The government must amend public sector contracts with charities to take into account the £500m costs of the National Living Wage, the Chancellor has been told.

Sector leaders from organisations including the Charity Finance Group, the Institute of Fundraising and Big Society Capital, have written to the Chancellor ahead of the upcoming Spending Review and Autumn Statement, which will take place next month, outlining their five policy proposals to address “the most pressing issues facing the voluntary and community sector today”.

The letter, send to George Osborne earlier this week, is co-signed by Caron Bradshaw, chief executive of the CFG; Tony Armstrong, chief executive of Locality; Geetha Rabindrakuma, head of social sector engagement at Big Society Capital; Kunle Olulode, director of Voice for Change; Neil Cleeveley, chief executive of Navca; John Barrett, acting chief executive of Small Charities Coalition; and Peter Lewis, chief executive of the Institute of Fundraising.

They wrote: “In order to continue to support local communities, voluntary and community organisations need strategic investment to create a step change in the commissioning and deliver of public services and the purchase of community assets to ensure stronger more resilient communities.

“The voluntary sector is facing a £4.6bn funding gap by 2018. This comes as a result of loss of income through government spending cuts and inflation. The government has an opportunity in this spending review to build a comprehensive package of support that enables voluntary organisations adapt to a volatile funding environment, improve their effectiveness and lay the groundwork for future growth.”

It includes five recommendations which it says will help address this £4.6bn that the sector, in particular small to medium-sized charities, will face by 2018. These proposals include establishing a Community Capital Fund, a Centre for Social Value, and voluntary sector master-classes.

The first proposal is that existing public service contracts should be adjusted for the introduction of the National Living Wage (NLW), and related workplace pension costs. The sector bodies say that the increased cost of the introduction of the NLW in April 2016 will cost the sector £500m by 2020, according to research from the Third Sector Research Centre.

The sector bodies said that “without strategic investment in existing public service contracts, voluntary and community organisations face the very real prospect of closure, with vital services for the most vulnerable in society being lost”.
They suggest that the government provide “ring-fenced investment” to cover the difference in cost between existing budgets allocated in public service contacts to cover staff wages, and the increased costs in wages introduced by the NLW.

Community Capital Fund

They also recommend the creation of a Community Capital Fund to enable communities to take ownership of their assets and ensure they become self-sustaining.

It says that there is a danger that organisations not having assets to sell to cope with funding cuts limits the potential of these organisations serving in deprived communities. The Fund would therefore receive bids for voluntary and community organisations to take over local authority assets, and provide capital grants to allow community organisations to lever in additional funding and finance to allow them to secure assets for sale.

They estimate the cost to the government to be £150m over three years, with £140m for grants for asset purchase, £5m to fund research in best practice and impact of community assets, and £5m to operate the fund.

Centre for Social Value

The third proposal is the creation of a Centre for Social Value which would sit within the recently established of the Commissioning Academy. It said that social value was only given a limited focus within the Commissioning Academy, and that “there is a lack of bespoke tools and information for commissioners on how to use and maximise the impact of the social value approach to commissioning”.

The centre, which would cost £5m over five years, would support specialist training and education of commissioners and procurement officials on the implementation of social value, and develop tools and templates for commissioners and procurement officials to implement social value.

Voluntary sector masterclasses

The sector bodies say that despite the creation of the Local Sustainability Fund, organisations are still in need of capacity-building support. The masterclasses will compliment the Local Sustainability Fund by providing by “providing a range of technical training sessions that will equip voluntary organisations with the ability to improve their capacity and financial sustainability in the long-term”.

They would involve a three-year programme costing the government a total of £3m, targeted at managers and trustees of small and medium sized organisations responsible for developing and delivering the organisation’s strategy, addressing financial skills, governance, fundraising, commissioning, addressing impact/conducting evaluations, and maximising resources – including finances, volunteers, work force and pro-bono support.

Partnership Hubs

The fifth and final proposal is the establishment of Partnership Hubs to “promote and create innovative solutions in the delivery of public services”. Together with voluntary sector partners, the 60 most deprived local authorities would be invited to bid for funding to establish a partnership hub, which would focus on prevention and public service provision.

The sector bodies expect this to cost £31m over three years, and the funding would enable “local authority staff, especially commissioners, to engage with their local voluntary sector to identify and understand the work that they do in the local community. This will be done with a view to identify gaps in provision, or where charities can receive support in the services that they are already providing so as to have a greater impact. This can be through grant or contract funding. ”It would also enable “voluntary sector and local authority staff to develop contacts across departments and organisations and embed a culture of working together”.

The Comprehensive Spending Review will decide how much money is available to spend in each government department. The results will be announced in the Chancellor's Autumn Statement on 25 November.

Anjelica Finnegan, senior policy and affairs officer at the CFG, said: "The spending review is the government's opportunity to set out a strategic plan to invest in the voluntary sector over the next Parliament and it's important that the voluntary sector is proactive in putting forward proposals.

"Not only does the sector play a vital role in supporting people and communities, it is also a major contributor to the UK economy and employs over 820,000 people. Therefore, whilst we recognise that government department budgets will come under increasing strain, it is important that government recognises the critical role that the sector plays in building stronger communities."

Full details on the proposals can be found here.