The stark impact of inflation on the value of donations to charities has been revealed in latest research.
It found that the value of £5.7bn worth of donations in 2022 will drop in value by 8.5% by the end of the year. This will see the charity sector lose out on £500m by the end of the year.
The analysis, by think tank Pro Bono Economics and the Charities Aid Foundation (CAF), also estimates that the projected value of a £20 direct debit to a charity in 2017 will be worth just £15.30 next year and £14.90 by 2024.
It is estimated that 31% of charity donations are made by direct debit.
This year has seen double digit inflation for the first time in 40 years and is currently at 9.9%.
The Bank of England predicts the cost-of-living crisis could peak at more than 13% by the end of the year.
High levels of inflation eat away at the value of charity donations.— Pro Bono Economics (@ProBonoEcon) September 14, 2022
Our new analysis of @CAF figures shows that total donations in the first half of this year were worth around £5.7bn. We calculate that by the end of the year that sum will be worth £5.2bn, a reduction of 8.5%. pic.twitter.com/Moai37BkTU
“This new analysis reveals that inflation will wipe off half a billion pounds of hard-earned money already given to charities during the first half of the year,” said CAF chief executive Neil Heslop.
“Inflation is eroding the value of donations and reserves in real terms. Despite falling donations, charities are working hard to help the growing number of families at the sharp end of the cost-of-living squeeze. 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."
Charity finances are also taking a hit due to rising staffing costs, which account for 40p in every pound spent by charities.
To effectively tackle the impact of inflation on staff the charity sector’s wage bill needs to increase by £2.8bn by 2023 and by £6.1bn by 2024, compared to 2018/19.
Impact on grants and reserves
Another challenge charities face around the cost-of-living crisis is the plummeting value of grants. Pro Bono Economics estimates that a £100,000 grant awarded in 2022 will be worth around £10,000 less next year and only £88,300 in 2024.
Charity reserves are also being affected. One in four charities is using their reserves to survive. The proportion of charities with an income over £500,000with no, or negative, free reserves increased from one in ten in April 2020, to more than a quarter in February 2021, the analysis has revealed.
Pro Bono Economics chief executive Matt Whittaker added: “Having stepped up to help the nation through the unprecedented challenges posed by the pandemic, charities are now having to deal with 40-year high inflation and the repercussions of the cost-of-living crisis.
“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.”