Economists have forecast that money donated to charities this year will depreciate by 8.5% by the end of 2022 due to inflation.
The £5.7bn donated to charities in the first six months of 2022 will be worth £500m less by the end of the year, according to projections based the Bank of England’s inflation forecasts, a reduction of 8.5%.
Analysis by Pro Bono Economics (PBE) and the Charities Aid Foundation (CAF) also estimates that the average monthly charity donation of £20, which has stayed flat since 2017, will be worth £14.90 in real terms by 2024.
Charities’ income from grants and contracts will also depreciate over the next two years, the analysis warns, while their staff costs are likely to increase.
Inflation is also eating away at charity reserves, the report warns, which were already depleted during the Covid-19 pandemic.
Meanwhile, the Office for National Statistics (ONS) announced today that inflation dipped slightly to 9.9% in the 12 months to August, from 10.1% in July.
The Bank of England had predicted that inflation could peak at above 13% this year, and may increase interest rates to try and control it.
Sector ‘needs to find £3.8bn by next year’
If charity sector staff costs were to keep up with inflation, the sector would need to find an additional £3.8bn by 2023 and £6.1bn by 2024, compared to 2018/19, the report says.
Meanwhile, the report adds that a three-year £100,000 grant or contract awarded in 2022 will be worth £90,660 in 2023 and £88,300 in 2024.
It also warns that charities’ reserves will drop in real terms in the next year. A typical charity with an income of £1m in 2021 would need to increase its reserves by £73,430 by next year to maintain its real-terms value, the report warns.
Neil Heslop, chief executive of CAF, said: “Ultimately, charities are having to do much more, with much less money.
“Many organisations were unable to rebuild their reserves before this current crisis took hold. As a result, a third of charities are worried about their very survival, threatening the vital services that communities need over the coming months."
Matt Whittaker, chief executive of Pro Bono Economics, said: “Donations, grants and reserves are all stretching less far than was previously the case, even as the nation’s demand for charitable support soars.
“It matters in the near term, and it matters in the long term too. The social sector provides indispensable support during times of crisis, but it is precisely during these periods that the financial resilience of charities and community groups is most tested.
“There is no quick fix, but with a new government in place it is important ministers renew and strengthen their relations with a sector that has such a vital role to play in helping the nation navigate today’s cost of living storm.”