Charities are likely to face both new financial challenges and increased demands to support people as inflation in the UK has jumped to its highest level in 40 years.
Official figures released today showed that consumer price index (CPI) inflation soared to 9% in the year to April, a level last seen in 1982. The poorest households, who spend more of their total budget on gas and electricity, faced inflation rates of 10.9% which is three percentage points higher than inflation rates for the richest.
Inflation was mostly driven by recent spikes in energy and gas costs. Other factors, including the ongoing war in Ukraine, further increased prices.
According to data from the Office for Gas and Electricity Markets, higher energy prices means that an average household will now be faced with an increase in gas and electricity bills of almost £60 a month.
Earlier this year, the government announced that it would raise benefits by 3.1% from April. The Institute for Fiscal Studies said that this represents “big real terms cuts to the living standards of many of the poorest households”.
Charities Aid Foundation (CAF): Impact on donations
Alison Taylor, CEO of CAF bank and charity services, said: “Charities are impacted by rapidly rising inflation on many fronts. Many more people in their communities are likely to rely on their support with 71% of charity leaders worried about managing an increase in demand on their services.
“Tightening household budgets are impacting donations with 14% of people planning to cut back on donations to cover their bills and in addition, inflation means that donations are not going as far as they used to in real terms. After two years supporting their communities throughout the pandemic, when many had to rely on their reserves, charities are also having to find the funds to pay higher costs, including rent, food and fuel.”
New Philanthropy Capital (NPC): More people will need charities
Dan Corry, chief executive of NPC, said: “The people charities work with are going to be feeling much poorer and very anxious as a result of this steep rise in the cost of living. Many will indeed be much poorer, as they spend more of their income on food and energy where prices are rising fastest.
“The government has not yet done much to help families get through, especially those reliant on benefits. So more people will need the help charities provide, yet charities will find it harder to support them as inflation increases their own costs and erodes the value of reserves and pre-pledged donations.”
Charity Finance Group (CFG): ‘Worrying time’ for charities
Richard Sagar, head of policy at CFG, said: “This is an extremely worrying time for the charity sector and the millions of people it exists to serve. After pulling on every possible financial lever to weather the Covid-19 storm and its aftershocks, we are once again facing another prolonged period of extreme challenge and uncertainty.”
He continued: “For the sector, soaring inflation and the cost-of-living crisis has the dual effect of driving up demand on services while, at the same time, reducing the value of every pound donated to charities and all grant income.
“Fortunately, charities and social change organisations prove time and again that they are adaptable, agile and creative, and can pull together during a crisis. But there is only so far the safety net can stretch before it breaks. We now need to urgently come together, with the government, to find a path through.”
What can charities do?
1. Rethink strategies
Corry said charities “must start planning now”.
“Inflation reduces the real value of everything. So if you don’t increase spending you are cutting the good you can do,” he said.
“But this is very hard to do when your donors will also be feeling squeezed and commissioners are very unlikely to pay more to cover those extra costs. It’s what makes inflation a uniquely pernicious problem for charities.
“Funders will therefore need to rethink their strategies. Many will have hoped to replenish their coffers after paying out more than usual through the pandemic. But with returns on endowments having done pretty well despite Covid-19, is now really the time to do so?”
2. Build financial resilience
Taylor said that charities will have to find “more efficiencies in their operating models and look for ways to make their existing resources go even further, particularly their cash reserves” as interest rates increase.
She said: “Building financial resilience, a cornerstone of pandemic survival, will remain a priority, including expanding and diversifying the ways in which income is generated. Charities should make every effort to remind UK taxpayers about the value and vital importance of declaring Gift Aid, which effectively adds 25% to every donation, and make full use of any opportunities for unrestricted funding.”