Charities and the cost-of-living crisis

14 Apr 2022 Jocelyn Horton    Last updated: 7 Jun 2022

Being concerned about rising prices is something that many charities and voluntary organisations are potentially facing as inflation has climbed to historic levels. 

Overview

The rate of inflation (the measure of how quickly prices go up) hit 7% in March 2022, the highest rate since 1992 and well above the Bank of England’s 2% target. With the subsequent crisis in Ukraine putting further upward pressure on energy, fuel, and food costs, the Bank has now stated that inflation is more likely to reach 8% by quarter two, with the potential to go higher still in the latter part of the year.

The consequences of increased inflation will increase costs for consumers. The Chartered Institute of Procurement & Supply (CIPS) reported earlier this year that a survey of 1,000 businesses by the British Chambers of Commerce (BCC) found 62% said rocketing energy bills were a driving factor behind the need to increase costs. With prices rising at their fastest rate for 30 years, wages, benefits and pensions are failing to keep pace with more than four in five (83%) adults across the UK in the month to March 13, 2022 reporting that they have experienced an increase in their cost of living.

With few options to avoid price rises as many necessities are getting more expensive, experts say the only option is trying to budget as best we can, across every part of our lives. The same may be potentially true for charity operations as current indications are that higher rates of inflation are predicted to last until at least 2024.

Consequently, it is important for charity boards and leadership teams to factor higher than anticipated costs into any planning assumptions now.

Cause for optimism

Among the doom and gloom, there is cause for optimism. If the pandemic taught us anything, it is that the sector always finds a way. The voluntary and community sector is quick to adapt, and many have invested in digitalisation to deliver services and products. Moreover, the response of funders also bodes well for the future with many realising the requirement for flexible funding and timely specific support.

Cost of living crisis and donations

The effects of the cost-of-living crisis on charities will likely to be twofold.

First, donations, subscriptions and other income sources associated with an individual’s living standard may take a dip.

New research from Charities Aid Foundation (CAF) shows cost pressures are affecting donations to charities as six in 10 (58%) people plan to cut back on discretionary spending over the next six months in order to manage their bills - rising to 69% amongst 25-34 year olds. Only a quarter of people (26%) say they won’t be cutting back on anything. With many cutting back on discretionary spending, around one in 10 (12%) people reported last month that they plan to cut back on charity donations. Last month, only a quarter (25%) of people donated to charity in the past four weeks. This figure is significantly lower than the usual average for the month (29%), meaning that around 2m fewer people donated to charity than usual.

However, as more families face financial struggles with the increased cost of living, previous research from CAF found that nearly nine in 10 (86%) charity leaders anticipate that demand for their services is likely to increase. Homelessness, food bank and debt charities have seen surges in demand as people struggle to cover costs of food and other essentials and utility costs. And the Citizens Advice Bureau has reported that demand for its support is now higher than at any point since the pandemic began.

Rising demand won’t just be restricted to foodbanks and charities supporting those on low incomes, Pro Bono Economics (PBE) suggests the rising cost of living is likely to affect charities such as visiting museums, theatres, and exhibitions, which provide services that people consume more of as their income increases. Here, footfall may decrease as people have less disposable income available to purchase tickets, leading to falling revenues.

Second, charities will find goods and services more expensive, and donations will not go as far as they once did. PBE analysis suggests a £20 donation in 2021 is predicted to be worth just £17.60 in 2024. Moreover, recently awarded grants will significantly devalue in 2022/23; a grant of £100,000 per year in 2021 for the next three years, the 2023 grant would be worth £94,000 after accounting for inflation. For charities with reserves, it’s also worth noting that interest rates remain incredibly low leading to a loss in value of reserves.

So, what should boards and leadership teams be planning for?

  • Discuss the matter internally:

    • Begin discussions around levels of giving by your donors – particularly those on direct debits – and to update your estimates of what services cost to deliver as inflation continues to drive those figures up.
    • Charities which are close to or below their reserves policy need to hold a conversation about investment strategies. Charities which have excess funds need to ensure the money is being worked hard to minimise the fall in its value.
    • Consider your employees and volunteers, even beneficiaries. Will they be able to travel as much with increased fuel costs? If not, could you deliver your services on less days/hours or once, again, offer virtual methods to reduce costs. While arguably virtual delivery of services can be lacking, it is an area we are used to, could be more attractive for some people, and even has the potential to support greater diversity, e.g., disable volunteers could be recruited to deliver virtual counselling.
  • Manage and reduce your costs:

    • Michael Hodgetts, Chief Executive Officer of the Charities Buying Group, recommends charities work together, focus on procurement at board level, and audit costs to help charities survive what could be a difficult year following the pandemic. For example, rising food prices can be a large burden to charities such as hospices, food banks, care homes, etc.  By working together, charities could maximise savings while still receiving small deliveries of goods as and when needed, standing to gain from bulk-buy deals available from major suppliers without needing to increase their order. Equally, charities could consider how best to manage buildings. Perhaps you have an underused office that could be rented out or perhaps you could save on telecoms by changing supplier. Unlike other areas of spending such as fundraising, managing and reducing costs can have a clear return on the time invested.
  • Review your current income streams 

    • Identify potential areas where you could either increase fundraising efforts or develop new ones with a good return on investment. For example, have you explored a payroll giving schemes whereby employees can give to any UK registered charity straight from their salary? Donations are tax-effective because they are taken before income tax is applied, which means the charities receive more of the employee’s donations and it costs the donor less. Some employers also offer to match contributions. Did you transfer to online fundraising during COVID-19 lockdowns, but reverted back to in-person events in 2022? Could you host the fundraising event as hybrid to increase your number of participants? See what Cancer Focus NI and Concern Worldwide are doing Live Panel Discussion - trends, ideas and overcoming challenges in cashless giving | NICVA.
  • Communicate with your supporters:

    • Encourage your supporters to ‘tick’ the Gift Aid option. The scheme which allows registered charities to reclaim income tax on a donation made by a UK taxpayer, effectively increases the value of the donation. For a basic-rate taxpayer, this adds approximately 25% to the value of any gift made under Gift Aid. A £1 donation will effectively be worth £1.25 to the charity, but only if the donation is declared. Every year more than £500 million of Gift Aid goes unclaimed, according to the Charity Finance Group.
  • Grant funding:

    • When applying for new funding in 2022, take into consideration potential rising costs and decide what amount you should be really applying for and be prepared to demonstrate to funders you are ‘on top of the matter.’ This could be by stating in your application that you are aware of rising costs, have recognised potential risks, but have identified and implemented solutions to manage the situation.
    • Contact existing funders. Good practise if you are facing potential difficulties or a need to reprofile grants is to discuss the matter upfront. Remember, the response of funders during the pandemic was amazing with increasing numbers recognising the benefit of providing more flexible and unrestricted funding alongside timely and specific support. Our biggest local funders are no different and continue to be available to organisations:

Community Foundation for Northern Ireland

 "The rising costs of living has affected us all. Charitable organisations delivering really important work are also facing challenges on how to meet these increasing costs, whilst continuing to support society. Organisations have told us that they often find that funding can be quite restricted, leaving them unable to adapt and change the way they deliver services, or pay for the costs associated. The Community Foundation is committed to supporting charitable organisations as best they can. We encourage any grantee wishing to reprofile budgets, and seek flexibility with their grants, to contact us. We appreciate the challenges charitable organisations are facing and we want to be as agile a funder as we can be."

Halifax Foundation Northern Ireland

“Trustees and staff of Halifax Foundation NI are acutely aware of the impact the cost-of-living crisis is having on our grantees, many of whom are small, grassroots community groups.  As a funder of essential running costs, we have been working with grantees to help them reprofile budgets to meet these increased costs and would urge any of our grantees that are struggling, to reach out to our grants team. We would also encourage groups in need of support to consider applying to our Community Grants Programme.  For further information on how to apply, please visit our website – www.halifaxfoundationni.org.

As a flexible, responsive funder we will continue to look at ways in which we can support local groups providing vital support in our communities.”

The National Lottery Community Fund

“At The National Lottery Community Fund we are committed to supporting the sector to continue to access and use National Lottery funding to support the people they work with.  We are hearing from the people we support about the challenges of the rising costs of living and how this is impacting on the great work that they are doing in their local communities. As always, our approach to funding is flexible and we would encourage existing customers to get in touch with us should they wish to adapt their project budgets to meet the increasing costs. We are also available to chat to groups about their ideas for developing new projects. For information on our current programmes please visit www.tnlcommunityfund.org.uk/northern-ireland.”

jocelyn.horton@nicva.org's picture
by Jocelyn Horton

Fundraising Advice Officer

[email protected]

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