Local government funding crisis: navigating the impact on the voluntary sector

Since 2018, eight councils in England have issued 13 section 114 (s114) notices. Prior to this, two had only been issued, both nearly 25 years ago. An s114 is issued when a local authority cannot balance its books, often with a significant impact on local services and the community.

The report calls urgently on the new government to issue updated guidance for councils in financial difficulty or working through a s114 notice and to provide greater oversight, advice, and support to councils pre-s114 to anticipate areas that could become vulnerable.

Jill Hopkinson, Policy Manager at NAVCA, said: “Financial instability is affecting many councils, and this is having an immense impact on communities. When councils are taking hard decisions to balance their budgets and cutting funding for voluntary and community sector (VCS) organisations, it can produce cliff edges which are detrimental to people and communities. Good relationships and communication between councils, local VCS infrastructure support organisations (LIOs) and the VCS are vital. Voluntary organisations are key partners, and collaboration with the sector facilitated by LIOs, can be an opportunity to reshape ways of working.”

As government funding fails to meet the growing costs of delivering essential services, pressure on local authorities is mounting. Many are already cutting services and funding to the voluntary sector, and several councils are on the brink of issuing an s114, where the consequences for communities will be significant.

As well as recommendations for local and central government to minimise the impact on communities, NAVCA and the Foundation provide guidance for the voluntary sector working with councils in financial difficulty:

• Evidence the VCSE’s role and its local contribution using data, demonstrating why it would be missed if funding were cut.
• Build relationships with council and with other sector partners using a collective voice, identifying how information can be shared across local VCSE networks to develop a collaborative approach to support the community.
• Reframe the external narrative to highlight the impact of cuts on beneficiaries and the wider community.

NAVCA and the Foundation urge local government to build relationships with voluntary sector organisations, involving them early in the challenges and engaging strategically in shaping new operating models.

Earlier this year, Leicester City Council declared that filing a Section 114 notice was all but inevitable. Councillor Mustafa Malik, Assistant City Mayor of Leicester with responsibilities for communities, adult learning, jobs and skills explains: "Since 2010, local government has faced a significant decrease in funding from central government, which has fallen by almost half. Simultaneously, the costs, particularly in social care, have escalated significantly. Councils have worked hard to manage demand and safeguard the most vulnerable but regrettably, they have been left with no other option but to cut services that reduce future need."

The charity Leicestershire Cares, whose services are commissioned by Leicestershire Council, took part in the research. Kieran Breen, Chief Executive Officer, said: "Underfunding is a huge issue for everyone across Leicester and Leicestershire. The city council has declared they may require a section 114. This is generating a lot of uncertainty. Many services have already been cut, including many trusted and relied upon by a community still struggling after the pandemic and wrestling with rising living costs. Discussing this financial insecurity collaboratively and giving clarity on what a section 114 would mean for voluntary sector services and the people they help, would benefit everyone.”

Gary Beharrell at Lloyds Bank Foundation, said: “Small frontline charities 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 section 114 is issued. Some of this pressure on small charities, and the eventual impact on communities, can be alleviated if local authorities and the voluntary sector collaborate and develop a strategic approach. For this to be achievable Government must provide greater support for local authorities struggling financially, and ultimately, for a review of local government finance arrangements.”

See the full report and guidance here. 

Sign up here for our free webinar, How the voluntary sector can navigate local government financial difficulty, 20 November, 11am.

For information and interviews, please contact media@lloydsbankfoundation.org.uk.

About Lloyds Bank Foundation

We're an independent charitable foundation funded by Lloyds Banking Group. We work in partnership with small and local charities, people and communities, changing lives and working towards a more just and compassionate society. The needs and aspirations of people drive our work. We strengthen the small and local charities that support them and the communities they live in, and advocate for a better future. Through unrestricted funding, support to develop and influencing policy and practice, we help small and local charities thrive, communities grow stronger, and people overcome complex issues and barriers so they can transform their lives.

About NAVCA

NAVCA (National Association for Voluntary and Community Action) is the national membership body for local voluntary and community sector (VCS) infrastructure organisations in England. Our vision is that every local area has a thriving voluntary and community sector, and strong social action to drive justice and active citizenship. We amplify the voice of local infrastructure at a national level, and influence policymakers and funders on behalf of our members. We also provide NAVCA members with resources, networks, and platforms for peer support. NAVCA members support over 165,000 local charities and voluntary groups across the country, helping them to thrive and deliver essential services within their communities.