Gary Beharrell, Regional Manager at the Foundation, discusses the guidance we have issued with NAVCA for voluntary organisations operating in areas where the council is experiencing financial difficulties or issued a section 114 (s114).
13 November 2024
Earlier this year I met with a small charity that had lost their main source of funding from the local authority for an addiction service they had delivered in their local area for years. They lost out to a national provider who would not have had the smaller charity’s wealth of local experience and relationships that they’d fostered over years of working within the community. Unfortunately, this is something I’ve seen countless times before, as I wrote about in an article for Civil Society where I outlined how the commissioning process often puts small charities at a disadvantage.
Many of the small charities we work with at the Foundation rely on funding from the local authority to deliver some of their services. However, cuts to local government funding has led to a significant increase in s114 notices, which are issued when it appears that a council's expenditure will exceed its income for the financial year. Since 2018, 13 s114 notices have been issued. Before that, only two had ever been issued, both almost 25 years ago.
The small charities we work with have been sharing how challenging the situation is. They are already picking up the pieces of more than a decade of local government funding cuts by subsidising contracts that don’t cover the full cost of delivering services and absorbing increased demand due to reduced support elsewhere. The pressure on small charities is further exacerbated when a s114 is issued.
We wanted to explore the impact of an s114 on communities and the voluntary sector and how to support charities impacted by this. So, we partnered with NAVCA and Counsel-Ltd to research the effect that squeezed local authority finances are having on the local voluntary sector and develop a set of recommendations for local and central government and guidelines for voluntary organisations.
The research involved interviews with voluntary sector organisations, local VCS infrastructure organisations, and local government representatives, and gathered their experiences of local government financial difficulty. This resulted in two outputs:
1. Guidance for the voluntary sector on recognising and responding to squeezed finances in their local authority.
2. Policy recommendations for local and central government aiming to improve the practice around section 114 notices and achieve better outcomes for communities.
The guidance sets out six stages of financial difficulty that a local authority might experience – recognising that these aren’t linear and there is no set pattern. For me, the key point is that financial difficulties need to be addressed long before the local authority announces it can’t balance its books. Charities will see the warning signs. When budgets are frozen or reduced, grant sizes are shrinking or disappearing altogether, and service contracts are not renewed, it is important that charities ask why this is happening and prepare for what might come next.
The report highlights the need for charities to work together and to move from a competitive environment to a collaborative one, whilst also recognising this may not be easy.
In my view, those from both the voluntary sector and local authority should take a step back and try not to be adversarial, though this is difficult when you know how significant the impact of cuts will be on your community. Both the voluntary sector and the local authority are there to serve the community, so focus on that. Talk to each other.
Remember this also becomes a political process, so talk to all involved – not just the officers, but the elected officials such as councillors. This may mean more proactive influencing work at all levels: talking to your commissioning officer is no longer enough.
The accompanying report outlines some policy recommendations for local and central government and reflects the need to foster communication and collaboration.
Specific recommendations for local government include engaging and involving the voluntary sector earlier in any budgeting and financial challenges. We hear from charities that local authority officers and members can be risk averse and go to ground in difficult times. But voluntary organisations have a lot to offer because of their trusted relationships and in-depth knowledge of their local communities. They should be engaged at the strategic level in shaping how to best finance a local area.
This report also makes significant recommendations to central government. The need to urgently update guidance and increase oversight in this area is paramount. Existing guidance leads to inconsistent approaches to managing the process up to and including an s114 notice, creating uncertainty for communities. And opportunities are being missed to identify and support areas in difficulty.
It is clear that the requirement of the Local Government Finance Act (1988) that every local authority must balance its budget in year, every year needs to change. Central government doesn’t have to balance its budget annually, nor do many companies and charities, so why should local authorities? Possible recommended changes in the most recent budget to longer term funding settlements from 2026/27 onwards may help, but there will be a difficult few years ahead.
Every area will deal with financial challenges differently. This report and guidance provides some ideas of how this could be approached, leaving room for people to find a solution to suit their locality and circumstances. It will likely require some changes to ways of working and more open conversations – but that is something we’ve all been saying needs to happen for years.
Perhaps this is an opportunity to reset relationships and ways of working (both with local authorities and other charities) to better serve the communities we want to serve. Perhaps now is the time to have those conversations and start to build trust.
