Think tank NPC has urged charities to collaborate more on bidding for contracts and sharing research on impact to avoid a perilous future, as funding cuts place increasing pressure on the sector.

A new report published in advance of the spending review argues smaller charities with local expertise and roots in the communities they serve are at a serious disadvantage in local authority commissioning.

The impact of the spending review cuts will alter public service delivery in ways that will change the contours of the third sector as a whole, the report argues. New ways of contracting and securing income will require charities to change how they interact with the state and local authorities.

Adapting to the environment will require an acceptance of the fact neither beneficiary need nor the funding environment can be taken as fixed, the report says.

With the Department for Communities and Local Government having already committed to a 30 per cent reduction in spending over five years, NPC recommends small and local charities think in terms of bidding for bigger contracts through merging and building consortia to compete against national organisations.

The report points to the Angelou Partnership, which brings together nine organisations supporting women and girls experiencing violence and harmful practices across West London, as an example of successful consortia.

Charities are also urged to share data on the effectiveness of their work, in order to strengthen the whole voluntary sector as it competes on outcome-based commissioning.

The Chancellor’s choice warns that even charities linked to supposedly ring-fenced or protected areas should not assume they are immune to increasingly limited public funds.

Budgets for other services may be cut in response to the possible postponement of Tax Credit changes, the report warns, or cuts to other welfare benefits may result in knock-on effects on the charity sector.

Charities working with schools should also be on alert, NPC warned, as schools will be under pressure to reduce non-core funding to retain teacher numbers.

NPC consultant George Hoare was one of the authors of the report. He said the spending review is certain to deliver more cuts to national and local budgets, and charities will be confronted with even tighter public funding than experienced to date.

The challenges before charities are not insurmountable, Hoare said, but organisations will need to prepare for having to make some difficult choices in future.

“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.”

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