications for many of the services they provide. At the same time, demographic pressures are increasing demand for the services they and other local commissioners, such as NHS trusts, currently provide.

Communities lie at the heart of the work of many charities and much voluntary action. We’ve said before how important a role we feel voluntary organisations will have in rebuilding communities and reaching out to disengaged people in the coming years.

This election is a chance to discuss how we can support local communities through these challenges, and how we can enable charities to play a greater role in doing so. The second strand of our manifesto for charities and volunteering sets out our vision for how the next government could achieve this by investing the proceeds of the Dormant Assets Commission in the long-term future of our communities, and here I’ll take a closer look at the data and policy context that’s behind our proposals.

What’s happening in local communities?

The local government spending picture will by now be very familiar to many charities. We’re one year into a new public spending cycle and local authority spending is expected to continue falling until 2019/20.

Source: NCVO Almanac and LGA Future Funding Outlook 2015 (PDF, 428KB), adapted with further LGA data.

Local authorities are increasingly having to look at cutting non-statutory services, and the difficulties of meeting the social care funding gap has even been highlighted by the LGA in a budget tool that illustrates the potential consequences of meeting the shortfall from other services.

What has that meant for charities?

Voluntary organisations have seen proportionately greater falls in their income than local government spending reductions since 2010, primarily driven by a frontloaded fall in grants around 2010.

Source: NCVO Almanac

We know from last year’s Navigating Change Report (PDF, 3MB) that it’s been smaller and medium-sized organisations that have seen the greatest proportional falls in grant income among all income bands. In short, those smaller charities that tend to be locally focused have seen substantial falls in government grant income, that provides a proportionate procurement method they are able to easily engage with.

What can government do?

The recent report of the Dormant Assets Commission represents a rare and valuable opportunity to make a lasting difference to communities, and begin to address some of the financial challenges facing them and the charities that support them. Investing the estimated £1-2bn the Commission identified rather than distributing it for day-to-day spending would create a legacy of long-term sustainable income generation, by building on the success story of community foundations and smoothing the way for community asset ownership.

Build up local grant-making through Community Foundations

Community Foundations encourage local philanthropy, using the funds raised to make grants to local charities, based upon their expertise of what is needed in their area. With an average grant size of £3,200, they represent a source of funding for local charities that is tailored to the scale of their work, and which, as described above, is in otherwise short supply.

Investing £1bn from dormant assets at a 4% rate of return (a typical rate sought by larger foundations) would generate £40m a year for local grantmaking. Spending £1bn down at this rate would take 25 years, but investing it now would generate the same return in perpetuity.

Moreover, community foundations also draw in philanthropy, meaning that while they have collective endowments of £500m, they hand out around £65m of grants a year. While we shouldn’t expect philanthropic matching to scale directly with an increased endowment, it’s plausible that doing so will help them leverage increased amounts to help their communities, beyond the raw return on investment. Community foundations previously ran a successful match funding programme on their endowments themselves, which if repeated could further build the resources available for local communities.

At a time when local authority grants to charities are in decline, this is an opportunity to address the sustainability of small charities in particular and the communities that they work with, at little cost to the exchequer.

Enable community asset ownership through a capital fund

The difficult financial conditions at a local level are also seeing a significant sell-off of public assets and land. While legal progress has been made in helping communities take ownership of their assets through the community right to bid, funding and finance remain serious barriers; ultimately, local authorities are unlikely to hand over assets with an economic value at a time when they are seeking to raise revenue for service delivery.

Establishing a capital fund would seed community ownership and attract additional loan finance for organisations. Locality set out a plan in their Places & Spaces report, proposing the investment of £500m from dormant assets and using this to attract a further £500m match funding from other funders such as the Big Lottery Fund.

Source for household income: IFS figures based on OBR projections

When we look at where there has been growth in the sector’s income in recent years, it’s primarily been driven by earned income from individuals; charities developing products and services that the public is willing to pay for. Looking at the trends in household income and donations suggests that growth in the latter over the next few years may be constrained by people feeling the pinch of inflation.

We know that owning an asset can be a significant step in charities becoming financially viable and independent, in turn strengthening the communities around them. So as well as retaining assets for the benefit of their communities, a more ambitious asset ownership scheme could help strengthen the long-term financial sustainability of their local voluntary sector.