“I can’t help but think this throws into question whether the voluntary sector should describe itself very differently, in a way that actually reflects its changing makeup and the fact that so many charities and other voluntary sector organisations are viable businesses… ”
So says Social Enterprise UK (SEUK) chief executive, Peter Holbrook, writing for Pioneers Post in reaction to survey results published by his organisation last week showing charities’ growing appetite for social enterprise. He goes on to explain that: “In fact it’s been a few years since trading took over giving as the main source of income for what is still too-often regarded as a sector run on good will and giving.”
According to SEUK, a whopping 92% of charities taking part in the survey “said they would like to increase their income from trading and government contracts in the next three years” while 74% said “there is not enough support available to help charities make the transition from voluntary to trading income, and two-thirds (63%) said more government support was needed.”
The broad idea that the SEUK research reflects is that we’re in the midst of a major shift from a situation where charities got grants and donations to do good stuff, to a situation where charities have to either turn that good stuff into products they can sell or sell something else to make profits which they can spend on doing good stuff.
There definitely is some major change taking place. According to NCVO’s Civil Society Almanac, ‘earned income’ in ‘the voluntary sector’ has been increasing in recent years. The biggest increase (148%) has been in income from government contracts which went from £4.5 billion in 2000/01 to £11.2 billion in 2010/11 while, during the same period but trading income from individuals also increased (40%) by from £5.8billion to £8.1billion in the same period. During this time, income from government grants decreased from £4.6 billion to £3 billion.
As a social entrepreneur, charity trustee and author of SEUK’s popular booklet Why Social Enterprise? A Guide for Charities, I think it’s generally a good idea for charities to become more socially enterprising but I’m also wary of conflating distinct, if sometimes overlapping, trends in voluntary sector income generation.
One major trend is for charities to be funded in a different way to do the same things. I’m a trustee of Voluntary Action Waltham Forest (VAWF), the local umbrella organisation for voluntary sector organisations in the London Borough of Waltham Forest. The vast majority of VAWF’s income comes from the local authority and, as a result of the New Labour-era shift from grants to contracts, this income currently comes in the form of commissioned contracts rather than grants so it’s part of that 148% increase in voluntary sector ‘earned income’ between 2000/01 and 2010/11.
The shift from grants to contracts isn’t meaningless. It means that every two to three years when the local authority commissions the services VAWF delivers, other organisations can bid for them. It also means that VAWF has to deliver against a set of targets – such as supporting local organisations to raise a certain amount of money in grant-funding each year – or risk not being paid in full.
What hasn’t changed in any way is the fact that local authority is paying VAWF to carry out a range of activities that together amount to being the voluntary sector umbrella body for the London Borough of Waltham Forest. These activities were never paid for through ‘good will and giving’ (and it’s difficult to imagine anyone ever running a marathon to raise cash for voluntary sector capacity building). They used to be paid for in blocks with grants and now they’re paid for in blocks with contracts. It’s basically the same stuff, based on the same business model, administered in a different way.
Clearly, you don’t a 148% increase income solely from reclassifying existing grants as contracts and a second major trend is the government’s ever-growing enthusiasm for outsourcing public services to alternative providers, including the voluntary sector. This results in opportunities for socially enterprising service delivery charities such as Turning Point to compete with private sector providers (or work in partnership with them) to win contracts in a commercial market place. Whether or not this is a good thing, it’s not socially enterprising trading activity replacing grants and donations, it’s socially enterprising trading activity replacing direct public sector delivery. This is new income for doing new stuff.
A third trend (or situation) is that as a result of cuts in grants (and contracts that used to be grants) many charities are now hoping to find a social enterprise model to support existing activity or (potentially) activity that in some way replaces existing activity. In some cases bidding for new public sector contracts might be part of that.
The big challenge, as Beth Parker of Bonsai Bison explains, is to establish the business case for your socially enterprising activity. The SEUK report uses the example of London Early Years Foundation (LEYF) who successfully flipped their business model to turn their core activity, running nurseries, into a business sustained by parents paying for their children to attend the nurseries.
As LEYF chief executive, June O’Sullivan, explains in this interview with me for Social Enterprise, making that kind of change involves a big culture shift for the organisation but LEYF’s starting point – being a non-commercial operator in the commercial market for nursery provision – is a relatively unusual one.
Most charities are not in a position to commercialise their core activities because the end user/beneficiary/customer (delete as appropriate) for their activities is not in a position to pay (a commercial rate). In that case charities either have to stop what they’re doing and do something else that customers will pay for, or do some new things to make a profit and cross-subsidise the activities that are vital to charity’s mission but that no one will pay for. This is the point where social enterprise can be the answer (or part of the answer).