The money flowing into Scotland’s charities plummeted by almost £100m during 2010 and four in five expect the economic situation to worsen over the next 12 months.

New research published today by the Scottish Council for Voluntary Organisations paints a bleak picture of the sector north of the border, with more than a third saying they have eaten into their reserves to maintain service provision. Two in five said their spending outstripped their income last year, and three-quarters expect that demand for their services will continue to rise.

However, the sector’s resilience is notable too: 86 per cent of the 275 respondents to the SCVO’s State of the Sector survey said they plan to develop new sources of income to deal with the downturn.

SCVO chief executive Martin Sime (pictured) is using the report to urge the Scottish government to introduce funding agreements of up to five years to try to bring some stability back to the sector.

“Voluntary organisations need a new and better deal from the public sector which delivers on the high level of rhetorical support,” he said. “Local government in particular needs to start doing things differently.”

The sector’s income was around £4.4bn and it employs 137,000 people. Three-quarters of charity chief executives are not planning to offer pay rises to staff this year, while 9 per cent are predicting staff pay will fall.

According to The Scotsman, the Scottish government’s budget for councils is to fall over the next three years from £11.5bn this year to £10.8bn in 2014/15. Between this financial year and 2014/15, Scotland faces a real-terms cut of 12.3 per cent – £3.7bn – in its budget from Westminster.

However, the Scottish government has committed to maintaining its core spending on the sector over the next three years.