Revised inflation forecasts mean regular payments to charities will reduce in value by £125m over the next three years, experts have warned.
The Office for Budget Responsibility (OBR) yesterday raised its forecast for inflation in 2027 from 2% to 3.4% largely due to higher energy costs caused by the ongoing effects of the conflict in the Middle East.
While chancellor John Healey announced some measures in his budget to alleviate the burden on households, the OBR said these had little effect on its forecasts.
PBE and CAF Bank published an analysis today which says that inflation poses a particular challenge for charities because they are unable to increase their revenue as easily as private firms.
Based on CAF’s estimate that £2.89bn of charity sector income came from direct debits and standing orders in 2025, they said the OBR’s projected inflation rise “will reduce the real value of these regular gifts by a cumulative £125m over the next three years”.
The OBR also revised down its GDP growth projections and lowered its forecasts for living standards (real household disposable income per head) over the next few years.
PBE and CAF Bank said this painted a “stark” picture for charities on the front line, with demand for many organisations’ services likely to remain high as beneficiaries remain in need of support.
“Demand surged during the pandemic and became entrenched as the cost-of-living crisis took hold,” their analysis reads.
“Last month alone, Citizens Advice Bureau referred 22,015 people to charitable support and food banks, almost three times the September 2019 level.
“[The OBR’s] forecasts give little reason to expect that pressure to ease.”
Charity staff may pay the price
PBE and CAF Bank said that charity staff could be impacted by the sector’s enduring financial pressures, with pay rises failing to keep pace with the wider economy in recent years.
Between 2016 and 2025, median not-for-profit pay fell by 0.4% in real terms, compared with rises of 10% in the private sector and 2.9% in the public sector.
“Charities are structurally less able than other sectors to absorb inflationary shocks,” the analysis reads.
“With income slow to adjust, many charities will struggle to offer inflation-matching rises and staff may bear the cost if inflation proves as high as the OBR currently forecasts.”
They noted Healey’s welcomed funding commitments for charities tackling homelessness and violence against women and girls and the potentially “transformative” impact of ringfencing preventative government spend.
However, long-term economic uncertainty remains with “big, but unspecified, contractions in spending for many government departments” possible in the coming years to meet the government’s fiscal rules, the analysis warns.
Speaking to Civil Society, PBE co-chief executive Jon Franklin said: “At some stage, the government is going to have to grasp the nettle and make some of these major decisions.
“These will be around, ultimately, are they going to raise taxes substantially or are they going to cut spending substantially? And either one of those decisions has implications for the charity sector.”
