The most optimistic scenario for the voluntary sector in the next public spending round is overall funding cuts of “hundreds of millions if not billions”, whichever party gets into power, according to a new report produced by CFDG.

And the worst-case scenario will see “billions of cuts” from an annual funding stream of £11bn, the authors say.

The report, Public Funding Cuts in the Third Sector: Scale and Implications, written by Liberal Democrat researcher Antonis Papasolomontos and CFDG’s policy and campaigns officer Kate Hand, summarises the current situation regarding Britain's budget deficit and looks at how the sector might be affected by various scenarios of spending cuts.

It states that whoever forms the next government, public funding to the sector is likely to “fall dramatically” from its current total of £11-12bn, which presently comprises around 35 per cent of charities’ total income.

Around half of this funding is in the form of grants; the other half comes from contracts with local government and central government departments.  The vast majority of departments, including the Office of the Third Sector, are facing cuts of at least 3 per cent and potentially much more, and local authority budgets are fixed until 2010/11 but are already under pressure.

While both main parties have pledged to preserve the health and international aid budgets – and Labour has extended this promise to education and defence – both also want to reduce Britain’s fiscal deficit from 11.9 per cent of GDP to 1.3 per cent by 2018.

The report makes the point that the more reliant a charity is on public funds, the harder it will find the reductions, but also points out that those charities working in priority areas such as social breakdown, job creation, or in deprived regions, could get more attention.

If NHS and aid spending remains at current levels, the report predicts a reduction in the Cabinet Office budget of 3-4 per cent from 2011, a shortfall of between £200m and £368m. If OTS spending remains at a similar proportion as in the last Comprehensive Spending Review, this would result in a reduction to the OTS of £27.5 to £32.6m from 2011 onwards. 

But, as more than half of all funding arrives in the sector via central departments, the scale of reductions could be far larger.

The worst-case scenario - if NHS funding is increased, cuts are not ‘salami-sliced’ across departments, the sector is not deemed a priority and economic growth does not resume by 2014, could mean "billions of cuts", the report authors warn.

Even the best-case scenario - NHS funding maintained, cuts averaged across departments, the sector remaining a priority and growth returning by 2014, will have sobering effects.  The authors warn of: "Capacity programmes facing shortfalls and direct commissioning through local government, DWP, Ministry of Justice etc down significantly, to the tune of hundreds of millions if not billions."

The report goes on to list a number of recommendations for charities that suspect they will be affected by the cuts. 

Read the full report here.

Commission clears CFDG 

Separately, the Charity Commission has found no fault with CFDG's decision to employ Antonis Papasolomontos, a researcher for the Liberal Democrats, to write a report for its members about Conservative policy on the sector.

A spokeswoman said: "Having reviewed the report's content, we are satisfied that it is informative and within the charity's objects and that the report's purpose is not to sway opinion against the Conservative Party. 

"The Commission has also determined that the employment of the report's author was acceptable and not in breach of the charity's obligation to remain politically independent."

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Sector's best-case scenario: cuts of 'hundreds of millions', says CFDG report

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Directory: Charity Finance Directors' Group (CFDG)