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Cuts will force charities to merge to win council contracts, says think tank 

Upcoming cuts to local authority budgets will force smaller charities across all sectors to club together to bid for government contracts and pool research if they want to survive, a think tank has said.

NPC (New Philanthropy Capital) warned that local funding cuts expected in the Spending Review next week – especially with the DCLG already facing 30% reductions – could be a ‘silent killer’ for charities.

In a report, it argued that smaller charities with local expertise and community roots are at a “serious disadvantage in local authority commissioning”.

To dodge the substantial impact of cuts, charities should focus on bigger contracts through mergers and by building consortia to compete against national organisations.

It cited west London’s Angelou Partnership as a successful consortium, adding: “The wider trend is for local authority contracts to be awarded to larger providers rather than smaller specialist groups. The former can provide services at scale (while gaining economies of scale) and so win the larger ‘bulked’ contracts.

“Smaller groups – those with local knowledge and roots, specialist skills, or serving a specific beneficiary group (such as black and minority ethnic groups) – are therefore at serious disadvantage in local authority commissioning.”

The think tank argued that failing to win these larger contracts, combined with general underfunding, has also made it difficult for smaller charities to carry out the research needed to establish their impact and be competitive in outcome-based commissioning processes.

As a result, moving towards a collaborative approach to share measurement and impact research is now a necessity.

George Hoare, NPC consultant and one of the authors of the report, said: “The Spending Review is certain to deliver more cuts to national and local budgets. Even after an extremely tough few years, charities will be confronted with even tighter public funding in the years ahead.

“All charities should be thinking about what happens next. Boards and staff will need a strategic response, whether this means doing more in collaboration with others, or cosying-up to local politicians who will make key decisions on where the money goes.

“The challenges ahead aren’t insurmountable. But charities need to prepare for the choices ahead, some of which will be very difficult.”

The report also warned that charities should plan ahead to cope with potential future shocks even if they are linked to ring-fenced sectors like health and education.

It said there is still a real risk to charities involved in mental health and non-core schools work since these are not specifically protected and face looming cuts.

And postponing tax credit reforms could also trigger deeper cuts to budget for other services or welfare benefits, resulting in a ripple effect across the voluntary sector.

Charities in areas like the arts, careers and youth services working with schools also need to be alert at a time when schools will be under pressure to slash non-core funding to retain staff posts.


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