The uncertain financial outlook is preventing many charities from planning ahead for new projects, which most bodies want to start, according to a survey by umbrella body the Scottish Council for Voluntary Organisations (SCVO).
But the outlook has brightened in 2013, with 41 per cent of organisations reporting growth, compared with 31 per cent last year.
SCVO chief executive Martin Sime said that, despite a “very challenging economic environment”, the charity sector is strengthening.
“More organisations are hoping to develop new services and extend current projects, but this is being jeopardised by rising demand and funding shortages, with a lack of long-term funding for charities further aggravating the situation,” he said.
“Charities are showing great resilience and the ability to innovate and adapt quickly to meet challenges. The sector can make an even bigger difference to people’s lives if we take a more strategic and longer-term approach to funding, so that charities can plan ahead and tackle generational issues around poverty and inequality.”
The survey of 268 bodies found that 58 per cent expected the financial situation for the third sector as a whole to worsen next year, while just 6 per cent said it would improve.
But more than three-quarters (77 per cent) of Scotland’s charities and voluntary sector organisations expected demand for their services to rise next year.
Less than a quarter of bodies (24 per cent) believed their own financial situation would improve in the year ahead, but more than a third (35 per cent) expected things to get worse. Most (60 per cent) also expected they would have to spend more money in the coming year.
This means that few charities “will have any additional capacity with which to meet the anticipated increase in demand”, the SCVO report said. “This pattern of increased demand coupled with no corresponding increase in income and staff has been a key feature for the third sector in recent years.”
Almost four out of ten charities (38 per cent) reported they could not confidently plan ahead, given their current funding arrangements, while just 8 per cent said they could plan more than three years ahead. The SCVO highlighted this as a “serious issue for the sector, as a lack of long-term funding makes it harder for the sector to deliver better outcomes and more sustainable public services for Scotland’s communities”.
The SCVO report added: “Once again, funding is the stand-out issue for the coming year. It is clear that sustainable funding continues to be a real challenge for our sector, which damages the third sector’s ability to deal with long-term, complex problems as well as it might.”
Despite difficult economic conditions, 41 per cent of charities and voluntary sector organisations grew in size during 2013 – up from 31 per cent in the previous year.
Most charities (70.6 per cent) were planning to develop new projects in the next 12 months, but one in ten were set to axe some services or projects, and 18.4 per cent were looking to restructure in 2014.
The general economic outlook for Scotland is also a bleak one according to most charities, with 51 per cent expecting this to flatline, and 36 per cent saying it will get worse.