There has been much debate about the impact of recession and austerity on the voluntary and community sector over recent years. Using secondary data from the 2008 National Survey of Third Sector Organisations, Clifford et al. (2013), writing in this journal, have argued that voluntary sector organisations located in more deprived local authorities are likely to suffer most due to the combined effect of cuts in government funding in these areas and their greater dependency on statutory funding. This paper develops this argument by exploring the sector’s changing relationship with the state through an empirical analysis of the differential impact of recession and austerity on voluntary and community organisations involved in public service delivery in the two English core cities of Bristol and Liverpool. This paper highlights how the scale and unevenness of public spending cuts, the levels of voluntary sector dependency on statutory funding and the rising demands for the sector’s services in a period of recession and austerity are being experienced locally. It portrays a sector whose resilience is being severely tested and one that is being forced rapidly to restructure and reposition itself in an increasingly challenging funding environment.