Research finds the financial strain on the sector is affecting the delivery of services
Charities are under increasing pressure to meet growing demand for their services while facing continued rising operational costs.
New Charities Aid Foundation (CAF) research among UK charity leaders found that 44% cited increased costs over the last 12 months as one of their main challenges.
CAF’s UK Charity Insights report states that this is significantly more than the 30% who reported this in 2023 following the peak of inflation, and compares to 14% who listed it as a key issue in 2021.
A picture of increasing demand and diminishing funds is also shown on the Scottish Council for Voluntary Organisations’ Third Sector Tracker.
The growing concern over operational costs comes as demand for charity services, such as community cafes and poverty relief continues to rise.
According to CAF, over eight in ten (83%) charities reported that demand for their services has increased, with 86% expecting demand to grow over the next 12 months.
With charities unable to pass on cost rises, the research finds the financial strain on the sector is affecting the delivery of services.
Only one in ten (11%) charity leaders said that they have been able to smoothly meet the rise in demand, and 70% say they spend most of their time solving problems – with 30% of their time spent on strategic planning.
The vast majority (86%) of people believe that charities play an important role in society and communities, according to separate CAF research with the public.
However, charity leaders raised concerns about the overall health of the sector. Less than a third (30%) considered the sector to currently be in a healthy position, and 42% were optimistic about its future. Financial pressures and funding cuts are the main reason why leaders think the sector is unhealthy.
Charities are also found to be operating within a precarious funding environment. Over half (52%) of those surveyed said that they were not confident they would be able to cope with demand if they saw a decline in one of their income streams, rising to 63% for charities with incomes of less than £250,000.
Funding challenges for the sector also includes low levels of support from businesses. The research found that while 61% of charities received some financial support from corporates, less than one in ten (6%) said that donations from business was one of their main sources of income.
Neil Heslop OBE, chief executive of CAF, said: “Whether it’s a local community cafe, cutting-edge health project, or initiatives that transform the lives of homeless people, charities are central to our social fabric. Yet their role has never been tougher. With ever-increasing demand, inflationary pressures remaining and significantly fewer funding opportunities, charities cannot pass on costs and are having to do much more with less.”
CAF is calling for a co-ordinated, cross-government approach to charitable giving and philanthropy, and for the governments to introduce policies that encourage donations to support charities.
These include using match funding schemes to multiply the power of government spending, modernising Gift Aid to simplify administration and unlock unclaimed funds, requiring larger companies to report annually on their charitable giving and allowing lifetime gifts to charity from un-needed pension pots.
Heslop added: “It is a critical time to grow the philanthropy and social investment that sustains the sector. A cross-government approach to philanthropy, and policies that encourage donations, could revitalise our culture of giving and help to build a more connected, more generous and more resilient society for all of us in the future.”
The report also sets out ways charities can assess and build their resilience, including through diversifying their income streams and widening their networks.
Donors can further their support to good causes by topping up their regular direct debits and payroll giving in line with inflation.
