Mapping the Third Sector in Rural Scotland: An Initial Review of the Literature

7 The economic downturn and the Scottish rural third sector

7.1 From the second quarter of 2008 to the end of 2009 the UK was in recession. Here, a brief summary of the emerging research themes and agendas regarding the impacts this, and the wider economic downturn, might have had on the rural third sector is offered. This is summarised first in terms of the third sector generally, and second the rural third sector specifically.

The economic downturn and the third sector

7.2 This section provides a brief overview of research regarding the impact of the recession on the third sector across the UK and within Scotland. Having provided this context, the following section examines the extent of the research base regarding the impact of the recession (and economic downturn more generally) on the rural third sector.

7.3 For the UK, the representative body NCVO (2008: 1) find that “a generally thin, conflicting evidence base leads us to conclude that any impacts will be mixed”, with some organisations failing, and others emerging stronger in the face of changing demands and funding/cost. Mohan and Wilding (2009) agree that the impacts of the recession will have diverse implications depending on the position of the organisation in question, and emphasise that given the changing role of the sector, we have created a situation in which it “cannot be allowed to fail” with a structured programme of support required.

7.4 In the UK, Davies (2009) undertakes a literature review on behalf of UNISON of “Government policy, recession and the voluntary sector”, and in conjunction with interviews, focus groups and questionnaires with/from UNISON members, argues demand for the services of charities is increasing whilst at the same time funding remains static or is decreasing. It is suggested that medium sized voluntary organisations may feel the most severe impacts as a result of changed funding regimes, with a greater reliance on state funding (than larger voluntary organisations) and a lower capacity for independent fundraising.

7.5 In England and Wales, 1,010 telephone interviews were carried out with a random sample of charities in early 2010 on behalf of the Charity Commission (2010). Amongst the key findings were that:

• 59% of charities reported being affected by the economic downturn, compared to 56% in August 2009 and 38% in September 2008.
• Health, international development and social services charities were most likely to say that they had been affected.
• Small community-based charities³⁸ were least likely to say that they had experienced a drop of income related to the downturn, and most likely to predict that their income would remain stable in the coming 12 months.
• Over a quarter of all charities expected income to decline in the coming 12 months, 29% have seen income from fundraising fall in the last 6 months and 62% had seen income from investments decline in the last 6 months.
• Approximately a third of all charities had seen an increase in demand for their services in the last 12 months.
• However 84% of all charities were optimistic when looking to the next 12 months.

7.6 NCVO and CAF (2009) review the impact of the recession on charitable giving specifically, and find on the basis of the annual UK Giving study that from 2008 – 2009 charitable giving had declined from 56% to 54% of the UK population reporting having donated to charity in an average month in comparison to 2007 – 2008. This level is equivalent to the 2006 – 2007 percentage, however the total amount donated (adjusted for inflation) is lower. It is also suggested that although the recession is likely to impact on charitable donations, as with the impact on the sector more generally, it appears that not all causes will be affected equally. CAF (2011) also suggest that it is the larger rather than the smaller charities in England and Wales that have seen their charitable donations decrease most significantly between 2007 and 2009.

7.7 The most recent data published by NCVO and CAF (2011) finds that the proportion of adults giving has increased from 54% in 2008 – 2009, to 56% in 2009 – 2010 and 58% in 2010 – 2011. The report suggests therefore that ‘the proportion of adults giving has returned to pre-recession levels’, with the relative stability of giving between 2004 – 2005 to date ‘more striking than the variations’. It is also suggested that with regards to the amount given, ‘since 2008/09, charitable giving has grown by 6.1% in real terms. Given the difficult financial climate over the same period, a clear conclusion is that the public’s determination to give to charity has remained strong during recession’.

7.8 Cowley et al. (2011)³⁹ however, argue that “giving is largely recession-proof” in long term perspective. They are unable to comment beyond 2008, but do note that giving “appeared more volatile in the current recession than in the previous ones” (ibid: 3).

7.9 The implications of the economic downturn have been linked to both public service reform and significant reductions in expenditure by the public sector. Recent research by NCVO (2011) suggests that the voluntary and community sector will not be immune from these cuts. It is found that the UK voluntary and community sector will be faced by funding cuts of £2.8 billion between 2011 – 2016. It is argued that these figures are likely to mask variation within the sector, with certain departments such as the NHS potentially increasing their funding for the sector, whilst other departments may cut their spending more drastically.

7.10 Research has also been undertaken by representative bodies at the regional level, such as Voluntary Organisations Network North East (VONNE 2009). In the case of the North East of England present a picture of a sector “Surviving not Thriving” in the face of recession with an increase in demand for services and greater uncertainty regarding funding. The report also found on the basis of 105 responding organisations in late 2009 that those that classified themselves as working solely in rural areas also reported seeing the greatest decrease in funding. VONNE (2010) on the basis of 141 survey responses from third sector organisations in the North East of England, find that 62% of organisations had seen a decrease in funding, whilst 69% had seen an increase in demand.

7.11 A number of smaller scale studies of the impact of recession on the third sector are evident. It should be noted that sample sizes tend to be limited, and therefore the extent to which patterns identified are representative of the wider third sector is not clear. For example local level studies in England have been commissioned (Kitchen 2009; Simpson et al. 2009) and generally suggest that the picture is unclear with regards to the impact of recession on the third sector, with it being too early to discern what the major elements of the impact might be and where this is assessed the picture tends to be mixed, with both opportunities and challenges.

7.12 In the Scottish context, it also appears to be the case that the majority of research has been undertaken by representative bodies. Lees (2009) reviews the financial state of the sector for SCVO. He highlights the cases of Citizen’s Advice Scotland (identifying a 70% increase in debt cases compared to the previous year), Carers Scotland (88% of carers experiencing increased debt problems largely as a result of the economic downturn) and Shelter Scotland (experiencing a 127% increase in new cases from calls to the charity’s helpline over the Christmas and New Year periods in comparison to the previous year).

7.13 SCVO (2010: 1) note that “a healthy gap between income and expenditure is vital to ensure sustainability of voluntary sector services in the light of future uncertainties”. It is found that on the basis of the SCVO panel survey this gap is 2.8% of total income.

7.14 SCVO (ibid) go on to find that on average during 2008 – 2009 charities with an income of below £12,500 report an operational deficit, whilst those in the income band of £25,000 - £100,000 per annum report aggregate deficits (though this is, of course, subject to funding cycles). Worry over using reserves to fund activities “as public funders appeared to expect more work for less money” is borne out by informal conversations referred to by de Lima (2009: 8) in the Scottish Highland context.

7.15 Furthermore, SCVO (2011a) find on the basis of a sample of 983 organisations that funding is reported to be static during 2009-2010, whilst a smaller sample of 275 organisations highlights experiences and expectations regarding finances, staffing, demand for services and future planning in the current economic climate (SCVO 2011b).

7.16 Osborne et al (2011) note in the first year report of a longitudinal study exploring ‘the opportunities and challenges of the changing public services landscape for the third sector in Scotland’, that even before the recession third sector organisations had faced a challenging financial environment with funding not keeping pace with inflation. They find a mixed picture with some third sector organisations reporting that funding cuts are affecting their existing contracts to deliver services whilst others suggest that there could be opportunities for innovation and reduced dependency on public sector funding. The full effect of cuts has yet to felt but concerns are voiced about their potential impact. The report also demonstrates how organisations are adapting and diversifying in different ways to meet these financial challenges.

7.17 At the more local level, Glasgow CVS (GCVS 2009) have undertaken two surveys of its members to “ascertain the severity of the economic downturn and its effect on Glasgow’s voluntary organisations and community groups”. Drawing on a small sample of 61 organisations, in the case of the most recent study⁴⁰ a picture emerged of “voluntary organisations in Glasgow… facing real and continuing problems and that morale amongst staff and service users is at an all-time low. Essential services and support are being lost at a time when they are needed most”. The report documents changed working practices (cancellation of services and decreased amount of time spent with service users for example) as a result of an increased demand for services.

7.18 Harrow (2009a: 30) in her review of the relationship in Scotland between third sector organisations themselves, and the third sector and the government in light of the economic downturn speculates “that in the face of over-generalised policy initiatives and continuing reliance on known funding sources (public services contracts) in Scotland, the sector will become even more differentiated and separated within itself, with organisations competing for grants and contracts, chasing the same staff if not the same donors and private funders, ‘going up’ or ‘going down’ according to reserves levels”.

7.19 Therefore there appears agreement that the third sector has been influenced by the economic downturn. Generally, demand appears to be increasing whilst funding is decreasing. However the ways in which the organisations which compose the third sector have been influenced appears to vary by size and sphere of activity, with conflicting evidence regarding both of these components. Evidence regarding the impact of the most recent economic downturn on charitable giving in the UK appears to suggest that both proportion of adults giving and the overall value of donation are now recovering post 2008/9.

The economic downturn, the third sector and rural areas

7.20 The Commission for Rural Communities (IpsosMORI 2010) finds that those in rural areas appear to feel that the area in which they live has been less affected than the rest of England⁴¹ . It should be noted however that when respondents were asked about the extent to which they and/or their households had been personally effected by the recession, results across urban and rural areas were broadly similar.

7.21 In rural Scotland de Lima (2009: 7) evaluates ‘The impact of the economic downturn on the ‘rural voluntary sector’ in Scotland’ and finds that:

“there is little or no reliable information on the revenue streams (i.e. Public, private and voluntary/foundation) of the rural voluntary sector taking into account their diverse geographies… there is little evidence on the specific impact of the economic downturn on the rural voluntary sector and much of what exists is anecdotal at present” .

This poor evidence base therefore makes the task of disentangling the impact of the economic downturn in rural areas challenging.

7.22 de Lima (ibid: 12 – 13) goes on to outline four issues which should be addressed in order to better develop our understanding, which can be briefly summarised as:

• Definitional issues: constructing a clear definition of the ‘rural voluntary sector’ recognising the contested nature of both elements.
• Finance: address the gaps in information about the funding flows to (and generated by) rural voluntary organisations.
• People resources: There is a small pool of volunteers and staff from which the sector can draw in rural areas and a feeling that recruitment requirements of volunteers are too onerous for small organisations. Issues of training and capacity building need to be addressed.
• Structural capacity: Limited contact with other organisations and the potential for collaboration appears to be under-developed in rural areas: the economic downturn may provide an opportunity to network more strongly to overcome shared difficulties.

7.23 de Lima and Braunholtz-Speight (2010) have examined the impact of the recession on a number of third sector organisations in Helmsdale, in East Sutherland. They find that: “Lower levels of funding at regional and national levels appear to be the main impact of the recession on the third sector in the study area. There is a perception that public sector funding is already tightening. However, the main financial impacts are likely to be felt in the medium-term, as current funding agreements run out”. (ibid: 3). For some this has resulted in seeking funds from new sources, or sharing resource with other third sector organisations. For others, reducing or cutting service provision entirely was a possibility, however.

7.24 The authors (ibid) go on to suggest that “The recession may serve to compound already existing challenges associated with the sparsely populated nature of the area. For example:

• The high cost of fuel and energy was mentioned frequently.
• Poor public transport provision was reported as creating extra burdens for organisations and their clients
• Keeping up with policy and legislative changes that directly affect their work can be time consuming for small organisations”

7.25 Osborne et al. (2011) identify the influence of rurality on the operation of third sector organisations. They cite dispersed geography, longer travel times and less comprehensive public transport infrastructure as increasing the cost of operation, whilst economies of scale were not available to small rural services compared to larger urban counterparts.

7.26 In summary, there appears little coherent evidence on the nature of the impacts the economic downturn may have had on the sector in rural areas. It is possible that operating in rural areas may exacerbate the challenges posed by the downturn for third sector organisations more generally, a theme which requires further research.

Summary

7.27 Literature discussing the impact of the economic downturn on the third sector generally appears still in its infancy. The research that has been undertaken suggests the effects are likely to be unevenly felt across the sector. There is a strong diversity of research with regards to scale: national level surveys and local community/area studies all feature strongly, although are of varying quality.

7.28 Literature suggests that key changes in the third sector landscape as a consequence of the economic downturn include an increased demand for the services of third sector organisations, subsequent increasing demands on resources (financial, paid workers and volunteers) and an increased amount of competition for resources. This increase in demand presents opportunities and challenges for the third sector.

7.29 However the ways in which the organisations which compose the third sector have been influenced appears to vary by size and sphere of activity, with conflicting evidence regarding both of these components.

7.30 The influence of previous economic downturns on charitable giving appears relatively minor and short term. Both the proportion of adults giving and the overall value of donation appear to be recovering in the UK post 2008/9.

7.31 The third sector is likely to be profoundly influenced not only by the economic downturn, but also by reduced public sector spending. The effects of this appear likely to be unequal with reference to both size of organisation and area of activity, as well as local authority area.

7.32 Research undertaken in the Scottish context presents a similarly mixed picture of challenges, uncertainty and opportunity.

7.33 In the rural context, there appears a pronounced lack of research undertaken to establish the extent to which there may be a unique effect of the economic downturn in rural areas. Research conducted in England suggests that those living in rural areas are not significantly likely to feel that the recession has affected them any differently compared to their urban counterparts, although the extent to which this is also the case in Scotland is not known.

7.34 In the Scottish rural context evidence is lacking. The available research suggests that operating in rural areas (and the associated demands on resources this entails) may accentuate the impacts of the economic downturn on these third sector organisations.