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2. The Context

2.1 Strategic Funding Review

This independent review of support services available to the voluntary sector is one element of a range of work being undertaken as part of the implementation of the Strategic Funding Review ( SFR) of the voluntary sector.

The Scottish Executive set up the SFR in 2003 and it was managed jointly with the Convention of Scottish Local Authorities ( CoSLA) and the Scottish Council for Voluntary Organisations ( SCVO). The review sought to:

"maximise the contribution of voluntary organisations to the common good of Scotland by identifying, and making a shared commitment to resolve the cultural and practical issues relating to the funding of voluntary organisations that currently constrain them".

The SFR reported in 2005 and a Statement of Principles was produced jointly by the three partners identifying a set of agreed core objectives for the implementation of the review. These were to:

• Promote sustainability of the voluntary sector
• Support the voluntary sector to make the best use of resources available to it
• Demonstrate the impact and effectiveness of the voluntary sector
• Promote effective partnership working between and across the voluntary and public sectors
• Ensure that funding policies and practice promote equality and inclusion of marginalised or disadvantaged groups

In order to achieve these objectives a number of key priority areas for action were identified:

• Creating a culture change in funding, with funders moving towards an investment culture of funding, based on a proportionate approach to risk and the agreement of shared outcomes. In this new culture, funded organisations will be able to demonstrate their added value, improve efficiency and joined up delivery, and assess the impact of their work.
• Moving towards 'full cost recovery', so that voluntary organisations realistically cost their services, and funders recognise that, to make organisations sustainable, a legitimate proportion of overhead costs should be included in funding agreements.
• Developing joined-up policy-making and meaningful partnerships between the public and voluntary sectors, so that improved relationships and dialogue allow for better joined-up delivery and better value for public money.
• Improving support services for voluntary organisations, by encouraging co-ordination across a wide range of support providers to the sector, and ensuring that marginalised groups do not fall through the gaps.
• Joining up funding by making funding sources easier to identify, clarifying funding policies and practice to improve efficiency, bringing relevant funding streams together where appropriate and co-ordinating with other funders.

One of the primary ways in which the objectives of the SFR will be achieved will be by

"encouraging voluntary organisations to improve their financial management, business planning and governance processes, and to diversify their funding sources".

This review of support to the voluntary sector will form a key part of achieving this.

2.2 The Scottish voluntary sector

Over the last decade there has been ever increasing recognition of the role, and potential, of the voluntary sector in contributing to service delivery, policy development and implementation and employment in Scotland. This has also been reflected at a UK wide level with the introduction of the Change Up agenda ² and the recent announcement in the March 2006 budget of an HM Treasury "review into the future role of the third sector in social and economic regeneration"³. Alongside this, the Budget announced plans to establish an Office of Charity and Third Sector Finance within HM Treasury that would link the work of the Treasury across the range of third sector issues to provide strategic co-ordinated engagement.

In Scotland the value of the voluntary sector has been identified in a number of government agendas including: strengthening the economy; building strong, safe communities; a confident, democratic Scotland; delivering excellent public services; growing Scotland's reputation abroad; and sustainable development ⁴. It has also been reflected in an increase of public sector funding of the sector from £286m in 1999 to £400m in 2004/05. Public sector funding as a percentage of the voluntary sector's total income has risen by 12% from 26% in 2000 to 38% in 2005 ⁵. In its review of the social economy ⁶ the Scottish Executive identified the areas where social economy organisations have the potential to add value:

• Service delivery - bringing a user and needs-led focus to planning and delivery; providing access to harder to reach groups; innovating; attracting charitable resources, financial and human; and reinvesting surpluses
• Policy development - making independent contributions to public debate informed by experience and user focus
• Developing social capital - supplying employment and economic activity; and building capacity of, and within, communities

SCVO recently estimated that there are around 50,000 voluntary organisations in Scotland employing around 119,000 people and with a combined annual income of around £2.62 billion ⁷. Over half of the voluntary sector is made up of regulated charities or mutuals, most of which are social care organisations (social welfare organisations account for 37% of the voluntary sector's income) ⁸. Arts and sports organisations account for around 40% of the sector and these are generally non-charitable bodies ⁹.

The greatest number of voluntary organisations are located in the central belt with 11% in Glasgow and 15% in Edinburgh ¹⁰. However compared to population the number is significantly higher in rural areas with around 15 regulated voluntary organisations per thousand people in Shetland compared to around 4 in Glasgow and under 2 in North Lanarkshire ¹¹. Despite this distribution, a consistently higher average level of income goes to organisations in urban areas ¹².

Figure 1: Structure of the Scottish Voluntary Sector

(Adapted from A Vision for the Voluntary Sector - The Next Phase of Our Relationship 2005)

Income

The income of the sector is unevenly distributed across small and large organisations with 1% of the sector (very large organisations) receiving 57% of the overall income and the bottom 65% receiving less than 2%.

The main sources of income to the voluntary sector are:

• Self-generated ( e.g. from trading, rent and investments) - 44%
• Public sector funding (Scottish Executive, local authorities and Non-Departmental Public Bodies ( NDPBs) - 38%
• Voluntary income - 8% (public donations) 6% (trusts) 1% (private sector)
• Loan finance - estimated at around £460m by 2004 for voluntary sector charities and £1.14b private loan approvals to housing associations

(source: SCVOSnapshot of the Scottish Voluntary Sector, 2005)

Employment

Employment by the voluntary sector in Scotland has also grown over the last decade with numbers having risen from 85,000 to 119,000 between 1996 and 2004 ¹³. However, here too the growth has been disproportionately focussed within larger organisations. Only 6% of the smallest 22,500 organisations have experienced employment growth since 2001 compared with 63% of large organisations. SCVO suggests that this is due to staff moving from the small organisations to the medium and large bodies in a redistribution of human resources reflecting that of financial resources.

Key issues facing the sector

The voluntary sector in Scotland faces a number of challenges and constraints which form an important element of the context in which support is provided as well as informing the type of support services that are needed. In a survey carried out in late 2004 with a large sample of voluntary organisations SCVO found that the main challenges facing the sector are:

• Raising and ensuring funding is the most important challenge for all organisations
• For medium and large organisations staffing followed by compliance are the second most important concerns (reflecting organisations' growing staff base)
• For small organisations the second most important concern is supply of volunteers, rather than staffing, however compliance is also seen as a major issue for this part of the sector

Table 1: Top Challenges by Size of Organisation

Source: SCVO Members' Briefing 2005

2.3 Key policy agenda

In a joint statement the SFR partners identified a range of activity currently underway to support the sustainable growth of the voluntary sector including: the revision and strengthening of the Scottish Compact; the development of a Volunteering Strategy for Scotland; the launch of Futurebuilders Scotland; and legislation to modernise and improve the regulation of charities in Scotland including the establishment of the Office of the Scottish Charities Regulator ( OSCR). In addition, new roles for agencies such as the Enterprise Network (including an increased focus on social justice responsibilities), Communities Scotland, SCVO and the CVS Network ¹⁴ have recently been developed. Next year will see the end of the current round of EU Structural Funds and changes in the focus of these for the 2007-13 programme. The new framework is likely to centre on activities to support: enterprise; innovation; sustainable communities; sustainable development; and skills and employment, in accordance with the European Lisbon and Gothenburg agendas.

The key policy agendas of significance in the context of support services to the voluntary sector include:

Charity and Trustee Investment (Scotland) Act 2005

This Act came into force in April 2006 and represents the first comprehensive legislation on charities in Scotland. The Act followed the recommendations of the McFadden Commission (2001) ¹⁵ that was established to review:

• The regulation and support for the charitable sector in Scotland
• The operational effects of Scottish legislation on charities of all types and size, bearing in mind the need to encourage voluntary and charitable activity and the contribution which the voluntary sector makes to the social economy
• How best to provide the charitable sector with definitive advice and information
• The requirement to protect the public, ensuring high standards among charities but at the same time avoiding over-burdensome administrative requirements
• Whether in addition to reform, the law should also be consolidated.

The Charity and Trustee Investment (Scotland) Act 2005 established the Office of the Scottish Charity Regulator ( OSCR) and introduced a range of requirements governing the way in which charities operate including fundraising, management and monitoring. It also introduced general duties on charity trustees to act in the interests of the charity, ensure it does what it was set up to do, act with care and diligence, avoid conflicts of interest and ensure they and their charity comply with the Act. The legislation brought an emphasis on charities as having 'public benefit' as their overriding purpose and introduced provision allowing charities to adopt a new legal form of Scottish Charitable Incorporated Organisation ( SCIO). This is intended to provide charities with the protection of limited liability without the bureaucracy of being a company limited by guarantee ¹⁶.

Vision for the Voluntary Sector

This report emphasises the value and potential of the voluntary sector in Scotland. It draws together much of the work that is underway in relation to the sector and aims to stimulate debate and discussion about where the sector has the potential to make the most valuable contribution and what the Scottish Executive's role might be in supporting this.

Change Up, Capacity Building and Infrastructure Framework for the Voluntary and Community Sector

This framework was published by the Home Office of the UK Government in 2004. It followed on from a cross-cutting review by HM Treasury in 2002 which made several key recommendations on increasing the capacity of the voluntary and community sector to deliver public services. Change Up sets out a vision for building the capacity of the sector in England over the next ten years (there is not an equivalent framework in Scotland). Its overarching aim is "that by 2014 the needs of frontline voluntary and community organisations will be met by support which is available nationwide, structured for maximum efficiency, offering excellent provision which is accessible to all while reflecting and promoting diversity, and is sustainably funded". The framework recognises that the needs of the sector are diverse but identifies six core areas of need shared across voluntary organisations:

• Performance improvement
• Workforce development and leadership
• Information Communication Technology ( ICT)
• Governance
• Financing voluntary and community sector activity
• Recruiting and developing volunteers

In relation to all but the last of these national hubs of expertise have been developed (launched in early 2006), bringing together key stakeholders to provide strategic leadership and act as gateways and beacons of good practice to develop advanced thinking and practice in frontline organisations.

Best Value

The concept of Best Value is intended to secure continuous improvement in public service organisations in relation to economy, efficiency, effectiveness, equal opportunities, and sustainable development. The Local Government in Scotland Act 2003 placed a duty on local authorities to secure Best Value in the discharge of their functions and the Scottish Compact includes a commitment from the voluntary sector to also strive for Best Value.

Full cost recovery

One of the priorities identified in the SFR is to move towards 'full cost recovery' whereby voluntary organisations realistically cost their services and funders recognise the need to include overhead costs in funding agreements in order that organisations remain sustainable.

Volunteering Strategy

The Volunteering Strategy sets out how the Scottish Executive will work with the voluntary, public and private sectors to provide accessible volunteering opportunities with the aim of embedding "a robust culture of volunteering in Scotland". The Strategy outlines four strands:

• Focusing on Project Scotland and young people
• Dismantling the barriers to volunteering and closing the opportunity gap
• Improving the volunteering experience
• Monitoring, evaluation and ongoing policy development

Social Enterprise Strategy

Scottish Ministers committed to developing a differentiated strategy for social enterprise in Scotland that will link to the Executive's commitments to deliver better public services and grow Scotland's economy as well as to the Executive's Vision for the Voluntary Sector. The Scottish Executive's Social Economy Unit (based within Communities Scotland) is currently consulting on a draft of this strategy.

Equalities

As part of the broad agenda of recognising the principle of equality, by 2006 there will be specific legal duties on public bodies to ensure and promote equality in terms of race, disability and gender. Voluntary organisations are affected by this, both in terms of their role in delivering statutory services and in their, often unique, position of being able to support public agencies to meet their duties. In addition, SCVO has highlighted equalities as a priority for the voluntary sector, particularly given that many voluntary organisations exist to serve the needs and interests of minority or disadvantaged groups.

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