Learning to adapt

"I run a charity with over £20 million of income. By January it may be down to £15 million. What will that mean for my organisation? And who will pay for the redundancies?" This is typical of the comments I have heard from charity chief executives over the last few months as we wait to see what this week's spending review will bring. At present, over a third of the charity sectors' income – nearly £13bn – comes from government. Yet New Philanthropy Capital's new Preparing for Cuts report, which looks at the impact of the cuts on charities and how funders should support them, predicts this figure could shrink by £5bn. With this spending concentrated on less than a quarter of charities – an eighth getting over half of their income from the state – some charities are going to be hit very hard. Some areas are more at risk than others: employment services, social care, youth services and support for vulnerable groups will find it especially difficult as local authority funding is slashed by 25-40%, and in some cases contracts withdrawn altogether. The impact is already being felt. I know of one charity supporting women affected by domestic violence, whose entire funding is likely to cease in one local authority area. The massive cuts in spending is going to have a far reaching impact on the way charities provide services. Commissioning processes are in flux: the health reforms and disappearance of Primary Care Trusts in favour of GP consortia will lead to a complicated transition for charities as the new system takes effect. Competition for contracts will increase as charities compete against the private sector as well as each other. And payment by results will mean that charities are paid for services in arrears, putting a strain on cash flow. Charities will have to adapt their strategies. For example, they may shrink their public service provision and increase low-cost volunteer-led activities. Or they may change policy tactics, and move efforts away from Whitehall, focusing instead on local policy-makers. Some charities will partner with each other or private sector providers to offer more attractive services to commissioners, and all will have to meet the increasing demand for evidence of outcomes. And while charities can't expect trusts and foundation to plug the gap – at £2.7bn their contribution is too low – many charities will look to funders to help them cope with reduced budgets. Funders should expect to see a sharp rise in applications, with many charities making requests that take funders outside their comfort zone. A charity may need interim funds while it changes its commissioning arrangements, or funds for restructuring to execute a survival plan. Funding for evaluations to improve evidence of outcomes might be another plea. Overall grantmaking will have to change. Previously many application procedures have been too lengthy and time consuming – in a fast-moving environment decisions will come too late. My message to funders is this – stay in close touch with your charities and don't be afraid to be bold and imaginative with your funding. You can't help everyone but you could help some great charities to survive. Iona Joy is the Head of charity analysis at New Philanthropy Capital and the author of Preparing for Cuts