Funding fails to keep up with inflation, demand rises and donations likely to fall
Inflation and the cost of living crisis pose the biggest threat yet to the voluntary sector – bigger even than the pandemic.
Many charities barely made it through the ravages of Covid – but now face a perfect storm of decreasing donations and rising prices.
Energy costs, pressure from staff on pay and demand on services are rising – while lifeline grants and contracts have not matched inflation, which is soaring to levels not seen for 40 years.
Grant-givers and government have been warned that for the voluntary sector, the situation is not sustainable.
And it could be a vicious cycle, as the very charities and services people need the most as they are impacted by the cost of living crisis find themselves unable to deliver, further deepening the effects of poverty and desperation.
The warnings have been coming since earlier this year. A report from Pro Bono Economics predicted that the UK charity sector could lose out on £2 billion from falling donations and higher costs caused by inflation.
This week’s inflation spike has raised the alarm to its highest levels.
Anna Fowlie, chief executive of the Scottish Council for Voluntary Organisations (SCVO), said: “Voluntary organisations are already running on a shoestring. Rising energy costs and understandable pressures from staff to increase pay are simply unaffordable in a climate where the public are increasingly unable to donate to charities and grants and public sector contracts don’t take inflation into account.
“SCVO has long been pressing government and others to recognise inflation and increasing core costs when awarding grants or contracts and this is now a matter of urgency. It’s simply not sustainable to expect voluntary organisations to keep on doing what they do with real terms decreases in funding.”
Alison Taylor, chief executive of CAF bank and charity services, said: “Charities are impacted by rapidly rising inflation on many fronts. Many more people in their communities are likely to rely on their support with 71% of charity leaders worried about managing an increase in demand on their services.
“Tightening household budgets are impacting donations with 14% of people planning to cut back on donations to cover their bills and in addition, inflation means that donations are not going as far as they used to in real terms.
“After two years supporting their communities throughout the pandemic, when many had to rely on their reserves, charities are also having to find the funds to pay higher costs, including rent, food and fuel.”
Pro Bono Economics and the Charity Finance Group published their Economic Outlook Briefing (see below) in March.
It set out the range of difficulties the voluntary sector is now facing: “2022 is set to be a difficult year for many charities and their finances. The charity sector is still dealing with the mounting financial, operational and governance pressures from Covid-19 and its aftermath, and this is now coupled with an escalating cost of living crisis and the outbreak of war in Ukraine.
“Recent polling indicated that 58% of charity leaders believe that financial sustainability is their main challenge. Unfortunately, charities will not remain unscathed from rising inflation and the accompanying cost of living crisis. On the one hand, the cost of operating is set to increase quite significantly, with an increase in labour costs and the purchase of goods and services. In addition, many will see an increase in demand for their services, while also seeing the value of donations and grants decline.
“With this in mind, it would be prudent for all charities to consider the potential impact that these conditions will have on their finances, and what, if anything they might be able to do to help mitigate this.”