Programme for Government proposal: Delivering Fair Funding by 2026

Our proposals for the Programme for Government 2023/2024 cover three areas:  

1. Delivering Fair Funding by 2026 
2. Transparent voluntary sector funding
3. Charity regulation for a modern voluntary sector.

This paper focuses on Fair Funding, a long-term, flexible, sustainable, and accessible approach to funding essential to a sustainable sector which can offer Fair Work, support volunteers, and deliver quality outcomes for the people and communities the sector works with.

About Scotland’s voluntary sector

Scotland’s voluntary sector plays a central role in achieving the three policy priorities discussed by the First Minister’s in the Policy Prospectus, New leadership - A fresh start.

Tackling poverty and protecting people from harm

Voluntary organisations provide practical and emotional lifelines for people and communities when times are tough (e.g. foodbanks), and support them on their journey out of poverty (e.g. access to benefits).  Our sector supports people into work and helps them to stay there; campaigns against the root causes of poverty; and encourages individuals and communities to improve their lives.

A Fair, Green and Growing Economy

With a turnover of £8.6billion, Scotland's voluntary sector is a major economic actor. Our sector plays a central role in local economies, including employing over 135,000 across Scotland - 5% of the Scotland’s workforce.  The sector plays a key role in keeping people economically active by providing employability support, mental health support, and wider support for people, families, and communities, such as childcare. Voluntary organisations also bring added value to the economy by working with Scotland’s 1.2 million committed volunteers and by bringing fundraised income into vital areas, from service provision to environmental and medical research.

Prioritising our public services

Without the voluntary sector, our public services would be significantly diminished. Through direct provision of public services in areas like social care and youthwork, or working with communities to keep people active, engaged, and healthy in a way that prevents them from needing to access statutory services, Scotland’s voluntary organisations are a vital part of our public service infrastructure.  Our sector also adds value to Scotland’s local and national systems by bringing access to fundraised income and volunteer time that is not be available to other actors.

By committing to the actions described in this paper, the Programme for Government can support Scotland’s voluntary sector to continue to make a significant contribution to achieving the aims set out in the Scottish Government’s policy prospectus, including commitments to progress Fairer Funding, implement multi-year funding deals, embed Fair Work principles, reduce child poverty, build a wellbeing economy, improve transparency, and deliver efficient and effective public services. The Scottish voluntary sector is an employer, a partner, and a vital social and economic actor central to the Scottish Government’s ambitions to become a fairer and more equal society.

Summary of proposals   

Our proposals for the 2023/2024 Programme for Government cover three areas: 

1.  Delivering Fair Funding by 2026
2. Transparent voluntary sector funding
3. Charity regulation for a modern voluntary sector.

This paper focuses on Fair Funding, a long-term, flexible, sustainable, and accessible approach to funding essential to a sustainable sector which can offer Fair Work, support volunteers, and deliver quality outcomes for the people and communities the sector works with.

Summary

In the Scottish Government’s policy prospectus New leadership - A fresh start, the Scottish Government committed to delivering Fairer Funding by 2026:

“As the Cabinet Secretary for Social Justice, working with my Cabinet colleagues, I commit that by 2026 I will have… Progressed Fairer Funding arrangements, including exploring options to implement multi-year funding deals, enabling the third sector to secure the resilience and capacity it needs to support the transformation and delivery of person-centred services for Scotland’s people and support our thriving social enterprise economy”. 

(Cabinet Secretary for Social Justice, Shirley-Anne Somerville MSP)

These commitments complement commitments from the previous Minister for Social Justice, Housing and Local Government and now Deputy First Minister and Cabinet Secretary for Finance, Shona Robison MSP, who recognised the importance of multi-year funding to the voluntary sector, both within her portfolio and across Government: 

 “Under fairer funding principles, multiyear arrangements for third sector organisations are preferred where appropriate, so we want to move to multiyear grants being the default position…I would like to move to multiyear funding being the default, and I am committed to progressing that in my portfolio.  

(Shona Robison MSP, Social Justice and Social Security Committee, 19 January 2023) .

SCVO has advocated for Fair Funding for the voluntary sector for many years and welcomes these commitments. Over the next year, significant progress is needed to build the foundations necessary to achieve Fair Funding by 2026.  

Beyond multi-year funding, however, what Fairer Funding will mean in practice is unclear. The Scottish Government should progress these ambitions by aligning their plans with SCVO’s Fair Funding calls. SCVO defines Fair Funding as a long-term, flexible, sustainable, and accessible approach to funding.

For the Scottish Government to achieve its commitment to Fairer Funding arrangements by 2026, the 2023/24 Programme for Government should, at a minimum, commit to:  

1. Align the Scottish Government’s Fairer Funding principles with SCVO’s definition of Fair Funding – which was developed through significant research and engagement with Scotland’s voluntary sector.

2. Ahead of the 2024/25 Scottish Budget and annual funding round review and upgrade Scottish Government grant funding systems and create a framework for regular re-evaluation to ensure timely decision-making, communications, and payments.

3. Introduce multi-year funding across a number of Scottish Government funds and report on the impact of this change to develop a multi-year funding model as standard by 2026.

4. Establish transparent delivery goals, timelines, and accountability mechanisms – such as reporting and stakeholder groups - to ensure progress on Fairer Funding can be scrutinised by the voluntary sector and Parliament.

Introduction

Fair Funding is a long-term, flexible, sustainable, and accessible approach to funding. 

In the policy prospectus, Equality, opportunity, community: New leadership - A fresh start, the Scottish Government committed to Fairer Funding arrangements for the voluntary sector, including exploring options to implement multi-year funding deals, a Scottish Government commitment for several years.  

Similarly, the Scottish Government’s Medium-Term Financial Strategy commits to adopting multi-year spending plans, recognising that these will both offer greater transparency on the impact of annual budget decisions on future years’ spending plans and give stakeholders confidence in the trajectory of public spending, enabling financial planning. 

Multi-year funding for the sector is something that SCVO have called for for many years.  We therefore welcome these commitments, built on the cross-party support for multi-year funding across the Scottish Parliament.  It is vital that in 2023/24 we see steps taken to make these commitments and political statements a reality.

In addition, it will be vital for the Scottish Government to recognise that Fairer Funding is more than just multi-year funding.  At present, it is not clear what the Scottish Government definition of Fairer Funding is. 

SCVO defines Fair Funding as a long-term, flexible, sustainable, and accessible approach to funding including, but not limited to, longer-term funding, flexible unrestricted funding, timely decision-making and payments, accessible application processes, sustainable funding with inflation-based uplifts, and proportionate, transparent approaches to monitoring and reporting. 

This Fair Funding approach is essential for a sustainable voluntary sector which can offer Fair Work, support volunteers, and deliver quality outcomes for people and communities. 

The problem

Rising inflation and the resulting cost-of-living and running costs crises, have put pressure on voluntary organisations, exacerbating financial and operational challenges. The findings from wave five of the Scottish Third Sector Tracker suggest that 10% of organisations are uncertain about their future viability.  67% of those surveyed reported financial challenges, while 39% found it difficult to plan ahead. 

Short-term funding cycles and ingrained operational issues, such as delayed decision-making and payments, inconsistent processes, and poor communication, further exacerbate these issues. significantly impacting the effectiveness of the voluntary organisations by creating ongoing uncertainty and insecurity on a scale unparalleled in any other sector.

In wave 4 of the Third Sector Tracker 28% of organisations said the most important aspect of Fair Funding for their organisation was multi-year funding without which organisations: 

• Struggle to plan for the long-term. 
• Face barriers in recruiting, retaining, and developing staff and volunteers. 
• Are unable to offer secure work, undermining Fair Work aspirations. 
• Are trapped in a cycle of dedicating time and resources to sourcing funding.

 Annual funding challenges such as these distract from providing the services people and communities across Scotland rely on. In their recent report, Scrutinising social justice: Barriers and opportunities, the Social Justice and Social Security Committee identifies sustainability and the longevity of funding as crucial to the delivery of social justice policies. The Committee stated that “insecure and single-year funding for the third sector, which often provides public services that contribute towards social justice, was an issue.”  

Short-term funding also severely undermines job security - one of the five Scottish Government Fair Work Dimensions - across the voluntary sector workforce of over 135,000 people. As a result of short-term funding, voluntary organisations frequently issue redundancy notices. Delayed decisions from Scottish Government departments, particularly when funding is provided on an annual basis, compound these issues. The Scottish Government itself also dedicates significant time and resources to these annual processes when often there is little change year-to-year.   

Despite commitments in previous Programmes for Government, from the previous Cabinet Secretary for Social Justice, Housing and Local Government, Shona Robison MSP, and the previous First Minister, there has been little progress on these issues. To make progress all Scottish Government departments should be encouraged to explore multi-year funding and to share good practice.  

Unfortunately, in the last few months organisations across the sector have raised serious concerns about the Scottish Government's approach to grant-making. Despite numerous reports and recommendations in recent years, often from the Scottish Parliament, the standard of voluntary sector funding decisions seems to have slipped further. Underlying administrative issues within Scottish Government departments are making the situation worse, rather than better. Significant delays in decision-making, inconsistency across government departments, and poor communication have compounded the already well-known problems caused by short-term funding. Within the sector frustration and disillusionment are building. Several organisations have described the current financial year as the worst ever in terms of the process for applying for funding across a range of policy areas. 

From the feedback we have received, SCVO believes that the causes of these issues include: 

• Delays in the budget process which, although readily understood by the sector, continue to pose difficult challenges, especially when the goalposts change at the last minute. 
• “Unexpectedly high” levels of funding applications, which shouldn’t be unexpected in the current financial climate. 
• Inability, or unwillingness, to set clear criteria and stick to them. 
• A lack of capacity within the civil service to deal with the endless cycles of applications, monitoring, and reporting. 
• A lack of understanding among finance officials of the impact of poor grant-making practice on organisations, their staff, and the people they support. 
• A lack of consistent approaches to processing applications and allocating funding across Scottish Government departments. 

“It is very difficult for the voluntary sector to plan as most funding is short term, even the development of the Strategic Plan can be problematic as we never know where we will be year to year.” 

Registered Charity 

“Planning in the current climate is extremely difficult - funding agreements which cover 3 - 5 years would enable us to plan staffing and resources to meet needs.” 

Registered Charity 

“The longer-term funding allows us to give much better value for money, we can 

plan long term, employ staff on more secure contracts therefore allowing us to 

utilise staff more efficiently.” 

Registered Charity 

“The lack of inflationary increase to our funding is the most unfair aspect of our current arrangements, we effectively suffer a cut in funding year on year.”  

Registered Charity 

The solution 

For many years, the Scottish Government has recognised the need for multi-year funding in Scotland, most recently in the policy prospectus, which commits to progressing Fairer Funding, including exploring options to implement multi-year funding deals, by 2026.

To realise these ambitions the Scottish Government should align their Fairer Funding plans with SCVO’s Fair Funding calls including, addressing short-term funding cycles, and tackling ingrained operational issues such as delayed decision-making, inconsistent processes, and poor communication. Commitments and changes set out at a ministerial level will only be possible if the supporting processes across all departments are consistent and effective. To achieve this, officials across Scottish Government and the Scottish Government itself must work with the sector to identify barriers and solutions to these issues.

The Scottish Government has also committed to longer-term funding for the voluntary sector across government strategies, including the 2021/22 Budget, the Economic Strategy, and the 2021/22 Programme for Government.   

To further develop their commitments to both multi-year funding and Fairer Funding arrangements by 2026, the 2023/24 Programme for Government should, at a minimum, commit to:  

1. Align the Scottish Government’s Fairer Funding principles with SCVO’s definition of Fair Funding – which was developed through significant research and engagement with Scotland’s voluntary sector.

2. Ahead of the 2024/25 Scottish Budget and annual funding round review and upgrade Scottish Government grant funding systems and create a framework for regular re-evaluation to ensure timely decision-making, communications, and payments.

3. Introduce multi-year funding across a number of Scottish Government funds and report on the impact of this change to develop a multi-year funding model as standard by 2026.

4. Establish transparent delivery goals, timelines, and accountability mechanisms – such as reporting and stakeholder groups - to ensure progress on Fairer Funding can be scrutinised by the voluntary sector and Parliament.

These commitments will lead to better outcomes for organisations, their staff, volunteers, and the communities they work with and reduce the time and resources that Scottish Government departments waste through annual funding processes.

Achieving the National Outcomes and Strategic Priorities 

Voluntary organisations are intrinsically linked to the Scottish Government’s National Outcomes and priorities. The Scottish voluntary sector:  

•          Includes over 46,500+ voluntary organisations.  

•          Extends across a range of priority areas.

•          Contributes to all the 11 National Outcomes.

•          Provides essential support and services to people and communities across the country.  

A sustainable voluntary sector is invaluable to the Scottish Government’s aspirations to achieve the National Outcomes. Fair Funding, including multi-year funding, timely decision-making and payments, and annual uplifts, are all central elements of a sustainable sector.   

Similarly, the crucial role of the voluntary sector in meeting Scottish Government strategic priorities is well documented, including in the Tackling Child Poverty Delivery Plan and the Covid Recovery Strategy.  Creating a sustainable funding environment for the sector will help to ensure that voluntary organisations are able to fully contribute to the National Outcomes. Creating a Fair Work Nation is also a Scottish Government priority. Static, short-term, and delayed funding decisions and payments make it difficult for voluntary organisations to meet Fair Work commitments. Supporting the financial sustainability of voluntary organisations through Fair Funding will contribute to this important work.   

In the Spending Review Framework, the Scottish Government also recognised that in the current climate of rising inflation and the resulting cost-of-living crisis, demand for public services will be high, and the voluntary sector will continue to play a crucial role.

Evidence that this policy will lead to change  

Several recent enquiries and reports have made a case for longer-term funding. 

• In “Robbing Peter to pay Paul: Low income and the debt trap” published in July 2022, the Social Justice & Social Security Committee recognised Scottish Government’s commitment to multi-year funding arrangements and, with a focus on advice services, urged them to work with local authorities to agree a 3-year funding agreement which supports staff retention, cuts waiting times and builds capacity to offer preventative as well as crisis support.  
• The Equalities and Human Rights Committee, during 2020-21 pre-Budget scrutiny, recognised the challenges of short-term funding and requested that the Scottish Government work with the sector on developing new funding models.  
• The Advisory Group on Economic Recovery stated that the Scottish Government should ‘take action to protect the capacity and financial sustainability of the third sector’, citing longer-term funding arrangements as a proposed solution.  

Previously highlighted Fairer Funding commitments from the Scottish Government, and comments from the First Minister and Cabinet Secretary for Social Justice, also suggest that the Scottish Government already accepts that fairer and longer-term funding for the voluntary sector will lead to tangible, positive, change.  

Who will this policy support? 

As previously highlighted, the work of the voluntary sector covers the entirety of the Scottish Government’s National Outcomes and, as a result, has a vital role in the Government’s work to improve equality, inclusion, and human rights in Scotland. Fair Funding, multi-year funding and timely decisions, communications, and payments support by streamlined and transparent approaches across Scottish Government departments would support future planning and continuity of service delivery.

Rising inflation and the resulting cost-of-living crisis will have the biggest impact on the most vulnerable in society. Voluntary sector sustainability would support our sector to continue to provide the essential services people and communities rely on during this crisis. Our sector employs more women, part-time workers, and more disabled people than other sectors. Supporting our sector will also support this workforce.  

Measuring impact   

The Scottish Government should collect information across all government departments and produce a breakdown of funding to the voluntary sector by department and budget line.  Within this data, Scottish Government should record Fair Funding progress by collecting and publishing what proportion of grants and contracts are:   

• Delivered on a multi-year basis.  
• Include annual uplifts.  
• Accommodate payment of the real Living Wage, including annual increases to this rate.  
• Communicate funding intentions at least three months in advance and make payments no later than the first day of the new financial year. 

More information on how transparent data can support the sector and its contribution can be found in our Programme for Government proposal on Transparent voluntary sector Funding.

The Third Sector Tracker (currently funded to Spring 2024 by partners including Scottish Government) collects information from 600 voluntary organisations on the impact of the external environment on organisations and the services they provide. This could potentially be a mechanism for collecting information on the impact of Fair Funding including multi-year funding, timely payments, and annual uplifts.

Cost  

Growing investment in the capacity and sustainability of voluntary organisations is proven to pull greater funding levels from other sources into vital services and projects at a time when the Scottish Government's budget is tightening. Long-term funding strengthens voluntary organisations' ability to do that by supporting organisations to plan for the long-term and build the internal capacity needed to leverage non-public financing from other sources, often realised through added income generation (e.g., from independent funders and donors). 

As discussed, voluntary organisations and the Scottish Government each year dedicate time, resources, and capacity to making and processing annual funding applications. Multi-year funding would reduce the time and resources committed to funding processes and lead to better outcomes for the communities our sector works with.  

Similarly, timely communication and payments are solutions focused on Scottish Government processes rather than additional resources.