Charities and the cost of living crisis

Just a few months ago many charities would have been hopeful that with restrictions related to the COVID pandemic being relaxed things would return to normal and they could start to look to the future with optimism. Sadly though in 2022 the challenges for the sector keep on coming. At the start of the year the crisis in Ukraine saw many organisations looking to help with the influx of refugees as well as those still in Ukraine living through the conflict. Natural disasters such as the wide scale flooding in Pakistan presented another challenge for those charities operating internationally that provide disaster relief. Closer to home we now have a cost of living crisis and again the charity sector is faced with having to cope with an increase in demand for the support they provide whilst at the same time having to manage the impact the crisis is having on their own financial position.

Maintaining income levels is going to be a particular concern for nearly all charities. Recent research published by the Charities Aid Foundation revealed that 13% of people are planning to reduce the amount they give charity as they manage the implications of rising costs on their own finances. Their UK Giving Report 2022 shows that the amount given to charity in 2021 of £10.7bn was already down on the previous year figure of £11.3bn, and a long-term trend of reducing numbers of people giving to charity has been firmly established, although the British public remains willing to give in exceptional circumstances such as in response to the Ukraine crisis. It’s not just financial donations that show a decrease, with the number of people volunteering their time also decreasing when compared to pre-pandemic levels. Charities need to be aware of these trends and what it could mean for them, and seek to find new ways to engage with donors with a view to maintaining levels of support.

Even if income is maintained at previous levels, with inflation of around 11% this represents a real-terms reduction, with charities experiencing the same pressure on costs as those they are looking to help. With many charities reliant on fixed monthly donations from their supporters Pro Bono Economics, in their guidance on what UK charities need to know about inflation, estimate that a £20 monthly donation set up in 2017 will only be worth £14.90 in 2024. Inflation also impacts those charities fortunate to have reserves. A charity that had sufficient cash reserves pre-pandemic to meet 4.21 months of expenditure (this is the average for charities with between £500,000 and £1m of income) is expected to find that by 2023 the same level of reserves will only meet 3.48 months of activity.

Help is out there for charities that need it. The National Council for Voluntary Organisations (NCVO) has a dedicated page on its website for charities needing guidance on how to respond to the cost of living crisis, that covers not just financial issues but also how to support the mental health and wellbeing of staff and volunteers that may be having to help those in increasingly distressing situations.

In this edition of Charity E-Newsletter we have articles on specific issues related to the crisis, including on how the government is looking to address the impact of rising energy costs and how high levels of inflation is influencing employment costs with the announcement of the latest real living wage figures. Regulators are clearly concerned, as evidenced by proposals from the Charity Commission for England and Wales (CCEW) to include questions in the annual return that are designed to assess a charity’s ability to respond to major events.