The strengths and drawbacks of grant funding – creating a sustainable funding mix

By Paul Streets OBE, Chief Executive, Lloyds Bank Foundation

It was always inevitable that the grants vs. contracts debate would rear its head in any review about statutory funding to the sector – as the Financial Sustainability Review highlighted, grants from government are at an all time low which inevitably prompts questions about what this means for charities on the ground. But it shouldn’t be a debate about one versus the other – sustainable funding needs a mix of funding sources and for us, we really worry things have gone too far one way.

Money is tight and it’s only going to get tighter so it’s really important that where there is public money, it is deployed in the most effective way to meet the ends that are set out. While the NHS will be protected in the Spending Review, that doesn’t extend to many areas of health and social care. We know that the health sector is going to have to continue to do more with less, and that will include needing to make best use of its partnerships with the voluntary and community sector. Reassessing how funding is distributed could help to alleviate some of these spending cuts by ensuring maximum value is gained from every penny.

As an independent funder, our business is making grants to effective organisations who are delivering essential services to communities across the country. We clearly see the value of supporting these organisations through grants – we can see the impact through our monitoring and grant reports as well as through the feedback we receive from grantees. For us, it allows us to be both selective, only funding the most impressive organisations but also flexible, responding to needs as defined by those who know best – the organisations on the ground, rather than prescribed by us centrally. We know that we want to fund organisations supporting people at risk to overcome the multiple disadvantages they face but we don’t dictate how they do this. We allow charities to be innovative in their response, able to shape their service around the specific needs of the local community and make use of their expertise.

BASIC in Salford is just one example of the health charities we fund through a grant. They support people recovering from acquired brain and spinal injuries, and their families. A package of over 30 rehabilitation services is available which are tailored to the clients’ needs, from discharge from hospital right through to return to work. It is this type of personalised, wrap around support that is shaped by the charity which thrives under grant funding.

Evidence suggests that when it comes to statutory funding, grants have become less appealing. In 2012/13, grants made up just 17% of the sector’s income from government, down from over 50% of statutory funding to the sector in 2003/2004 (NCVO, 2015). In contrast, the proportion of statutory money delivered through contracts has gone up. Contracts can be an effective way of commissioning services, especially where outcomes can be clearly identified and defined, such as delivering specific clinical interventions like treatment, operations or a vaccination programme. Large scale contracts can also take advantage of economies of scale and guarantee a level of provision provided across wider geographic areas, giving government more control over the services provided. Yet, not all health and social care needs fit within these parameters.

When it comes to dealing with more complex issues, responding to need in different ways in different communities and working with smaller organisations, contracts become more problematic. At Lloyds Bank Foundation we fund smaller, local organisations that support people facing multiple disadvantage and complex issues. The move to contracts has proved problematic for many of them because smaller organisations are typically placed at an unfair disadvantage in bidding processes which favour larger organisations through emphasis on per unit cost and complex, secretive systems. We heard this loud and clear when we surveyed grantees, the results of which we’ve recently published in our Expert Yet Undervalued and on the Frontline report. As one charity put it, the process is “heavily weighted in favour of lager organisations which have the resources to a) hire professional bid writers, and b) put in whatever bid is necessary to win the contract and then deal with the consequences later if they do not meet the targets set”. In another case, we heard that “we have already experienced larger charities under-bidding and being awarded contracts without any history of local delivery or any local knowledge. Additionally, once the contract has been awarded, it has been re-negotiated and no longer reflects the original tender document”.  

For personalised services dealing with more complex issues and for local solutions to local problems we require a more tailored commissioning processes. It’s inevitable that the funding requirements of such diverse activities and organisations should in itself be diverse. This means gaining a better understanding of needs on the ground through co-production and co-commissioning. We need a system where the processes do not restrict the intervention by means of excluding smaller organisations and one which encourages collaboration over competition. In essence, this means a greater emphasis on grant funding. Many voluntary and community (VCS) organisations do not have the scale and capacity to compete or to deliver large scale public sector contracts but, with a grant, can make significant contributions to improving health outcomes. Indeed, NHS England have already recognised the benefits of grant making in their Grants for the Voluntary Sector publication.

The forthcoming spending review will inevitably see a raft of changes introduced as departments working in social care and wider health determinants face budget cuts in the region of 25%-40%. To try and reduce the negative impacts of this, government money is going to have to work harder at delivering value. This will need a flexible approach that makes best use of variable processes and delivery partners. It’s imperative that we use this VCSE Review to build the case for this. As one of our grantees put it: “We want to be accountable to delivering the very best solutions in the most cost effective way”. Through the charities that we support, we can see that their solutions do work.

Have your say on the future of funding for the VCSE sector by taking part in the VCSE Review

One thought on “The strengths and drawbacks of grant funding – creating a sustainable funding mix

  1. On the question of funding the third sector, West Lancs Peer Support have been financially self sustained since 2007 after a period of “set up” funding.
    The services we deliver are for people with disabilities, complex needs and dementia to live in thier own home with support from a mixture of paid and unpaid support, being a family led charity we find that families of disabled people are more inclined to listen to people who are in a similar position as they are in.
    We fund ourselves by making a small charge that is minute compared to the Proferred Provider charges.
    With the DWP we are set up as Corporate Appointees for people who do not have capacity (Dementia and others) to manage their own funds from the local authority, pension and benefits. We pay the utility bills, phone bills and get the shopping and give the person an agreed amount of money for social spending. This is audited by the social worker.
    For the disabled who have a Self Directed Support budget from the local authority, we manage the bank account by paying the PAs, operate a payroll service, deal with HMRC regarding tax & NI returns, contracts of employment and job descriptions. We also support people when their service is being reviewed or assessed.
    We have several cases of people with complex needs that have 24/7 care that we support in all aspects and feel we can offer a similar service to people who access a Personal Health Budget. But the procurement process is such that we do not stand a chance of offering a service to the CCG who we feel do not want to engage with the third sector.
    Any ideas for driving this type of service forward into health, greatly appreciated.


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