Advice for charities on tackling the cost of living squeeze

Charity leaders are being urged to ensure their organisations are well prepared to tackle a cost-of-living squeeze on their finances over the next two years.

This week consumer price inflation increased at its fastest rate in just under 30 years to 5.4%. The previous high was 7.1% in March 1992.

Furthermore, inflation is set to remain above 3% until next year and is not expected to return to under 2% until 2024.

Charities are being warned they face rapidly increasing costs, especially regarding staff wages.

They also face a real terms cut in the value of donations and income, unless they take action.

Wage demands

The stark warning that action is needed has been made by think tank Pro Bono Economics, which estimates that charities will need to spend an additional £2bn in 2024 on wages, an increase of 9.8% from 2021.

“This means that a charity with an expenditure of £1m would need to spend an extra £32,600 on wages in 2024 to ensure their staff are not worse off,” it said.

It warns that it is “unlikely” the charity sector, which already has issues with low pay, will be able to meet this commitment. This raises the prospect of “significant churn” in the charity workforce if salaries start reducing in real terms.

Pro Bono Economics urges charities to think about wage negotiations “as early as possible” and ensure these take into account “that many of their staff are likely to be struggling already”.

Income pressures

Meanwhile, charity income is unlikely to be able to keep up with inflation, warns the think tank. This will force many charities to reduce their expenditure to meet rising costs and the reduced value of donations.

Charities are recommended to have discussions around levels of giving with donors “particularly those on direct debits – and to update their estimates of what services cost to deliver as inflation continues to drive those figures up”, added Pro Bono Economics.

An additional burden is rising demand for support services, as the cost-of-living squeeze continues to impact on low-income families and other beneficiaries.

Pro Bono has warned that recent benefits rise of just 3.1% for many vulnerable families comes as the price of goods rises by 5.5%. It also cites research by the Joseph Rowntree Foundation that 100,000 people will be pulled deeper into poverty amid rising inflation.

“The rising cost of living is also likely to affect charities such as visiting museums, theatres, and exhibitions, which provide services that people consume more of as their income increases,” Pro Bono added.

“Inflation may suppress footfall for these cultural charities, as people have less disposable income available to purchase tickets, leading to falling revenues.”

Charities are advised by the think tank to plan for potential changes to demand for services.

“Inflation in the UK is now at a 30-year high having soared to 5.4% in the year to December,” said Pro Bono Economics economist Jamie O’Halloran

“The cost of food was the single largest contributor to inflation between November and December, rising by 0.18 percentage points.

“This is fuelling a cost-of-living crisis that will leave those on low incomes struggling to make ends meet and looking increasingly to foodbanks and other charities for support. The charities running these vital resources are set to be stretched further as demand for their services surges.

“With inflation rising even faster than expected, fears are mounting in the charity sector as it wrestles with its own financial pressures brought on by the pandemic and exacerbated by inflation.

“As costs continue to rise, the overall income of charities will struggle to keep pace. It is estimated that a £100,000 donation made in 2021 will be worth £94,000 in 2023.

“Charity staff will also feel the strain of inflation as they face the prospect of their salaries reducing in real terms. This poses a risk of significant staff churn in the sector at exactly the same time as rocketing demand for frontline services.”

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