Drawing on the concept of ‘austerity localism’, (Featherstone et al., 2012) this paper explores the impact of recent spending cuts and a revitalisation of the localism agenda on the work of locally embedded third sector organisations who work with marginal communities in the north east of England. In three key areas there exists a problematic relationship between the progressive language of empowerment, as set out in contemporary localist discourse, and the experiences and perceptions of service providers and service users. These relate to involvement in decision-making processes about the allocation of squeezed funding; the ability and desirability of voluntary groups to become autonomous; and the restricted resourcefulness of third sector organisations in a context of austerity. What comes through our data in all these cases are forms of social and spatial distancing, between third sector organisations and local decision makers, between organisations and their service users and also across the sector itself. Such distancing is facilitated by contexts in which resources, trust and empathy are undermined. The paper concludes that understanding the challenges faced by marginalised communities, and the third sector agencies working with them, requires recognition of the existing capacities within places, the importance of situated power relationships as well as wider connections of dependence and responsibility.