The cost-of-living crisis is at the forefront of many people’s minds at the moment, with inflation at a three-decade high of 7% and not expected to peak until the autumn.
Those working in the sector at all levels are already seeing how this is increasing the number of people turning to them for support, be they food banks, mental health and disability support charities or organisations offering financial guidance. Charities Aid Foundation (CAF) research undertaken when these costs really started to bite in April found that 71% of almost 550 charity leaders are worried about managing an increase in demand on their services.
The same charities are already seeing resources stretched after two years supporting their communities through the pandemic. We know that two in five (40%) charities relied on their reserves to help get through the last two years. They are also having to find the funds to pay higher costs themselves. More than four in five (82%) are concerned about how they are going to pay for their own utility bills with rent, energy and fuel increasing. Wages are also a cause for concern. In particular, care homes we have spoken to are struggling to retain employees; the majority are on minimum wage, and some are turning to commercial jobs in order to pay their bills.
Tightening household budgets are already having an impact on donations. Regular CAF polling of the public found last month that 14% of people plan to cut back on charity donations in the next six months to help manage their bills, a rise from 12% in March. Added to that, inflation means that donations are not worth as much. Pro Bono Economics estimates that a £20 donation in 2021 will be worth £17.60 in 2024.
All of this is contributing to a perfect storm for the sector, and sadly, there are likely to be some charities that do not make it to the end of the year. Over a third (35%) of charities we spoke to are worried about their organisation struggling to survive.
What can be done?
So, what can be done? Charities have to find even more efficiencies in their operating models, invest in fundraising and look for ways to make their existing resources go even further, including their cash reserves. Building financial resilience, a cornerstone of pandemic survival, will remain a priority, including expanding the ways in which income is generated.
Now is the time to make every effort to remind UK taxpayers about the value and vital importance of declaring Gift Aid, which effectively adds 25% to every donation. It is estimated charities lose out on more than £500m every year from unclaimed tax relief. At CAF, we are also stressing to both employees and businesses the importance of payroll giving options such as Give As You Earn. In a tight labour market, we are also emphasising our past research which found employees are more attracted to working for businesses that support their local communities, be it through payroll giving, matched giving or by nominating a local charity or dedicated cause area.
The impact of the crisis also strengthens very welcome arguments to provide more unrestricted funding, not tied to a particular campaign, which can help charities decide where to invest their funds. Larger donors who are already providing grants could consider committing a top up for inflation.
It is also increasingly clear that any government support packages or tax adjustments for the private sector need to extend to the charity sector too. Government could start looking into adjusting existing contracts more generously – especially for charities working in sectors experiencing multiple pressures, such as social and healthcare. Many contracts for delivering public services do not allow for the recovery of full costs, and adjustments for inflation are often too low. Charities providing home visits to support disabled clients are one example of where inflationary pressures are hitting not just wages, but petrol costs, energy and rent bills at central premises.
Both government and private sector support helped many charities to survive the pandemic. CAF distributed emergency funding to charities supporting communities hardest hit by the pandemic through the CAF Resilience Fund, but more is needed to help charities weather this current storm so they can continue to provide a lifeline to our most vulnerable in communities across the UK.
Alison Taylor is CEO of CAF Bank and Charity Services at Charities Aid Foundation