Supporting collaboration between the third and public sectors: evidence review

3. Funding

Short-term funding

The literature and the interviews identify the current short-term funding model for the third sector as a major barrier to successful collaborative working. Third sector organisations relying on funding from the public sector often receive funding for one year at a time or for specific programmes of work, and do not have certainty that they will receive funding the following year. This creates precarious working conditions for individuals in the third sector, and leads to high staff turnover and ongoing loss of knowledge and expertise in organisations^[35]. Similar issues are experienced in local government, where reducing the size of the workforce has been one of the ways that local councils have addressed funding challenges^[36]. This leads to increased pressure and demand on the remaining workforce and results in loss of experience and knowledge within local authorities^[37]. Short-term funding also means that third sector organisations are unable to focus on long-term or multi-year goals. Instead, organisations often work on short-term outcomes that can help them to secure further funding and respond to immediate or shorter-term challenges^[38]. Local government is also impacted by this, struggling to effectively plan for systemic or long-term challenges - such as addressing inequalities – and instead focusing on interventions that can be provided within a financial year^[39]. Moreover, where third sector organisations are reliant on short-term funding from the public sector, they can be reluctant to criticise their funders because of a perceived threat that funding could be withdrawn or reduced after the current funding comes to an end^[40].

Some of the challenges experienced by third sector organisations around short-term funding are also experienced by local government. Audit Scotland considers that one-year local authority financial settlements impact on the ability of local government to plan and budget effectively. This in turn creates uncertainty over future funding for third sector organisations^[41]. Moreover, there is some evidence that current funding arrangements and increasing demand are impacting negatively on local government service delivery, such as social care and education^[42].

Local and national government are aware of the challenges raised by short-term funding for the third sector organisations, but annual budget cycles of recent years have restricted the ability of both Scottish Government and local authorities to commit to funding over longer periods, while approaches to risk have inhibited scope for flexibility in what funding is directed towards.

Both third sector stakeholders and local government stakeholders acknowledged that funding is a complex issue, noting that local authorities are constrained by one-year funding settlements from the Scottish Government, which in turn means local authorities can often only commit to one-year funding for third sector organisations. This makes it difficult to build long-lasting relationships or implement long-term strategic programmes of work. One third sector interviewee said:

"Year-to-year funding relationship, I think that just makes it an awful lot harder to build that trust and also the amount of time you spend putting in proposals, developing the relationship."

Interviewees also talked about the fact that even with one-year funding, third sector organisations often achieve amazing things that change people's lives for the better. However, lack of long-term funding can mean that a service that community members come to rely on can be discontinued, with nothing available to replace it, leaving individuals who were using the service without support. The research also suggested that short-term funding can also undermine the ability of third sector organisations to work on longer-term strategic issues, or to support a longer-term vision of change. Short-term funding models will often tend to prioritise immediate returns over important longer-term investments, and may leave organisations stuck in a cycle of crisis response without the means to invest in longer term or multi-year improvements, such as increasing diversity in the third sector leadership.

In order to alleviate these issues, third sector organisations spend large amounts of time and resource working on securing funding. This means that less time is available for the delivery of their objectives. Interviewees said that third sector organisations are also less likely to design multi-year programmes because short-term funding does not allow for it. Interviewees also noted that third sector organisations cannot compete with the public sector in terms of benefits, salaries and work security, even though some of the work that staff in third sector organisations do is very similar to work done by public sector employees. This means that third sector organisations are not always able to retain staff, as they leave for more secure and higher paying roles in other sectors.

Together, all of these challenges create an environment where third sector organisations feel devalued, and where it is difficult to build sustainable working relationships between the public sector and the third sector. As one local government contributor said:

"We always talk about sustainability and the third sector, but how can we do that, when a lot of the funding is one-year funding, how can groups actually build that?"

The Scottish Government's recently published Resource Spending Review^[43], while not making an explicit commitment to multi-year funding for the third sector, acknowledges the challenges presented by short term funding. However, Scottish Government intends that the multi-year spending framework set out in the Resource Spending Review will enable public sector bodies and delivery partners to work with the Scottish Government to plan effectively over the medium-term for the future of Scotland's public services.

Inflexible funding

Third sector and local government stakeholders both expressed the view that much of the funding received by third sector organisations and local government is inflexible, rigidly structured and/or ring-fenced. This poses challenges for organisations to respond flexibly to changes in their operational/delivery context in order to meet the needs of service users and beneficiaries as effectively as possible.

Local authority interviewees expressed frustrations about ring-fencing of the funding that local authorities receive, leading to a lack of flexibility and creativity in how the funds can be used to address the needs of different communities. Interviewees felt this can create an environment where local authorities feel disempowered, not trusted by the Scottish Government and unable to make decisions. As one local authority contributor said:

"So it's less about local government being empowered to do what's right for its area, and more an example of Scottish Government almost telling us what's right for our area and then giving us the funds to do it. And if we really believe in community empowerment, then we just need to loosen all of that ring-fencing. I understand that that then creates a challenge for Scottish Government in terms of being able to demonstrate the impact of the funding but at the moment generally, we're leaning too much towards bureaucracy and control and not enough towards innovation and local flexibility."

Third sector stakeholders experienced similar challenges. Research shows that funding received by the third sector is often tied to specific projects and programmes, not allowing organisations flexibility to decide how best to use funding to meet needs most effectively in response to changing situations^[44]. One stakeholder noted that despite the importance of collaborative working, the funding received by the third sector organisations does not recognise that building trusted relationships takes time and typically funding does not allow time for it. This again creates lack of trust between the third sector and their funders, and reduces the scope for effective collaboration.

Example of flexible funding allowing local government to help communities

A local government interviewee reflected how flexible Scottish Government funding allowed them to better tailor support to their community during the COVID-19 pandemic: "We also have another piece of work that [has started during COVID-19 and] is continuing to this day, which came about as a result of feedback from our community groups. We have given some community groups a council purchasing card and that enables them to provide food and other household essentials to people who are self-isolating and not able to get food for themselves. <…> Because it's a council card, there's no financial risk for the community group. So if the person is able to pay, that's fine, we can invoice them and they will pay that back, but if the person is in financial difficulty and can't pay, then we can use some of the funding from Scottish Government, and that's been great, because the funding from Scottish Government has been flexible for us to use as appropriate, we've been able to use some of that to pay off the balance of these purchasing cards, where they've been needed."

Research identified that reporting requirements on how the funding was spent can sometimes be overly complicated^[45]. While both third and local government stakeholders acknowledged the importance of reporting how the funding is spent, they also expressed frustration with overly complicated monitoring, evaluation and reporting requirements. These requirements often demand a lot of staff time and were seen as overly bureaucratic by the stakeholders. There was a view among third sector organisations and local government^[46] that funders often do not appreciate how time-consuming reporting can be. As one third sector interviewee said:

"I have examples of places, where we got a grant of a couple of thousand pounds and I have to give quarterly reports <…> The staff time is being used to just write reports."

Some stakeholders said they would prefer to have a bit more flexibility around reporting, for example, telling narrative stories on how the funding was used instead of providing mostly quantitative data to the funders.

Finally, interviewees also said that sometimes they are asked for multiple reports of the same information, particularly by the Scottish Government, due to siloed ways of working between the Scottish Government departments. This impacts on staff time in local authorities and third sector organisations, taking away from service delivery in the communities, as summed up by one local government contributor:

"We would much rather focus on delivering services than being caught up having to provide all this endless performance information."

Reductions in funding

An important theme emerging from the interview respondents and the literature was the overall lack of – or reduction in – funding and investment for both local authorities and third sector organisations. Research with third sector organisations working in areas such as social care found there was an expectation that third sector organisations would continue delivering equivalent services while receiving less funding and that this is not a sustainable situation^[47].

Interviewees from both local government and third sector said that real terms reductions in funding received made it difficult to successfully achieve their goals or to work collaboratively. Interviewees from Third Sector Interfaces (TSIs) talked about how reductions in funding are not sustainable, especially given ongoing increases in the costs of living:

"I think that's one of the things, which is important in collaboration, it's having respect. <…> If the government wouldn't pay their staff that, and expect them to do that level or role, then stop thinking it's okay to pay the third sector, or stop thinking it's okay to keep asking for improvements year on year on year while returning no cost of living increase."

The interviews also suggested that there are particular challenges in social care, leading to third sector social care organisations sometimes having to reduce the number of hours of care being provided to individuals as a result of effective reductions in funding combined with increasing costs.

The funding situation is also sending mixed messages to the third sector, as summed up by a local government contributor:

"So Scottish Government in previous years have said, we're really behind the third sector, we want the third sector to grow and become more important and the overall way that we deal with social issues and social challenges in Scotland. <…> But then if there's reduction to funding for the local authorities, then local authorities will look at their budgets, maybe sometimes the easiest areas to cut the budgets are not [for] your own staff, but pass it on a little bit to the third sector. So sometimes there can be a bit of a mismatch in messaging. At national level, you're really important, we want you to grow and respond, and then through the practical pressures of finance, [the third sector can say] wait a minute we're getting less money than we were two years ago, so how does that mean that we're being valued here?"

While reduced funding for the third sector causes a lot of concern, a third sector contributor also cautioned against focusing exclusively on funding, when discussing third and public sector relationship challenges, on the basis that it can mean that the third sector is primarily associated with funding in the eyes of the public sector. This respondent felt that excessive focus on funding can undermine the basis for collaborative working relationships, because the public sector starts to associate the third sector primarily with funding requests, rather than focusing on the partnership relationship.

Stakeholders also acknowledged that funding reduction is a complex topic, and it is not easy for local authorities to increase funding for the third sector, if local authorities themselves have reductions in their budgets, as summed up by a local government interviewee:

"It's really a domino effect what happens. Scottish Government budget is then put on local government is then put on third sector, so there's a chain of events."

Lack of transparency around funding

The research found that a lack of transparency around what third sector work is funded can also present a barrier, because public sector funders are not always aware of what other work and/or projects have received funding. Large organisations such as the Scottish Government may provide several simultaneous grants to the same organisation from different departments, with no single organisational contact maintaining a full overview of the funding being provided to a given organisation. Moreover, there is also no single body maintaining a full overview of the funding provided to the third sector organisations by other funders, such as charitable foundations or the UK government. This can lead to overlaps in funded work, as well as under/over funding in certain areas. The Social Renewal Advisory Board Third Sector Circle^[48] recommended establishing a giving platform, that would publish details of funding given out to the third sector from a wide range of funders. This could also be used to support better information-sharing and analysis as to whether public money is addressing needs as effectively as possible, and could support more effective working and partnership between public and third sector organisations.

COVID-19 and funding

During the COVID-19 pandemic, various emergency funds were established by the Scottish Government and other public sector funders to help third sector organisations respond to the pandemic, and to help them survive as organisations. These funds focused on getting money out to organisations quickly, which meant that the funding application processes were often quicker and simpler. This resulted in third sector organisations being able to begin working rapidly to support people in need. The COVID-19 emergency funds often did not require recipient third sector organisations to provide typical levels of reporting on how the funding was spent, fulfil complex monitoring and evaluation requirements, or provide exact plans how the funding would be used in advance. These changes during the pandemic allowed third sector organisations to use funding flexibly to respond to the needs of communities and service users, and to spend more time on delivering services. Overall, changes to funding during COVID-19 were seen as a positive change that should be retained for the future^[49,50,51]. As one third sector contributor said:

"I expected to be accountable for that [funding] and say that at the end of the day, we've spent on this and this and this and that's absolutely fine. But I wasn't being told [by the funder] that it has to be that many of this, in this amount of time for this outcome. It was, how did you meet the need? How did you identify the need?"

Stakeholders also said that simpler and more flexible funding available during COVID-19 meant that local authorities and third sector organisations were able to support communities quickly, target funding to those most in need and be creative in their approaches. Local authority interviewees talked about having flexibility to decide to use some of the emergency funding combined with existing budgets to do what they thought was the right thing, for example spend more on food provision in the community. A third sector contributor talked about how social care organisations received funding directly from the Scottish Government that also allowed them to be flexible and decide where the funding was most needed and address those challenges. One local government contributor said that they would like to see some of these changes retained:

"I think I would like us to re-assess some of the governance structures and some of the regulations and compliance and how necessary and relevant they are and to learn the lessons of COVID-19 by being more flexible. Actually there wasn't a higher risk and we got things done much more effectively. So to look at how can we continue to have more agile system and how can we continue to make it more responsive and look at what was done."

The Scottish Government's COVID-19 Recovery Strategy^[52] acknowledges the energy, flexibility and innovation exemplified throughout the pandemic. It takes the learning from that which characterised the way in which public services, businesses, communities and the third sector responded to the pandemic and sets out a process to systematise and scale successful approaches. It also makes a commitment that community involvement and empowerment must become the norm not the exception both in service design and delivery.

Funding and trust

The varied issues around funding impeding collaboration between third sector, local government and wider public sector outlined in the literature and stakeholder interviews came back to an underlying problem of lack of trust. Third sector organisations felt that public sector organisations were not trusting them, local government stakeholders felt not trusted by the Scottish Government and this lack of trust led to various restrictions in funding agreements, such as funding having to be spent on pre-specified projects, and extensive monitoring of how the money was spent. One third sector interviewee said:

"[Everyone says] if we had the funding issue resolved, everything would be better, but I don't think it is that. I think that's slightly an avoidance strategy so we don't have to talk about the real stuff, about trust and about power and about who has it."

On the other hand, organisations that received the emergency COVID-19 funds reported saying they felt trusted by the public sector because of reduced bureaucracy and quick application processes^[53]. Overall, both local government and third sector stakeholders during the interviews talked about how COVID-19 increased trust around funding between partners working collaboratively. However, in the current context of COVID-19 recovery, there were concerns that some organisations are going back to pre-COVID-19 ways of working, risking losing some of the gains in trust that some third sector organisations and local government had experienced. A local government contributor talked about the importance of trust and how lack of it in the pre-pandemic times can lead to ineffective working relationships:

"[During COVID-19] we didn't do anything that was illegal, that was fraudulent, that was non-compliant, and we still managed to do it quickly and efficiently. So I think it comes back to the very first point that I spoke about, trust. People were trusted and when we don't have trust, we put in all these rules and regulations and check points that are often unnecessary, just because we don't trust people. And if Scottish Government put that and UK government put that on to local government, we then put that on the third sector <…> and it just becomes that chain."