The Fraser of Allander’s latest survey shows stark challenges ahead.

A new report has warned third sector organisations are facing significant financial strain due to the combination of stubbornly high inflation and squeezed household incomes. 

The latest Economic Commentary report, published by the Fraser of Allander Institute for June 2023, outlines the rising pressures of cuts to charitable donations and increasing regular costs and bills. 

The institute’s latest survey of third sector organisations - carried out in April - saw 95% of charities and voluntary organisations report that they were concerned about energy bills, compared to 83% of businesses across all sectors.

There were also concerns that government support, in the form of the Energy Bills Relief Scheme, would not adequately cover the increasing shortfalls. 

Further to financial pressures, the increasing pressure on volunteers and attracting members of the public to provide unpaid work, were also flagged in the report. 

There were also reports of recruitment challenges, with around 77% of third sector firms that had vacancies in the first quarter of this year were finding them difficult to fill.

Overall, 86% of third sector organisations reported attracting new staff as their main recruitment concern, compared to 73% of businesses across all sectors. Meanwhile, 73% of third sector groups cited staff retention as a key concern, compared to 66% of businesses across all sectors. 

This report, coupled with economic outlook from banks, and other analysis, mean “it is unsurprising that in our latest survey, firms from the voluntary sector reported a more pessimistic outlook for the Scottish economy this year, with 73% of firms expecting weak or very weak growth of the economy, compared to the sector average of 62%”. 

The report reads: “Third-sector organisations are facing significant financial strain due to the combination of stubbornly high inflation and squeezed household incomes. Alongside donation challenges, charities, like most firms, are also facing significant cost and operations pressures. 

“Third sector organisations rely on the generosity of individuals in terms of volunteering, and with an increase in the number of people in the UK having a second job to

cope with squeezed income, this sector faces complex recruitment challenges as it tries to attract people to engage in unpaid work when they could be spending their extra time earning money through a second job. 

“The rising cost of borrowing will have a direct impact on third sector organisations borrowing costs, but it will also have an indirect impact on donations as household budgets continue to be squeezed further by rising interest rates.

“These firms are not only faced with the challenges of recruiting volunteers and paid workers against the backdrop of a cost-of-living crisis and a tight labour market, but, like the rest of the business community, they are faced with significant wage pressures.

“Overall, results from our latest Scottish Business Monitor, indicate that businesses in the third sector have greater cost pressures and concerns around these pressures than the rest of the business community. They are also operating in a more challenging recruitment environment.”