THE BLOG
30/10/2015 08:16 GMT | Updated 30/10/2016 05:12 GMT

Politicians Should Not Tell Charities How to Use Their Reserves

The recent report in Civil Society 28th October 2015 - http://www.civilsociety.co.uk/finance/news/content/20669/council_cuts_charity_funding_then_demands_it_use_up_reserves_to_maintain_same_service - that after West Berkshire Council severely cut funding to the local Mencap branch, the Leader of the Council had told Mencap to continue to deliver the same level of services was outrageous. The Leader is reported as saying that Mencap should use its reserves in effect to replace the public funding that his council was refusing to fund.

If accurate, a £137,000 cuts in funding and then this demand is simply absurd. This is no way for any council or council leader to treat the voluntary and community sector, especially one that is delivering public services for vulnerable people.

The Chief Executive of West Berkshire Mencap is quoted as saying that using reserves in this way would put her organisation in the same place as Kids Company. The fact is that charities, like local authorities, must and should have reserves, and they need to be clear why they need them.

The Council had given six months' notice of its intention to make this cut in financial support for services for children, many of which will now have to close.

The article does not say whether or not there had been any dialogue between the voluntary and community sector and the Council prior to these cuts being announced. The inference is that there had not been. If this is so, it is a big missed opportunity.

Local authorities should be ready and keen to have informed discussions with their local voluntary and community sector, including service providers, about the public expenditure challenges and the options available to them. They should be ready and willing to seek advice and ideas from the voluntary and community sector. And they most certainly should want to understand the impact of any decision to make cuts in advance of doing so. When these cuts involve reduced financial support to the voluntary and community sector, and in particular to providers of public services, they should always seek to explore alternative approaches.

In the current national fiscal context, sadly, there are bound to be cuts to voluntary and community sector grants. There may be also be attempts to reduce contractual spending with the sector too. In the latter case, it is important that a local authority honours its contractual obligations. It can be too common for unilateral cuts to contracted funding to be made with no agreement on corresponding service reductions and/ or changes. Unsurprisingly, councils usually avoid such unilateral and usually contractual non-compliant funding decisions when the contracts are with major business sector providers who are able and often not timid about using lawyers to fight their corner.

It is wrong for any council to take advantage of a local charity (though I am not saying that this was or is the case in respect of West Berkshire but it was it would be wrong as it would be anywhere). In this case, from the Civil Society report, it would seem that the Council Leader was planning make cuts to his spending and expecting that a charity would pick up the consequences and plug the hole he had made.

Local authorities have reserves and I recall the uproar when Eric Pickles suggested that they could reduce their council tax or avoid cuts by using these reserves to compensate for cuts in central government grant. Interestingly West Berkshire Council's annual accounts for 2014/15 show £43m of reserves of which £12m are useable. The net budget was £121m. Like councils charity trustees should determine what reserves to hold and how to use them; and not the pressurised by secretaries of state nor council leaders on this.

My advice to voluntary and community sector bodies providing public services funded by a public body is to ensure that the contract or grant agreement:

  • does not allow the client unilaterally to cut funding
  • requires proper notice to be given of any intended changes
  • requires consent between provider and client on what service changes will result from any reduction in funding
  • allows for dialogue and exploration of alternative sources of funding and service provision if and when financial pressures may be putting funding at risk

I would also advise them to have very clear and transparent reserves policies that are subject to audit.

My advice to the public sector and local government in particular is to treat the voluntary sector with respect and decency. Contract with them fairly and reasonably; involve them in strategic, commissioning and budget decisions; and listen to them as a source of expertise, challenge and informed advice.

I hope that the Civil Society report on West Berkshire is either mistaken or an isolated case. In terms of this situation being uncommon, I fear that the sentiments behind what has been reported are all too common.

My plea to council leaders and senior officers is simply this - remember that you and the local voluntary and community sector seek to serve the same communities and same people. Respecting, valuing and working with each other as 'real' trusted partners, you can make a big difference, especially in these hard times of austerity and cuts.