18/05/2017 07:27 BST | Updated 18/05/2017 07:27 BST

Small Is Beautiful: Charity In An Era Of Austerity

However, the prize for all this hard work will be worth it. Nothing short of fundamental re-think of what the charity sector is for and how it operates will allow us to get through the current social crisis with the basic conditions of a good society still in tact.

Just over 70 years ago, as the allies drove Nazi forces back across Europe, leading thinkers in Britain turned their attention to the prospect of peace and reconstruction. William Beveridge, a civil servant and academic, was at the centre of this project, having been given "the chairmanship of an obscure interdepartmental inquiry into the co-ordination of social services".

Not someone to waste an opportunity, Beveridge broadened the inquiry's remit, with the final report assailing "the five giants" of idleness, ignorance, disease, squalor, and want, and commending universal social insurance and health care as the remedy. It quickly sold 70,000 copies and its arguments were driven forward by the newly elected Labour government in 1945.

The resulting initiatives saw the state intervene in all areas of social policy in unprecedented ways. From schools to hospitals and pensions to poverty reduction, government started undertaking roles which had hitherto been the domain of private individuals or the voluntary sector.

This change was widely embraced by the general public - fuelled by a shared sense of the common good - but it left the voluntary sector with an existential question: what was its role in this brave new world of state intervention? In 1948, as these reforms began to take shape, Beveridge set out to answer this question, authoring another lesser known report entitled 'Voluntary action'.

In it he recognised that the state had 'ceaselessly... extended its activity in fields in which voluntary action has pioneered'. But, far from making the sector redundant, he argued this offered charities an opportunity to re-focus their resources on the most complex issues which the state was 'most unlikely to address' and 'pioneer ahead of the State' the new frontiers of 'social advancement'.

This is exactly what the best organisations in the sector did throughout the 20th century. For example, the Bromley by Bow Centre in East London was set up in the 80s and has since pioneered a new approach to the social determinants of health which is now being widely adopted across the NHS. Organisations like these contributed to a new consensus that charities - in particular small and medium sized organisations - were good at using their independence and local connections to innovate and fill gaps left by the state.

However, as we entered the 21st century things started to change. As part of New Labour's public sector reforms - and later under the Coalition government - the state began contracting services out to the voluntary (and private) sector. This took the argument that the independent sector was more innovative than the state but argued that the fruits of this innovation could and should be shared across all populations, for all problems.

Many people in the sector were in favour of this shift. They believed that they were better at delivering public services for all. Moreover, they argued that as the welfare state had moved from patchy provision to a near-complete safety net - and with poverty and homelessness falling and life expectancy and employment on the rise - there was less need for the sector to focus on just the most vulnerable.

As a result of this change, government funding shifted from grants designed to support innovative initiatives aimed at the most complex cases, to fee-for-service contracts to deliver statutory services for whole communities. In 2015 these agreements accounted for around a third (£11.1 billion) of the sector's overall income. Social care. The NHS. Schools. Prisons. Probation services. No area was deemed off limit.

This radical departure from the sectors original purpose seemed sensible during the boom years: contract sizes were growing and so did the charitable sector as well as its ability to help more and more people. However, in the wake of the financial crisis, as government started cutting back on spending, these contracts began to look less appealing.

As the money available for government contracts shrank and the number of people in need ballooned, voluntary organisations that had moved into state provision faced an increasingly unpalatable choice: shrink rapidly, go bust or continue to grow but by delivering substandard services under 'austerity contracts'.

This has had a significant impact on the make up of the sector, with a divide forming between small and independent charities and large and co-opted ones dependent wholly on state income. For example, whilst small and medium size charities have seen government funding fall by a third since the crisis, charities with an income over £100 million have enjoyed a 34 per cent rise.

Why does this matter? Largely because this comes just as Beveridge's five giants are beginning to raise their heads once again. Homelessness has more than doubled since the crisis. Over a million people a year are now using foodbanks (with use seemingly higher in areas where the government has rolled out Universal Credit). Poverty rates are staggering reaching a new high of 14.1 million this year and forecast to climb fast to over 15 million by the end of the coming parliament.

Of course, the charity sector, in whatever form, cannot be expected to solve these problems on its own. The real solution lies in a much more fundamental rethink of Beveridge's welfare state, alongside reforms to our broken economic system. However, in the absence of this, or more optimistically (read: naively), whilst this reform is undertaken, it is more important than ever that we have a strong and independent charitable sector ready to mop up the mess being left by government, with a particular focus on the most complex cases who will require more tailored, longer term and intensive support than the state is willing to provide.

This doesn't mean the sector should disengage from government. But it does mean that the sector must form a new, more innovative relationship with the state based on collaborative partnerships rather than competitive bidding processes. This would see both partners 'pool' their resources, with charities supplementing state provision for the most vulnerable rather than competitively bidding for the opportunity to replace it for everyone in society.

For a sector that has become to depend on government funding this transition won't be easy. It will require boards and chief executives up and down the country to take courageous decisions: to say no to some large contracts; to restructure staff and services; and fundamentally, to recognise that in this environment 'staying small is ambitious'. However, the prize for all this hard work will be worth it. Nothing short of fundamental re-think of what the charity sector is for and how it operates will allow us to get through the current social crisis with the basic conditions of a good society still in tact.

Harry Quilter-Pinner is Director of Strategy at SCT, a charity working with people who are homeless and in recovery from drug and alcohol addiction in East London, and a Research Fellow at IPPR, the progressive policy think tank. This article is written in a personal capacity - all view are his own.