NEARLY one in 10 major charities faces closure amid warnings of a "perfect storm" of public-sector cuts, loss of donations and soaring levels of need.
The bleak future for voluntary organisations is revealed in a study of 750 large UK charities, including many in Scotland, published today. It highlights how the Coalition Government's austerity measures and the recession are impacting on their finances.
The report by a think tank that advises charities said the overall picture "may be bleaker" for smaller charities.
Aberlour, the largest children's charity working solely in Scotland, said the findings highlighted a "perfect storm" caused by state cutbacks, the drop in income from wealthy donors and rising demand from those in need.
Head of policy Alex Cole-Hamilton told The Herald: "We are seeing donations from wealthy individuals dry up while local authority funding is getting tighter as they increasingly put services out to tender in a bid to reduce their own costs.
"Aberlour has made staff redundancies and introduced new ways of working to try to become more competitive and more attractive to commissioners. It's a tough situation but the most important thing is that we continue to provide services to vulnerable young people, because they are the reason we are here."
Around one-fifth of charities that took part in the study by New Philanthropy Capital (NPC) operate north of the Border. NPC focused on those that already deliver work under contracts in the public sector.
It looked at the impact of cuts and also changes to methods of funding, which are forcing more charities to bid for contracts or enter consortiums to win public work and more use of "payment by results".
It found that 9% said they had already closed or were threatened with closure due to spending cuts. More than 65% said they were expecting to close frontline services and 62% had eaten into their reserves to cover shortfalls in income. It is feared that smaller charities, not covered by the research, may be faring even worse.
The report states: "We need to know more about how small organisations and charities that are struggling to win contracts are managing. We suspect the picture may be bleaker than the one painted here."
It is nearly a year since Scottish charities warned they could lose up to £200 million in public funding from Holyrood over the next four years as a result of the Coalition Government's measures.
The Scottish Council for Voluntary Organisations has also revealed income for Scottish charities fell by £96m in 2010, in large part due to public spending cuts.
London Borderline, which helps destitute Scots in the UK capital, has already said it is on the verge of closing down after the Scottish Government withdrew all its funding from the end of March. Its £107,000 grant had been steadily cut over the past three years.
In March, Citizens' Advice Scotland came close to closing five Glasgow branches after losing funding in a tendering exercise.
NPC, which produced the new report in partnership with Zurich, suggests cuts to public spending have had a savage effect on the income of charities, with 12% saying income from government has been reduced by one-fifth or more.
Charities working in crisis and emergency work or in sports and recreation have been particularly badly hit, the report says. Those working for local authorities have also been worse hit than charities working for other branches of the public sector. The majority of charities said they anticipated further falls in their funding.
More than 70% of those surveyed said they were confident they had the right skills and the capacity to bid for more government work. However, more than 90% said they also now faced more risk, with around half saying risks were "much higher".
Charities expressed concerns in the study about the impact of new "payment by results" contracts on their financial security, and doubts as to whether such contracts will actually benefit service-users.
The report warns large charities need to adapt to a new funding environment, but those commissioning services need to realise that simply inviting charities to bid for contracts will not result in a level playing field.
John Downie, director of public affairs for the Scottish Council for Voluntary Organisations and a member of the Scottish Government's working group on sustainable procurement, said: "Many of the trends to have emerged in NPC's survey also apply to Scotland. For example, payment by results could deter charities from taking on contracts despite often being the best placed to deliver them."
l Seven out of 10 people want the Coalition to adopt a Plan B, prioritising growth over austerity, a new poll found last night. Comres found 72% agree it is time for a change of tack with a focus more on promoting growth and less on making cuts. Significantly, 64% of Tory voters back a change of course.
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