Local Government and Communities Committee

Meeting date: Wednesday, May 12, 2010

Official Report 491KB pdf

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Voluntary Sector Grant Providers

Under agenda item 2, we will take oral evidence on the effects of the recession on voluntary sector grant providers and voluntary organisations.

With us, we have Mary Craig, the chief executive of Lloyds TSB Foundation for Scotland, and John Downie, the director of public affairs for the Scottish Council for Voluntary Organisations.

Given that our witnesses have been waiting for a considerable length of time, with their agreement we will dispense with opening statements and move straight to questions.

We thank you for forgoing your opening statements. It would be remiss of me not to start by asking Mary Craig an initial question, because the Lloyds TSB Foundation for Scotland was not able to come to a previous committee meeting and it might be good to get an update on where the foundation is now and who can apply for grants. What is the current situation?

I am happy to give an update. I offer my apologies to the committee for my non-attendance at the previous evidence session on this matter.

I will not rehearse the old story, but where we are now is that we have had notice served on our covenant by Lloyds Banking Group. In effect, that brings to an end the covenant that has been in place for the past 25 years, despite us putting forward a no-cost counter-proposal. It was not properly explained to us why that option was not acceptable.

In the past few weeks, we have been able to reopen our grant making as a result of selling off some of the shares that we were able to buy as a result of our rights under the bank’s rights issues that happened last year. We have announced that we have £2 million, which is a much-reduced amount compared with what we usually have, but we are delighted to be able to reopen our grant making. The focus of our efforts with that money will be small, grass-roots, community organisations.

That is informative and it is important. Thank you for saying where we are now rather than rehearsing the previous arguments and debates. Even at this stage, is there any scope for further negotiations between Lloyds Banking Group and the foundation? Is the door still slightly ajar?

Not as far as the proposal that we made is concerned. We put a no-cost proposal to the bank, in which we said, “Now that we know that you have the money, why not give it to us as an advance on your profit? When the profit returns, we will be able to make repayments over a period of time.” That would have been a no-cost option for the bank and the taxpayer, but it was deemed by Lloyds Banking Group to be inappropriate. We do not really have an explanation of why that is so.

Given that you gave the group a no-cost option, people will be confused about why it would not accept it. For the record, are you always open-minded and always willing to talk to the group about getting the show back on the road?

Absolutely. We would be open to discussions, provided that we move beyond where we are.

I have one final question about the foundation. You have £2 million and you explained how you managed to realise that money. It is for small, grass-roots organisations for 2010-11 and it is, of course, to be welcomed. If there is no subsequent deal with the group and money does not come into your coffers, will there be any grants in 2011-12?

Yes, there will. We were able to take up our entitlement to the share issues, so we sold a proportion of those shares to give us income for this year. During our discussions with the Lloyds Banking Group, the picture that was painted was pretty much of doom and gloom. Miraculously, in the past month the bank has announced that it will be in profit for this year and expects to continue to be in profit for the rest of the year. We hope that that means that our entitlement under the covenant will come in more quickly than was envisaged at the beginning of our discussions. We will still be entitled to our share of 1 per cent of pre-tax profit over the next nine years.

At the end of the nine years, our 15.7 million limited voting shares will convert to being ordinary shares. Those will come to the foundation and we hope that the share price will be a bit higher than the 60p-odd that it is at the moment. That would be the beginnings of an endowment for the foundation. In the meantime, we expect that our share of income will increase as a result of the bank’s admission that it has doubled in size and is projecting significant profit.



We will have to work out how we manage that income over the next nine years—not spending it all in the years that we get it but putting some aside. That is where we are at the moment. We are working out what our strategy will be beyond the nine years.

Thank you for that information. I apologise to Mr Downie—we wanted the opportunity to get that on the record. I do not know whether my colleagues want to come in on that.

Do not worry, I will come to Mr Downie in a second. My question is for Mary Craig.

Lloyds TSB Foundation for Scotland was set up on the back of a court ruling. Are you in a position yet of feeling that the income that you presently enjoy is within the spirit of that original court ruling, or do you still feel that you have been short-changed?

We fought to maintain the status quo and the entitlement of Scottish communities. The foundations were set up to compensate communities for losing their banks in the flotation of 1985. By fighting for that entitlement to be maintained, we feel that we have done the right thing, and we are bitterly disappointed that the group’s only option was to serve notice on the covenant when we had given them a no-cost option.

Nevertheless, we will continue in a positive vein. We appreciate that we were able to buy shares, which will allow us to continue over the next couple of years. The chances are that the covenant will kick in more quickly than was expected, so we would hope to get our levels of grant making up from £2 million. I do not know how long it will take us to get back to where we were—the £6 million to £8 million that we were distributing previously. We must keep an eye on the long term because it is incumbent on the trustees to secure the foundation into the future.

To what extent has your situation diverged from that of your sister organisations in England, Wales and Northern Ireland?

The other three foundations agreed to the bank’s proposal to accept a share of 0.5 per cent of profit rather than 1 per cent. As I understand it, they have also agreed that of the 0.5 per cent that they get, about 30 per cent will be directed by the bank. They have agreed to things that we felt we could not agree to because we are an independent charitable trust. The divergence is quite marked. Over the next four years, the other foundations will get a set amount of money and they will then go automatically to a share of 0.5 per cent of profits, whereas we have maintained our share of 1 per cent.

Mr Downie, given the current pressures on all sorts of funding agencies, public and otherwise, will many community projects now be more reliant on organisations such as the foundation, or on private charitable trusts? What is the picture?

The picture is very mixed. We strongly support the foundation and, in response to concerns from our members, charities and communities throughout Scotland, we have reignited the save the foundation campaign to put pressure on the bank to think again. Obviously, Mary Craig has explained her position.

If we look at the big picture, there is a squeeze on income across the board. Charitable trusts—whether they have investment in shares or other investment opportunities—have had their income reduced. What we are seeing is worrying. Since the sector entered recession, which in effect was in 2009, the situation has got a lot worse. Particularly for the larger organisations, the expenditure to income ratio is now 101 per cent. Organisations are spending more to meet existing commitments than they are getting in. Whether it is in debt advice, housing advice or care provision that is not funded by local authorities, what we have is an increase in demand and less income. It is a classic paradox. That is the picture that we are seeing across the board.



Funding from local government and national Government for the larger voluntary sector organisations has increased from 33 per cent of their income to 35 per cent. Although organisations with a turnover of more than £1 million are experiencing increased levels of income, organisations with a turnover of less than £100,000 are experiencing a decrease in income. Such organisations are at the front line in protecting communities and dealing with local people on the issues that the committee was discussing with the minister earlier this morning. Therefore, the picture at the moment is very mixed.

Those stats on the larger organisations come from the big panel survey of the sector that we are currently undertaking. We are happy to submit our interim survey results, which will give a breakdown of the income and expenditure of the organisations that we have surveyed so far. We hope to have the full results later in May.

The situation has an impact on the income and expenditure of private charitable trusts. Can the study give us any idea about how long that can continue before there is a visible effect on beneficiaries?

I think that the effects are already visible. The situation with Lloyds TSB Foundation’s reduced grant giving is well-known and is having an effect across the board. In the past, organisations might have been able to turn to local authorities as another source of income and grant funding, but that is no longer the case. Across the country—Edinburgh provides a good example—organisations are losing funding or have been given standstill budgets for the next year, despite a much-increased demand for their services. What we are seeing is a cut in funding across the board, in particular for smaller and medium-sized organisations.

Good morning—if it is still morning. The committee is examining the wider aspect of what is happening in voluntary sector funding. Ms Craig said that the Lloyds TSB Foundation intends to give out £2 million during the current financial year. How does that compare with the funding that was available to organisations in previous years? Ms Craig also said that the foundation will focus on small grass-roots organisations. To what extent is that a departure from the practice of the funding streams that were previously operated by the trust? In the light of John Downie’s welcome comments on the differential impacts on smaller and larger voluntary sector organisations, can you outline what impact the £2 million will have on that wider aspect in relation to funding for local voluntary organisations?

I would be glad to do so. On how the amount that is available this year compares to previous years, I will give the figures. In 2007 we had £7.2 million and in 2008 we had £7.25 million. Last year, the figure dropped to £5.6 million. This year, we received from Lloyds Banking Group a de minimis payment of £38,920, in addition to which we have secured £2 million from the sale of shares, which has helped. Obviously, that is likely to have quite a catastrophic effect on the charities that come to us.

We have always focused on grass-roots community organisations—that is the ethos of the foundation—but we have never excluded larger organisations from coming to us. For example, the partnership drugs initiative that we fund in conjunction with the Scottish Government tends to accept applications from the larger organisations, such as Barnardo’s and Children 1st, as well as some of the smaller organisations.

To answer the question, the difference that we have had to make this year is that, in order to focus on the groups that we want to reach, we have had to tweak our criteria. By that, I mean that we have put in place a ceiling of turnover of £0.5 million, so organisations that have a turnover in excess of that will not be eligible to apply to us this year. We hope that that will allow the core organisations to come to us.

Our average award is about £7,000 or £8,000 but, as I am sure you have heard from others, even such a small grant can still be a substantial amount of money to a small organisation. The other thing that people tell us about the funding is that, when they receive an award from the foundation, they can lever in other funding on the back of it, which is important. Some have said to us that, although they want as much as they can get, if they can get an award at all from the foundation, it is like having a sort of Kitemark. It is, therefore, important that we get to as many organisations as possible if that leverage is to be maintained.

12:00

Thank you for your response. I should have stated that I worked for an organisation that benefited from a grant from the Lloyds TSB Foundation a number of years ago. As you suggest, it was a small grant that allowed other resources to be levered in on the back of it.

The figures that you have given us on the decrease in funding that is being made available via the foundation are quite startling. Is that what SCVO is finding across the board, Mr Downie? When you respond, I want you to make a distinction between the money that comes from sources other than local government and the Scottish Government. We have received figures that show that only roughly 22 per cent of funding for the voluntary sector comes from local government or the Scottish Government, and that the other 78 per cent comes from other sources. Mary Craig has referred to Barnardo’s, Oxfam and Save the Children, which are all involved in local projects but mainly fund those themselves with some top-up funding from local authorities. What exactly is the picture out there in relation to funding, and how are funding streams currently being levered into the voluntary sector?

Our figure for the resources that are coming into the sector from government is 40 per cent, but Mary Craig made an important point about leverage. Every £1 that is spent in the sector in a city such as Edinburgh levers in an additional £10. We could debate social return on investment in terms of the impact of small and large grants for organisations.

On the size of the donations from the grant-making trusts, no one yet knows how much the figures have been reduced from the very impressive figures for 2005-08. People are talking about a 10 per cent reduction, but that is an average figure. Some research from Cass Business School talks about the top 300 charitable trusts reducing their donations by 10 per cent, but that is across the board. Some individual organisations will have suffered more, depending on where their investment was—whether it was in Royal Bank of Scotland shares, for example. Interestingly, that research also said that the top 10 charitable trusts have seen their incomes increase, so there is a mixed picture.

Other sources of funding are also declining. For example, between 2008 and 2009, we saw a reduction in local authority funding from 32 per cent to 24 per cent, particularly for the small organisations. They are being hit by the reduction in public sector funding at the same time as their other sources of income—charitable trusts and foundations—are getting very little or much reduced income with which to fill the gap.

I welcome Mr Downie’s response. We need to get to the nub of the problem that the voluntary sector faces. You say that some charitable organisations are—I paraphrase you—better off now and that some are worse off, depending on where their investments were located. I worked in the voluntary sector for almost 20 years, and the organisations that I worked for did not have investments—they did not have bonds or whatever else to fall back on in hard times. Many of those organisations survived on year-to-year funding.



We know that some organisations are currently looking at laying people off and have introduced short-term working, and in some organisations, staff have accepted pay cuts for several years to try to keep the service alive. I would be grateful to have from SCVO a picture of what is happening in the organisations that do not have fall-back provision from high-street shops or other donations. How are organisations that provide front-line services and which depend on funding from year to year surviving—if they are surviving? For me, survival is about ensuring that the resources are available to continue to deliver front-line services wherever possible. I know that it is difficult for SCVO to put its finger on the button because the voluntary sector encompasses such a wide range of organisations in Scotland.

There are some examples. Earlier this year in Edinburgh, a survey was carried out by the Edinburgh Voluntary Organisations Council of 160 of its members. The committee will be aware that most organisations in the city found out what their grant was going to be for next year from a leak to the Edinburgh Evening News despite the compact being held up as an example of good practice of how local government and the sector engage and discuss issues. In 2008-09, 72 per cent of those mostly very small organisations had a standstill grant.

The other issue is that 100 per cent of those organisations said that their other costs, such as pension and office costs, had been scrutinised. If an organisation has reserves, Glasgow City Council and other local authorities are clawing them back. In fact, those reserves might have been built up not through any receipt of grant or delivery of public services but through other sources. That is not in the spirit of the task group. What we see from the small Edinburgh survey—we are also examining the wider picture—is that 51 per cent of organisations that were surveyed said that they would probably survive, but would reduce in size if there are year-on-year cuts. Some 37 per cent said that they might not survive at all. It is a very bleak picture; we can supply you with the detailed information. That gives you some flavour of what has happened to small organisations in one city.

Given the public services reform agenda, lots of organisations in certain areas of the voluntary sector have opportunities when we talk about advice on fuel poverty and the green agenda. However, many of those organisations have been affected by cuts.

Mr Downie touched on a range of organisations in his response to Mr Wilson. Is it fair to say that organisations that provide passive advisory and support services are the most adversely affected, whereas others that provide services for which a direct payment is made have enhanced opportunities and might be doing quite well? For example, we have had a lot of evidence about social enterprises and voluntary organisations that provide care services and child-care facilities. Is demand for those organisations’ services rising, and their income with it?

The income of some organisations is certainly rising. However, what is the definition of passive advice? Let me use as an example a small organisation in Edinburgh that gives advice on benefits—it might be about fuel poverty and a range of other things—so that people can access the benefits that are due to them. It helps to take people out of poverty and unemployment. The cost of this organisation is probably about £10 per hour. Its grant is very small and funds a case worker. If the grant is cut, the service will be taken in-house by the local authority and a social worker will provide the advice to families in need. That will cost about £150 per hour.







That may be seen as a kind of passive advice service but it is very necessary. There are many social enterprises and organisations in the social care sector whose profit margins—if I can put it like that—are also very tight. There are organisations which have opportunities to grow in this environment but many others are taking on contracts that, frankly, are not making money. They are being done simply to retain staff and to keep people in jobs.

I accept that. However, it seems to me that there are some organisations that are paid, almost on a per capita basis, for the services that they render to the client, whether it is social care, child care or whatever. There are other more generic organisations that provide some kind of advisory support, as you have described, and which get grants. In those, there is no relationship between the service that is rendered to the client who comes for the advice and the benefit that might flow to the client from that, and the income of the organisation. In previous evidence sessions we have heard about, and expressed concern about, the patchwork quilt of advisory organisations that exists among the third sector, local authorities, government bodies and so on. Does not the issue of shared services provide an opportunity for a degree of rationalisation and for a transfer to some of your member organisations of service provision on a contractual basis which is, at present, undertaken in-house by public bodies?

That would be very welcome. Sharing of the service agenda is a debate within the sector, and it is happening. Organisations recognise that they have to work more collaboratively. This relates to the agenda of involving the end user in the design of services—the jargon of co-production—and organisations are thinking along the same lines. They have to work more closely together to meet the needs of the individual, rather than focusing on the service that they provide. That trend is happening within the sector.

In taking an overview of councils that are looking at alternative service models for a range of services—I am aware of that in relation to the City of Edinburgh Council—do you sense that there is proactive engagement with your member organisations on considering those models? Are councils simply doing that with other councils but not necessarily with third sector bodies or social enterprises?

My feeling is that they are talking to other local authorities but are not really talking to the third sector. The third sector is, in effect, the solution. All the research from the Scottish Commission for the Regulation of Care to other organisations shows that the sector is trusted more and delivers more effectively and efficiently—and I do not mean cheaply. The sector is respected by the people it delivers for, so there is clear added value. Local authorities, in general, are not engaging in the debate about how to involve the third sector in future delivery of public services. I would not say that the Scottish Government is doing that particularly well either, but there are real opportunities for both sides if there is wider engagement on that.

We all recognise the evidence that you have given about the Kumar commission on care services, because we have taken evidence on that. Are you saying that the third sector and social enterprises are, at present, largely being shut out of the discussion about shared services provision that is supposed to be going on with local authorities?

Yes.

Perhaps the Scottish Government should get a little prod to suggest that a more imaginative approach might be productive. Would that be a fair invitation that we might extend to the Government?

We are happy to send to the committee our response to the independent budget review, which we produced when we met the commissioners. It focuses on the opportunities for how Government should use the third sector in the future, which directly relates to your question and your agenda. There are many opportunities for the third sector to be involved.

12:15

Thank you. That is very helpful.

I will conclude by asking Mary Craig a couple of questions about the Lloyds TSB Foundation. You mentioned having got some £2 million by selling shares to which you were entitled as the result of a rights issue. Can you provide me with clarification? As I understand the dispute between the foundation and Lloyds TSB, there were two rights issues. In relation to the first rights issue, which had passed and from which the foundation had been excluded, it was suggested at one point that the foundation should receive a compensatory payment reflecting the value of the rights that had not been allocated to it but which, in the foundation’s view, should have been allocated to it. What happened in relation to the first rights issue and the compensatory payment to which you believed the foundation was entitled?

We fought for and won the right to take up our entitlement to the first rights issue, from which we had been excluded, at the price at which the shares were offered to everybody else, so it was a retrospective issue on the part of the bank. It was important for us to take up our entitlement from that issue because it had a knock-on effect on the rights issue that transpired in November. All that happened was that, if you like, the tape was reversed and we took up the entitlement. We did not get a compensatory payment but we were happy to take up our rights because that meant that we were in possession of shares that increased the rights that came in the November rights issue.

You are entitled to a compensatory payment only in so far as the rights had a value. If you take up your rights and invest in and buy the shares, you do not get a compensatory payment.

Absolutely.

Just for clarity, has the dispute that surrounded the issue of the rights, the entitlement to subscribe for new shares and the value of the rights been resolved with Lloyds TSB to the satisfaction of the foundation?

It has.

So, we can ignore that.

In relation to your future policy, you said that, as an independent charitable trust, your board thought that the proposal from Lloyds TSB that there should be an alignment of funding objectives with regard to 30 per cent of your income would not be appropriate but, as I understand your answers to other questions, the proposal has been accepted by your sister foundations, which are also independent charitable organisations. I presume that it is not an issue of legality in respect of charity regulation: you may choose not to do it as a matter of policy, but it is not a matter of saying that it would be illegal for you to do it, because the others have done it. Is that correct?

I cannot comment on the advice that the other foundations have received, but we have received substantial legal and financial advice. The advice was that the proposal was not in the best interests of the foundation or the charities that it supports. The trustees were therefore not in a position to accept the proposal as it stood. We believe that we are entitled to our independence and that it would have been fettered in a number of ways had we gone down that route.

We believe that what we have achieved is that we have come out of the other end of this with our independence intact. Having to submit annual business plans and having to sit down with the bank every three years to talk about strategy, the way forward and budget alignment were not, in our view, the activities of an independent charitable trust.

You were entitled to take a decision on the basis that the proposal was not in your best interests, but your advice was that a proposal for such an alignment was not illegal.

We never claimed that it was illegal.

Indeed. I just wanted to clarify that you did not accept the proposal not because it would have been illegal for a charitable foundation. You made your decision because, as a matter of policy, you did not think that it was appropriate.

It was not in the best interests of the foundation to accept the proposed deal. That was reiterated in the financial and legal advice that we received.

Right. I just wanted to be sure that the legal advice was not that an alignment of that sort was illegal.

No—it was not.

This is as much an observation as anything else. After my 11 years in the Parliament, it seems to me—other committee members might wish to comment—that the profile and reputation of Lloyds Banking Group has been substantially enhanced by its association with, and the branding of, the Lloyds TSB Foundation. My judgment—it might also be that of others—is that, of all the major financial organisations in Scotland, Lloyds came out on top in terms of its reputational level. That was in very large measure because of the branding of and association with the foundation.

This might be wrong, but it therefore seemed to me that there was, de facto, quite a close alignment between the business, reputation and promotional activities of Lloyds TSB and those of the foundation. The number of times when the chief executive of Lloyds TSB was there to hand out the cheques—rather than yourself, for example—suggests close collaboration and alignment. I have listened to many speeches and presentations from Lloyds TSB—not from the foundation—about social policy, the work that is being supported and so on.

What is the difference between that de facto alignment—of which we have all had experience as members of the Parliament over the past 11 years and which has undoubtedly existed, in my opinion—and the sort of alignment that was proposed and that was found to be acceptable by three of the four foundations in the UK?

You are absolutely correct in your assertion that there was a very close alignment between the foundation in Scotland and Lloyds TSB Scotland. It was a very close relationship, and we met regularly. We made it our business—not often, but occasionally—to take senior officials from the bank out on visits with assessors to allow them to understand what happens to the money when we get it and what types of organisations we fund. Those officials found that to be very beneficial.

We and Lloyds TSB Scotland did a number of things jointly. We celebrated our 21st birthday together—we ran a 21st birthday programme in which we included colleagues from the bank on a panel for judging applications. We held an event to celebrate that, because it was also a celebration for the bank that we had reached that point.

You are absolutely right that we had a very close relationship with the bank in Scotland. Unfortunately, however, the negotiations were not done by the people in Scotland; they were done by people in London.

You had a close collaborative relationship for all those years, involving joint projects, focus and so on. You might not have had as cordial personal relationships with the people in London with whom you were negotiating, but what is the practical difference between what was being proposed should be formalised by head office in London and what had actually been happening in Scotland for the previous 21 years?

There was no correlation. The proposal that came from London was on the back of, or cited, issues around the recession.

Lloyds Banking Group had an opportunity to cut its obligation to the voluntary sector. That is what we were told. It wanted to do that because the foundations were receiving too much money.

I am not asking about the level of funding; I am focusing on alignment.

I am sorry—I misunderstood you.

I am putting to you that there was a close, de facto alignment that we could all see. In practical terms—as opposed to legal terms—what is the difference between the alignment that all members of the Parliament have seen in action over the past 11 years and the proposed future working relationship?

The difference is quite simple. The trustees of the foundation were allowed to get on with their business, unfettered by the bank. Although we had a very close relationship with the bank in Scotland, it was an arm’s length relationship. We kept it informed of what we were doing. One of the major things to come out of the foundation was the establishment of Inspiring Scotland. We shared our plans with the bank for its information, not to gain its approval. Our trustees are an independent body of directors. The bank in Scotland never tried to persuade the foundation or interfere in any of its business. It clearly understood the boundaries and parameters.

Thank you.

Good afternoon. I welcome the save the foundation campaign that Mr Downie referred to earlier and I hope that many members have signed the online petition. I also hope that colleagues will sign the motion that Wendy Alexander has lodged in support of the foundation.

Mr Downie spoke about the relationship with local authorities, and he might want to come back to that. What discussions have your organisations had with the Scottish Government about the increased demand that you face and the possibility that a reduced amount of resources will be available to you?

At the start of this period, we had strong discussions with the Scottish Government, which has been highly supportive of the sector. The resilience fund that came out of those discussions was in part designed and developed by the sector, and members of the sector were on the assessment panel. The original intention was to provide an additional £1.7 million, but that figure went up to £2.2 million. In that sense, the Government has been extremely supportive in helping to bridge some of the funding shortfalls, but it obviously cannot bridge all the gaps. It has no control over what local authorities decide to do in that regard. We were happy with the Scottish Government’s response.

We have not had any direct discussions with the Scottish Government on that issue. As I mentioned, we have a drugs programme that we run in conjunction with the Government. We are delighted that we have managed to secure funding for it for this year.

In that programme, which allows organisations to come to us for a total of 50 per cent of the funding that they require—the other 50 per cent must be matched—we are seeing the situation that has been described. In the early days of the programme, that 50 per cent tended to be matched by Government or local authority money. The level of such funding is reducing quite markedly, with the result that voluntary sector organisations are trying to find other funders, such as our organisation, to provide the other half of the money.

Resources are always an issue. I am sure that Governments would say that less money is available to them, too, and that they face increasing demands. Is there anything else that the Scottish Government could do to promote the work that you have been doing?

12:30

There are several things. John Swinney, the Cabinet Secretary for Finance and Sustainable Growth, asked us in December to survey relationships at local level, which we did in January. We published some of the report—the full version is available from the Scottish Government—on the state of relationships between the third sector and local authorities. The report covered things such as representation in community planning partnerships, the funding issue and, more important, how we move to long-term, better relationships when delivering public services.

We need to see the creation of opportunities for charities, voluntary organisations and social enterprises to upscale so that programmes—for example, a small project in Glasgow that might cut reoffending or help young people—can be replicated in local authority areas throughout Scotland. In that way, we would get the benefit of successful national schemes that would help the organisations to grow, cut costs to the public purse and, more important, help young people. There are lots of examples of organisations up and down the country running successful programmes. We need to upscale and replicate those programmes to grow the organisations and meet the demand and needs out there. A key role for the Scottish Government in the public services reform agenda is to open up those programmes and gain access for organisations, but it will need direction as well as action from those organisations.

Another way for the Government to help is, at the other end of the process, to look at not just the delivery of a service but its effectiveness and the impact that it has had on communities.

I chair a group of both statutory and discretionary funders that is looking at harmonising reporting. Two years ago, New Philanthropy Capital in London did a pilot scheme to find out the cost to the voluntary sector of funders requesting reports from them. It came up with a figure of £450 million a year, which is 5 per cent of all the available grants. I do not know whether £450 million is the correct figure, but it is a substantial amount of money. As funders, both discretionary and statutory, we sit around the table as the Scotland funders forum. On hearing that figure, I thought that we should see whether we could improve the situation. The working group that I chair has been meeting for the past six months and has made some recommendations to the Scotland funders forum. We also plan to publish a guidance document that will go to the third sector division. Support for that would be helpful because funders have to get their act together. We need to be clearer about what we are asking voluntary organisations to report on and not wait until the last hour before saying, “By the way, we want to know about that even though we never asked for it in the first place.”

It would also be valuable to have support for organisations to learn about evaluation so that they know how to evaluate their service and what impact they are making, not only for their benefit in promoting their service, but for the funders who receive applications so that it can be evidenced that the organisations are making an impact.

The Scottish Government can take action in a number of areas. I will not go into detail, but take procurement as an example. It is a perennial problem for the private, public and voluntary sectors, and work could be done to make it easier for organisations to tender for services, get through the process and deliver a more efficient and effective service. It would also enable the organisation to develop over the longer period. As well as having reviews and seeing the impact of services, simple things could be done quickly to the procurement process to help the third sector.

I echo that. Local organisations that have delivered services to local communities sometimes have no idea how to take part in the tendering process. In such situations, outside organisations come in and take the work on. The local organisation, despite doing a good job and making an impact, can be frozen out of the process.

I am sure that the committee will be interested to read the report that you referred to when it is complete—it will no doubt inform us further.

Is there any indication that the issue around procurement might be progressed? Is anybody taking it on?

We have a meeting this week with senior procurement officials from the Scottish Government. It is certainly an issue for the sector. From my previous experience in the private sector, I know that it is still an issue there, too. We have not got procurement right, particularly for small to medium-sized companies in the private sector and small to medium-sized organisations in the third sector. The big organisations are well used to it—they are experts in tendering for contracts—but it is the smaller organisations that are most under pressure. They need help and support, and the opportunity to tender.

I will follow on from Mrs Mulligan’s point. I accept what Mrs Craig has been saying about the cost and impact of monitoring, but has any thought been given to the cost of applying for grants? Many of the organisations that I know were having to scramble about—even before the recession—to apply for a cocktail of grants in order to continue to function and do the jobs that they needed to do. It struck me that we could surely streamline that element somehow. It is a big task, but is your group considering that aspect?

I am not aware of any work in that area, but the foundation holds what we call a surgery tour. We go out around the whole of Scotland and invite organisations from various communities to speak to us. We try to break down any perceived barriers between voluntary organisations and funders. Although we do not have particular depth and expertise about what other foundations and trusts do, we have some knowledge and we tend to refer organisations to those other bodies. I am not aware of any work that is being carried out in the way that you describe, however.

Some work is going on at the moment. It was commissioned by the third sector division of the Government’s directorate for public service reform, and consisted of an evaluation of third sector investment and support. It is basically a package of three funds—there are six business support packages on offer. One of my colleagues has been involved in discussions with the third sector division over the past couple of days about the consultants’ report and its recommendations. From my brief reading of it, I understand that there are issues around eligibility, the funding process, the time that is taken to make decisions and so on. That stuff is not particularly new, but the third sector division is at least seeking to improve the process.

You are absolutely correct that that is not a new problem, but it is perhaps more acute now, given the situation that many organisations find themselves in. It would be interesting to pursue that line.

I will return to Mrs Craig’s earlier comments. Given that Lloyds Banking Group is in profit again, is there really any justification for it going ahead with its decision about ending its association with the foundation?

I guess that is a matter for the group. We agree that there is not—that there is no reason why the arrangement should not continue. However, the group is telling us that it cannot continue, because it costs it too much—the voluntary sector is being paid too much.

I wonder whether a comparison with the bank’s marketing budget might be interesting, taking into account the good that the foundation has undoubtedly done for Lloyds Banking Group’s reputation. Perhaps that is an argument for another day.

I could not possibly comment.

I understand.

I welcome the witnesses’ forbearance, as it is well past noon. I am grateful to Mrs Craig for having had a private chat with me about this issue a few months ago. I also took the opportunity to meet a representative of Lloyds Banking Group. It is clear to me from those discussions that, unfortunately, the relationship between the foundation in Scotland and the bank has probably irretrievably broken down. We are where we are and we need to make some progress.

We are trying to look at the wider picture on behalf of all of those whom we want to see helped by the foundations. It seems odd to me that the three other foundations in the United Kingdom have accepted the deal from the bank, with all the strings attached. We have gone through some of that this morning. Nevertheless, in Scotland it has not been accepted. In your earlier evidence, Mrs Craig, you pointed out that you have had to put a cap on the foundation’s ability to give out money to charities that need it in Scotland. What is the comparison between the situation that the Scottish foundation now finds itself in and how much it is able to help charities, and the situation that the other three foundations find themselves in, having accepted the deal? Is it possibly the case that in Scotland you are able to give out less because you stuck by this method and did not agree with the bank?

Had we accepted the deal we would have had a set amount of money over the next four years. Beyond that there was no certainty of money, because the arrangement is that the percentage of the profit drops to a half per cent. The bank talks about giving us fair value for a nine-year covenant. We do not believe that we have a nine-year covenant. We have a covenant with a nine-year notice period. By its own admission, the bank has not been able to substantiate its statement because its profit levels over the next nine years are not known. Therefore there was, and is, a danger that by accepting a half per cent of the profit we could end up receiving less than what we have at present. We do not know what the total picture of the group will look like. The European Union has asked it to divest itself of businesses. We do not know what the group will finally look like and there was no guarantee that this was a better deal for the foundation.

I appreciate that and you make some very valid points. However, comparing what we know of the deal that has been accepted with the position that the foundation in Scotland finds itself in, is it not the case that the other trusts have a more long-term guarantee of funding and that that is not necessarily the case in Scotland?

They do not have a guarantee of any long-term funding. There is still a nine-year notice period attaching to the covenant. The only guarantee that the bank gave was that it would not serve notice on the other foundations within the first 12 months. There is no guarantee that the covenant will go beyond the arrangement that is already in place or that the income stream will be better than it is at present.

At the last meeting, because the bank’s representatives talked about wanting to continue the covenant beyond nine years—to 10, 20 or 30 years—we asked whether they were offering a 30-year covenant. We were told that they were not, but were continuing to offer a nine-year notice period on the covenant. When we asked them how certain they were of their prediction that they would give us fair value over nine years, they admitted that their figures were very soft. They cannot possibly project nine years ahead from where we are at present, so they cannot substantiate that statement.

We were also told that our independence would not be fettered. Yet, when the trustees re-appointed our chairman in February of this year and we wrote to Lloyds Banking Group, as we were entitled to do, to have that rubber-stamped, a letter came back to say that the bank was not prepared to endorse the unanimous choice of the trustees that this chairman should be re-appointed. That is fettering the independence of the foundation.

I appreciate that clarification, Mrs Craig. You are quite right. No one in banking, business or elsewhere can predict what profits, if any, they would have over a longish period of nine years or more.

Convener, may I turn briefly to Mr Downie to finish this point? Of the bodies that have, particularly in the past, benefited from the foundation in Scotland, some have been able to be redirected to other sources of funding when it appeared, in the last six months or more, that funding from the Scottish foundation had dried up. Have you done any analysis that has found that your member organisations have had to make drastic cuts because of the loss of money from the foundation? Have any charities had to close down their services altogether?



12:45

I could not say how many of our member organisations have had to close down altogether, but our campaign to save the foundation is a response to concern across the board from the sector and from members. As Mary Craig said, many of the foundation’s grants were very small, so for those organisations there is a much bigger impact. There is also the leverage factor.

We are looking at the picture across the whole sector, not just the picture with regard to the foundation. There are many organisations across the country to which we could direct the committee that would provide a case study of the impact of the foundation’s funding. It helped individuals as well as organisations—I think that we used the example of one such individual in a press release. A young man who went to an organisation that was funded by the foundation has turned his life around after coming off drink and drugs. There are many individual stories, but we do not have empirical research on the impact so far.

As Mary Craig said, a grant from the foundation would not make up the whole of an organisation’s funding; it would get money from other sources as well. Such organisations may be able to survive, but there will be an impact on what they can do overall. That is where funding from the foundation makes a difference.

I have an important point to make that I should have made earlier. Another aspect of the deal with the bank was that the bank would have controlled about 30 per cent of the funding. It would have been able to direct the traffic such that those moneys would have been used in support of Lloyds Banking Group’s objectives. We do not see that as being the function of an independent funder. That would have resulted in many of the organisations that we fund not being eligible for support, which was another good reason why we could not accept the deal.

Thank you for that information. It is good to have that on the record.

I have bids for two short supplementary questions.

I forgot to come back to Mr Downie, who made a point about CPPs. Has progress been made on voluntary organisations participating in CPPs, or is there still some way to go?

There is still some way to go. The survey that I referred to earlier, which we carried out with Voluntary Action Scotland in January, paints a mixed picture. In some areas, the relationship is extremely good and the voluntary sector is heavily involved. In other areas—Glasgow is one that I could name—there is no relationship at all; it seems to have broken down totally. There is no voluntary sector representation. In addition, Glasgow City Council is clawing back reserves. I am hopeful that that situation will change under the council’s new leadership. We can submit to you the report that I mentioned. The Scottish Government has a detailed breakdown of the position in all areas.

I want to follow up on Mary Mulligan’s question. I am surprised by what Mr Downie said about the situation in Glasgow. Along with Edinburgh and one or two other large cities, Glasgow is in the unique position of having an umbrella organisation for voluntary sector organisations throughout the city. Are you saying that the Glasgow Council for the Voluntary Sector has no relationship with Glasgow City Council?

That is my understanding. I am not saying that there is no relationship between the Glasgow Council for the Voluntary Sector and Glasgow City Council, but I would not say that their relationship is positive. I am sure that if the organisation’s chief executive, Helen Macneil, were here she would reiterate that. We had meetings with the GCVS earlier in the year and it was outspoken on the impact of the council’s budget cuts on funding for the voluntary sector in the city.

When I worked in the voluntary sector, a concern was raised by numerous voluntary sector organisations in a particular part of Glasgow about who would represent them in the community partnerships, which are now community planning partnerships. You raised the issue of lack of representation, but has the SCVO considered how it could co-ordinate the voices of the voluntary sector in community planning partnerships throughout Scotland? Would an SCVO rep attend every CPP?

We do not see it as our role to sit around a local table in that way. It is our role to look at the bigger picture across Scotland, get a feel for relationships and talk to local government, the Convention of Scottish Local Authorities and national Government about where there are gaps in provision in the concordat, for example, according to the spirit of the task group to which we all signed up. Where there is no third sector representation in community planning partnerships we have on numerous occasions asked the minister to intervene, but he has not yet done so. Where there have been issues, we have raised them with him.

Is it not big picture stuff to help people deal with a new situation where services are being tendered and procurement issues and communication skills are important? Is it not part of the big picture to ensure that small and charitable organisations can manage their way through? That problem was identified in previous evidence-taking sessions.

We help across the sector through our engagement with all the national intermediary organisations and interfaces. We support those organisations and supply them with information. It is their role—for example, in Glasgow or through EVOC in Edinburgh—to be the main lead in a local area. We work with them at national level to give them as much support, information, help and advice as we possibly can on issues such as procurement, the green agenda and a range of other things.

As John Wilson mentioned, many of those organisations value seriously their independence and their ability to take decisions and deliver services. Is it not partly the case that the voluntary sector needs to get its act together locally? It is not a case of their not being represented on CPPs; it is more that they feel that they are not represented personally.

That might be true in some cases, but we are seeing four or five organisations in South and North Lanarkshire and other local authority areas merging to form the local interface. We are seeing other such mergers and collaborations. The voluntary sector is getting its act together on relationships with local authorities and national Government.

So it is not just one sided.

It is not one sided.

I want to clarify with Mr Downie his point about the voluntary sector and community planning partnerships in Glasgow. I should add that I have no special brief for community planning in Glasgow, having been removed from the community planning partnership in my area. However, it is appropriate to note that there are local voluntary sector representatives in all the community planning partnerships in Glasgow, although they might not be representatives of the voluntary sector umbrella organisations. Or at least, that was the case when I was in that CPP.

There are different levels. There are no voluntary sector representatives in the main community planning partnership, which is the decision-making body, although there is representation at a lower level. However, that is not where the decisions are made about budgets, strategy and investment. The voluntary sector needs to be round the table at that level.

I might disagree that the decisions are not made at the lower level—decisions about local spend are made there. However, I agree absolutely that the voluntary sector should be represented at all levels.

I thank both witnesses for their patience following the delayed start to this morning’s meeting. Thank you very much for your evidence; I wish you well for the future.