Core costs will keep rising

Inflation will cost the UK voluntary sector an extra £2 billion in staff salaries by 2024, a think tank has warned.

Pro Bono Economics said charities would have to increase salaries by 8.8% to keep up with inflation in real terms.

A typical organisation with expenditure of £1 million a year would have to increase salaries by £32,000 to keep in line with inflation.

The think tank said that salaries account for around 37% of the sector’s spending.

It said: “It is unlikely that many charities will feel able to raise pay by this much, particularly as this cost comes in addition to the new National Insurance rates increase from April 2022 and the subsequent Health and Social Care Levy starting in April 2023."

The think tank recommends charities consider wage negotiations as early as possible, while also realising that many of their staff are likely to be struggling already. 

It said it expected inflation to return to typical levels of 2% in 2024, though there was “great uncertainty in these estimates”. 

It also warned that high inflation was likely to mean that charity income is unlikely to keep pace with rising prices and that demand for services was likely to rise because of a cost-of-living squeeze. 

It said that the real value of a donation of £20 would be £17.60 in 2026 once inflation is factored in, and multi-year grants recently awarded would devalue over time. 

“If an organisation is awarded 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,” it said.