The Opportunities and Challenges of the Changing Public Services Landscape for the Third sector in Scotland: A Longitudinal Study (2009 - 2013): Year 4 and Final Report

Executive Summary

This report presents findings from a four-year research project (2009 - 2013) entitled 'The Opportunities and Challenges of the Changing Public Services Landscape for the Third Sector in Scotland'. The work was commissioned by the Scottish Government and carried out by the Employment Research Institute at Edinburgh Napier University and the Centre for Public Services Research at Edinburgh University.

The report uses qualitative longitudinal research within 21 third sector organisations based in Scotland to investigate their responses to the opportunities and challenges of the changing public services landscape in Scotland between 2009 and 2013. It builds upon the earlier reports on each of the first three years of the project.

After being a minority government from 2007 in Scotland, the SNP (Scottish National Party) became a majority administration after the 2011 election. The Scottish Government has announced they will be holding a referendum on Scottish independence on 18^th September 2014. The UK Government, elected in 2010, continues to be a Conservative and Liberal Democrat coalition.

Major UK policy issues affecting the third sector in Scotland include: public spending reviews; and a series of reforms to the welfare system. These reforms are designed to improve incentives to work, to help reduce poverty and reduce the cost of welfare at a time when spending reviews are taking place to address high levels of public deficit.

Further, the continued economic downturn and the current and future budget constraints will continue to impact on the third sector.

Over the period of the research, Scottish policy developments of particular relevance to the third sector included:

• The Scottish Government's commitment to promoting high quality public services and the importance of the third sector in on-going public service reform.
• The 2007 Concordat between the Scottish Government and local government which reduced ring-fencing and devolved control of some budgets to local authorities and Community Planning Partnerships (Scottish Government, 2007).
• A major programme of change in local third sector infrastructure with the announcement in March 2008 that as of April 2011 the Scottish Government would no longer fund networks of Councils of Voluntary Service, volunteer centres, local social economy partnerships and social enterprise networks in their current form. This led to the development of new third sector 'interfaces' in each Community Planning Partnership/local authority area in Scotland.
• The Enterprising Third Sector Action Plan (2008-2011) which aimed to support enterprising behaviour in the third sector, including the Scottish Investment Fund (£30M) and the Enterprise Fund (£12M) (Scottish Government, 2008).
• The public-social partnership programme was launched in November 2009. It involves the public sector and the third sector working in partnership to design and deliver public services (Scottish Government, 2011).
• The development of models and tools as a means of measuring how third sector organisations deliver social and environmental benefits. The Scottish Government funded Social Return on Investment project ran between 2009 and 2011. The findings and practical advice, along with a range of other measurement tools are available at www.socialimpactscotland.org.uk
• The Joint Statement on the Relationship at Local Level between Government and Third Sector (Scottish Government et al., 2009).
• The Social Care (Self-directed Support) (Scotland) Bill provides service users (adults and children) with a high level of involvement in the way in which their care is arranged (Scottish Parliament, 2012).
• The Christie Commission reported in June 2011 on how Scotland's public services can be delivered in the future to secure improved outcomes for communities across the country (Christie, 2011).
• Investment in preventative approaches across three areas: supporting adult social care; early years and tackling re-offending (Swinney, 2011). These are known as the Change Funds.
• The Scottish Independence Referendum which will be held on 18 September 2014.
• In November 2012 a new living wage of £7.45 was announced for public sector employees, and private, public and third sector employers have been urged to follow suit (Scottish Government, 2012b).

Changes in the Policy Environment

While the principle of localism is often supported by third sector organisations, the impact on them in practice had been more problematic e.g. organisations having to negotiate with numerous local authorities and 'disconnected' policies.

The move to greater personalisation of services is seen as a positive step. However, third sector organisations perceive that most Scottish local authorities have yet to fully implement the Self-directed support (SDS) agenda and there are concerns that some local authorities are using it as a cost-cutting exercise.

Awareness of the recommendations of the Christie Commission was more widespread among third sector organisations in Year 4 of the project. While most supported the recommendations and cited that it was an approach that many third sector organisations were taking already, there was concern that there was virtually no additional funding to help third sector organisations implement the recommendations of the Commission.

The majority of third sector participants engaged with the Work Programme have found that it has presented challenges rather than opportunities e.g. they have received few referrals, or have experienced the loss of funding.

Most participants stated that they had not significantly prepared for the Scottish independence referendum.

Changes in the Funding Environment

A persistent theme across each of the four years has been the problem of securing core funding and maintaining internal capacity. The reduction in the availability of funding for core costs has had an impact on the capacity of third sector organisations to retain head office staff, pay for staff training etc.

In order to facilitate the greater involvement of third sector organisations in service design, the Public Social Partnerships (PSP) model has been developed in recent years. However, experience of them remained limited across the participating organisations.

A theme emerging from interviews with third sector organisations in Year 4 was the use of re-tendering by local authorities, for services already being provided by third sector organisations. Re-tendering was understood by third sector organisations to often be a cost saving exercise on the part of local authorities.

The issue of funders and commissioners not meeting their own schedules for announcing the outcomes of tenders was becoming an issue in Year 4.

The problems of cash flow for third sector organisations were also not always recognised.

Despite the challenges faced by standstill funding or funding cuts, many third sector organisations also felt that some new opportunities for funding were emerging. However, there are dangers of a preoccupation with new initiatives being promoted while more efficient and effective projects are stopped.

Performance and Outcome Measures

In Year 4 previous trends in measuring outcomes continued e.g. a focus on outcomes rather than outputs and increased compliance and scrutiny. Some organisations had experienced some changes in the systems used by funders and commissioners to measure outcomes, or had made alterations to their own internal systems.

The theme of inconsistency in funders and commissioners' requirements regarding reporting performance and outcomes (relevant in Year 1-3) continued. Some organisations had tried to directly engage with funders and commissioners to develop universal monitoring or had improved their own internal systems in order to address these challenges.

The theme of inconsistencies in funders and commissioners' information requirements continued, with additional resources having to be spent on providing similar information in different ways to different local authorities.

Partnerships and External Relationships

While third sector organisations recognise the importance of partnership working, in times of economic pressure organisations may tend to defend their own interests. Specific funding streams and the Public Social Partnership model were cited by third sector organisations as providing momentum for developing partnerships.

There is considerable variation in the relationships between third sector organisations and local authorities in different areas. Participants perceived that third sector involvement in local authority decision making processes was usually tokenistic. Also, the turnover of Scottish Government officials moving posts caused difficulties of knowledge, consistency and duplication for third sector organisations.

By Year 4 nearly all of the participants had heard of the third sector interfaces, but engagement with them was low. Participants continued to be involved with intermediary organisations such as SCVO, using their information services for example. Partnerships and relationships with private sector organisations are increasingly important e.g. because of its leading role in the delivery of the Work Programme; and the importance of corporate social responsibility for private sector organisations.

Governance and Leadership

Across most of the organisations participating in this research there has been change to senior management teams, boards of trustees and governance structures in the period 2009-2013.

In Year 4, the composition of board members appears to have stabilised in many of the third sector organisations, although this was not the case in all organisations. The composition of boards is changing; in general their role appears to have become more professional and more closely integrated into the overall strategic direction of the organisation.

Maintaining staff morale in a time of economic uncertainty and dealing with the pressure on organisational budgets are some of the key challenges faced by managers. The Self-directed support agenda means that leadership structures are likely to change to reflect an increased need for managerial flexibility and responsiveness.

Changing Organisational Structures and Working Conditions

The internal structure of third sector organisations participating in this research has changed significantly over the period 2009 to 2013 e.g. the structure of senior management teams; the function of Boards of Trustees; the terms and conditions for staff; the mission and purpose of organisations.

Cost savings were being made through wage freezes on front-line staff. This has meant a real terms decrease in take home pay for many third sector staff. Cost savings were also being made through redundancies and reduced working hours for other staff. Under personalisation, services have to be more flexible and responsive to the needs of the customer.

Overlapping with the responses to specific policy and funding changes, discussed above, there appeared to be major developments within our participating third sector organisations in terms of partnership relationships with external bodies, organisational leadership, and changing organisational structures and working conditions.

This four-year study has provided a large amount of useful new information, analysis and insight for contemporary and future policy and analytical purposes. It should help inform Scottish and UK Government and local authority policy and practice in the future, as well as that of third sector organisations.

The study not only provided a cumulatively more valuable store of information but also is likely to have had some influence on participant third sector organisations, and government views. The process of carrying out the research and meetings resulted in the organisations reflecting on their strategies and actions and learning from the other participants. For the Scottish Government, the process allowed fast or sometimes near contemporaneous feedback on the effects of current conditions, policies and initiatives.

In addition to those raised in the previous sections, a number of issues are highlighted by this study. First, there is a need for in-depth knowledge of the development of the third sector, especially, but not exclusively, in times of turbulent change.

Public sector bodies and other funders and commissioners need a greater understanding of the third sector including their unique contributions, how these can better be used for the benefit of all (not least service users), and the pressures they face (including issues such as uncertainty or cash flow). The mechanisms by which third sector organisations engage with public bodies, for example the Third Sector Interfaces, do not appear to have had the full desired impact. Consideration needs to be given to how these mechanisms represent and give voice to the third sector to ensure that the views of organisations are heard at all levels of government, and a greater understanding of how the actions of public bodies can, unintentionally, cause difficulties for third sector organisations; and that the engagement of organisations in these mechanisms is meaningful.

The mechanisms for improving both day-to-day and strategic dialogue between public bodies and third sector organisations could be improved but there also needs to be a wider change in attitudes across public bodies to ensure that the issues faced by third sector organisations are discussed and, where appropriate, acted upon.

The need for support for core organisational capacity (in terms of expertise, training, support etc.) is increasingly difficult to obtain, with one future result perhaps being a greater homogeneity of solutions and lack of innovation in the sector.

The funding/procurement models being used will have profound impacts upon the structure of the third sector as a whole, and different types of third sector organisations. It is important that the overall impacts of funding changes be considered rather than just the impact of a single programme or set of projects. The incentives created in funding processes may have a perverse effect over time. Consideration should be given to having as much consistency across practical bidding documents and processes as possible, to reduce the overall costs to bidders (which should lead to lower public sector costs).

There is a need for effective forums so that Community Planning Partnerships (CPPs) can learn from each other in terms of their relationships with, and effect on, the third sector. There may also be third sector organisations elsewhere that can fill the local gaps perceived by CPPs. It would be useful to have a systematic evaluation of Single Outcome Agreements across Scotland to identify common gaps, services etc. and the role of third sector organisations in helping fill these. In March 2013, Audit Scotland published a report on how Community Planning can be improved. The report contains valuable recommendations that, if implemented, could improve the voice of the third sector in CPPs.

The impact of pressure on funding from commissioning bodies, in particular, local authorities has affected the working conditions experienced by front-line staff within third sector organisations. It is important that the experience and good practice described in this report are considered carefully in relation to the implications for the way in which third sector organisations manage change at a time of financial pressure.

Finally, recognition needs to be given to the excellent work of the third sector in delivering public services and a clearer understanding articulated of their unique contribution to service delivery across Scotland.