Public contracts not rising in line with inflation, say charities

07 Jul 2023 News

Two people negotiating a contract.


Many public sector contracts with charities are not rising in line with inflation, which is leading to some organisations being able to support fewer beneficiaries, leaders have warned.

One chief executive of a women’s charity told Civil Society that many of her organisation’s costs were not being covered by commissioners, which could lead it to cut services as a result. 

A senior manager at another charity said local authorities and government departments seem to be “ignoring inflation” and “ruling out inflationary increases” altogether. 

Meanwhile, NCVO’s members have reported some of their contracts have remained the same value for over 10 years, while newer deals can fail to take inflation into account.

Inflation in the UK as of May 2023 was 8.7%, according to the Office for National Statistics. In May 2022, inflation rates were at 9.1 and then rose to their highest point at 11.1% in October last year.

‘What they are paying for is far less than what we are doing’

The women’s charity CEO said: “In our experience, contracts have not kept up with those increases in costs. And we’ve had nothing from our funders or commissioners to support that.”

She said she has evaluated the public funding her organisation receives against the costs of the services it is providing to pregnant women and new mothers. 

Her charity receives most of its funding from public contracts but the CEO said: “When you look at the full cost recovery, what they’re actually paying for is far less than we are doing.

“We then have to make a decision – do we stop providing services to some women, which is a really difficult decision, but it’s one we'll probably have to make if they don’t move on the income.

“What we can’t do is continue to offer the services to 100 plus extra women without additional income.”

She said if the charity were to provide services for the same amount of women with basic and complex needs it did in the last contractual year, it would cost £85,000 more than the funding it receives. 

“We’re certainly not going to be able to work with the same number of women in 2023-24,” she said.

“We will try and support as much as we can with volunteers, but the challenge is around getting volunteers in and retaining them.” 

“I would say most definitely if funds do not increase we would have to look at stripping back what we deliver.”

‘Climate of fear’ as charities compete for the same contracts

The CEO said many other charities shared her experience as often they were competing for the same funding.

“It’s frustrating because I hear the same everywhere else. But there is a climate of fear with the organisations currently being funded because increasingly there is competition for similar contracts,” she said. 

She said it would be better if commissioners could engage with charities and look towards “joint solutions” to prevent beneficiaries from missing out on charitable services.  

‘Local authorities ignoring inflationary pressures’

A senior manager at a charity told Civil Society that some local authorities and government departments “seem not only to be ignoring inflation but they are also expressly ruling out inflationary increases” in future years of a contract.

“Charities like ours have already helped reduce the costs [of private providers and local authorities] but now it is becoming difficult for us to deliver what is required within these budget constraints,” they said.

Whether additional funding is available to mitigate the lack of inflationary uplifts “varies from authority to authority”, they said.   

They also said a lack of volunteers was making public service delivery even more difficult than it has been in previous years.

NCVO: ‘It’s essential we view this as a crisis’

NCVO chief executive Sarah Vibert said: “Voluntary organisations are facing the impossible task of providing services to more people with smaller budgets, as the value of contracts continue to erode, while need in communities continues to grow.

“Our members have reported that some contracts have remained the same value for over ten years. Contracts are being retendered with even less funding than before but with increased delivery expectations, and even some new contracts are not taking inflation into account.

“Many organisations that are funded through contract delivery simply can’t continue without either reducing services, putting unrelenting pressure on staff, or shutting down entirely. 

“Many are worried about contract values eroding so significantly they can't even cover the national minimum wage. Even before the rise in inflation, research from NPC showed that a third of charities delivering contracts were forced to subsidise contract values with voluntary income.

“It’s essential we view this as a crisis that needs urgently addressing. The fallout from organisations being unable to continue delivering public service contracts, will have an immeasurable impact on communities across the country.”

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