MSP briefing: The economic contribution of the third sector in Scotland

The Royal Society of Edinburgh (RSE) & The Scottish Council for Voluntary Organisations (SCVO) Briefing: The economic contribution of the third sector in Scotland.

The Royal Society of Edinburgh
Scottish Council for Voluntary Organisations

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The Debate

Introduction

The RSE and SCVO welcome this Members’ business debate on the economic contribution of the third sector in Scotland. Motion reference: S6M-11864

This policy paper is paired with a discussion that showcases the breadth and diversity of the third sector and provides a platform for unsung heroes to share their stories, lessons, and innovative strategies. The event challenged traditional economic paradigms, aiming to redefine the third sector’s role and supporting a new era of recognition and celebration for these economic champions by sharing their stories:

This debate also follows the release of the SCVO Third Sector Tracker W7 (scvo.scot).

SCVO believes that the voluntary sector plays a fundamental role in the foundational economy, in helping to mitigate and tackle the impacts of poverty and inequality that are such a drain on economic and societal wellbeing, or in the aspirational development of a wellbeing economy.

TOP LINES

The third sector – which includes charities, community, and voluntary groups and other non-profit distributing organisations – primarily provides services which are important in reducing inequality and disadvantage and improving health, wellbeing, housing, and community cohesion.

Despite the inherent complexity of the third sector, its economic contribution, through employment, purchasing and commercial activities, remains substantial with many analyses showing it to be greater than other sectors including health and life sciences and creative industries, which enjoy considerable Scottish Government support.

By contrast, the third sector is often overlooked as a source of wealth generation and seldom included in national or local growth strategies. The RSE believes this could mean opportunities to enhance regional and national economies are missed.

RECOMMENDATIONS – The economic contribution of the third sector report

  1. Despite work by voluntary sector organisations like the Scottish Council for Voluntary Organisations (SCVO) and public bodies like the National Audit Office, there is a lack of consistency in applying definitions of what constitutes the third sector.
  2. The third sector is not homogeneous. SCVO identifies social care and housing as the two largest activities by income, followed by culture and sport, community work, education, health, and religion. However, these organisations can vary from small, local organisations staffed entirely by volunteers to national or international charities, employing hundreds or even thousands of people.
  3. If the third sector cannot be adequately defined, it cannot be properly quantified, let alone measured. However, Professor Mairi Spowage of the Fraser of Allander Institute says third sector organisations contribute significantly to most sectors of the economy. Prof Spowage asks, “what would the economy look like without the sector?”
  4. The most recent SCVO State of Sector (2024) stats indicate:
    • With over 46,500 organisations across Scotland, the voluntary sector is wide-reaching and covers every area of society
    • It is a significant economic actor and employer, with over 133,000 staff – 5% of Scotland’s 2.67 million workers – and a turnover of £9.2bn billion in 2022 (latest stats – was £8.5bn in 2021)
    • 1,182,000 formal volunteers supported activities in 2020- volunteering contributes £5.5 billion to local economy (VS, 2018)
    • In 2022 Scottish voluntary sector spending was £8.8bn, up nearly £1bn from £7.9bn in 2021
    • Scottish charity spending rose from £6.7bn in 2021 to £7.4bn in 2022. 36% of organisations are in rural areas
  5. The RSE argues that problems of definition and measurement should not get in the way of making sure that the third sector is acknowledged as a major economic actor and is invited in to help with the economic transformation that we want to see in Scotland.
  6. Some of the ways in which the third sector contributes to the economy are obvious – as an employer, through its purchases of goods and services and as an investor in buildings and equipment. However, we need to think of the economy in different ways if we want a sustainable and inclusive economy:
    • Role of voluntary sector as an employer
    • Voluntary organisations support people to become economically active through the employability programmes they deliver (and other support like addictions, preventing re-offending etc)
    • They fund research and development programmes
    • Tackle issues such as mental health, poverty and promoting a healthy workforce
    • Social enterprises that help to create ethical markets and organisations through altering cultural norms of behaviour within organisations, as well as contributing the changes in consumer preferences
  7. The above contributions may be less apparent, but still make significant contributions to the ‘GDP economy’ and, more widely to the ‘wellbeing economy.’
  8. The third sector can also act as an enabler of other organisations’ economic activity. For example, by helping to provide settled and viable communities, they can help to provide an environment in which purely commercial activities can flourish.
  9. Third sector organisations can help to reduce public expenditure, either by providing services in health, social care, or education, which the state would otherwise have to provide or by reducing the need to use public services.
  10. The RSE contends that what is clear is that third sector organisations play a meaningful part in a number of different industries, and how we capture that in a more robust and consistent way across these different industries is really important, given the huge variety of ways the sector is currently classified.
  11. Importantly, the third sector needs recognition in national and regional economic strategies and more parity with government policy and departments. The sector should be valued in the same way that the public and private sector are and receive appropriate support.
  12. Finally, the third sector, like other sectors, is feeling the impact of rising costs, inflation, and other financial pressures. SCVO’s Winter Tracker 2023 found that 76% report an element of organisational finance in top challenges. Concerns about rising costs/inflation (44%), fundraising (39%), volunteer shortage (33%) and recruitment (24%) remain high. 10% increase in organisations cancelling or deferring projects. 53% concerned about energy prices and impact on the people they support. Less confidence about the future direction of the sector.
  13. Despite these financial pressures, 60% of organisations report reducing the cost of their services or making them free to support the communities they serve as the rising cost of living continues to have a detrimental impact on peoples’ lives.
  14. While financial pressures are prevalent, staffing and volunteer issues remain high too, with volunteer shortages the response option most frequently ranked as organisations number one challenge according to SCVO data.

SCVO STATE OF SECTOR – 2024 stats

With over 46,500 organisations across Scotland, the voluntary sector is wide-reaching and covers every area of society.

It is a significant economic actor and employer, with over 133,000 staff – 5% of Scotland’s 2.67 million workers – and a turnover of £9.2bn billion in 2022 (latest stats – was £8.5bn in 2021).

1,182,000 formal volunteers supported activities in 2020- volunteering contributes £5.5 billion to local economy (VS, 2018).

In 2022 Scottish voluntary sector spending was £8.8bn, up nearly £1bn from £7.9bn in 2021.

Scottish charity spending rose from £6.7bn in 2021 to £7.4bn in 2022.

36% orgs are in rural areas.

Women make up 64.5% of sector’s workforce.

1 in 3 saw income and spending drop in 2021.

In 2021, 70% of all charities, and 80% of small charities (under £100k) experienced a drop in income, primarily due to the impact of Covid.

In 2022, only 35% of all charities, and 36% of smaller ones saw a drop.

57% of charities saw their income increase.

Voluntary organisations support people to become economically active through the employability programmes they deliver (and other support like addictions, preventing re-offending etc);

They fund research and development programmes;

Tackle issues such as mental health, poverty and promoting a healthy workforce;

Social enterprises that help to create ethical markets and organisations through altering cultural norms of behaviour within organisations, as well as contributing the changes in consumer preferences.

Concluding remarks

As the paper finds, if we want to achieve a sustainable and inclusive economy that is ‘ecologically accountable as well as socially responsible’ (as stated in the National Performance Framework), we must reframe how the voluntary sector is characterised to reflect its social and economic contributions more accurately…

We also need to achieve parity of esteem with the private and public sectors. Why? Because at a time when the Scottish and local governments seem so enthusiastic about the prospects of a wellbeing economy, any hope of solving the challenges we face as a society rests on acknowledging that neither sector can work miracles on their own. We are all interdependent. 

The RSE and SCVO hope that this debate leads to a greater recognition of the economic potential of the Third Sector to help grow the economy in an inclusive way. 

CONTACT

If you have any further questions, please contact RSE Public Affairs Officer, Fraser Gillan: [email protected] or SCVO Policy and Public Affairs Officer, Rachel Le Noan at [email protected].