A cost of living crisis: Charity sector impact

Three years ago, we explored the impact Covid-19 and the 2020 recession had within the charity sector.  

We predicted what recovery for charities would look like, and what actions could be made. While we’re a talented team, our predictions couldn’t quite foresee a cost-of-living crisis crashing into the UK, and across the world. 

With so much turbulence within such a short space of time, it can be tricky to predict the trajectory of what happens next.  

Once again, the charity sector is facing challenges we’ve never seen before. In a time where more and more people need help, but funding is low – what can we do to help boost efficiencies? 

Did our predictions come true?

Before we delve into what’s happening now and make further predictions, let’s look back. We’ll quickly recap some of our previous predictions for you: 

V shaped recession 

In our last piece, we wrote ‘It’s not yet clear what recovery will look like, there are hopes that it could be swift, making this a ‘V-shaped’ recession.’ 

A V-shaped recession means a steep and drastic fall, but a fairly fast recovery. According to the Office for National Statistics, reported that GDP had returned to pre-coronavirus pandemic levels by the first quarter of 2022. This means our predictions for post-pandemic recovery were correct.  

However, with the cost-of-living crisis came the threat of another recession. The UK narrowly avoided falling into another recession in 2023. While there was some unexpected growth at the start of the year, many sectors across the country are struggling, especially charities.  

Varying charity sizes

We previously explained that historically – surprisingly – the smallest-sized charities (incomes less than £10,000) were the least impacted by recessions. Medium-sized charities were the worst hit, and big charities managed to grow due to their larger reserves making them more resilient. What was the impact of the Covid-19 and 2020 recession on the charity sector? 

Research from Gov UK confirmed a charity’s size drastically impacted service delivery and use of reserves. It stressed the pandemic unevenly impacted the sector, and it was a complex picture. However, there were some clear patterns across charities, no matter their size. Nearly all charities were impacted by the pandemic – over 90% experienced some negative impact from Covid-19. This included their service delivery, finances, staff, or staff morale.  

The data also showed that charities proved to be adaptable. Of the 91% of charities that were affected by the pandemic, nearly half (45%) say they took some action to adapt their services. These changes included service delivery – including going more online – refocusing on core projects, taking difficult decisions to cut staffing, or investing in research.    

While it’s a complex sector, with each charity being impacted differently, the report stressed the importance of adaptability, and learning to work with uncertainty would be important going forward. A lesson that the sector is still learning. 

Impact of legacies

We reported that the pandemic brought on a surge in will writing and advised charities to look at the long-term if house prices dropped. 

Fast-forward to now and there are signs that UK house prices are starting to fall. The Halifax House Price Index found average house prices fell by 2.3% in November 2022 – the fastest fall in rates in 14 years. This trend could hit legacy income for many charities. 

Cost of living impact on charities 

So that’s our past predictions covered, but what happens next?  

Before we explore the impact the cost-of-living crisis within the charity sector, let’s just quickly recap what exactly the crisis is. The Institute for Government explained that the cost-of-living crisis refers to the fall in ‘real’ disposable incomes (that is, adjusted for inflation and after taxes and benefits) that the UK has experienced since late 2021. 

Increase in costs

One way the crisis has – and will – impact the charity sector is that the cost of running a voluntary organisation will rise. Data from the Office for National Statistics showed that electricity prices rose by 66.7% and gas prices by 129.4% in the UK during the 12 months to March 2023. We could see organisations struggle to operate and run their services. This has been confirmed by NPC, a Think tank for the charity sector, who estimated two-thirds of charities aren’t paid enough to cover their costs.  

Increasing energy rates aren’t the only increase in spending. Staffing has also gotten more expensive. At the start of April 2023, the National Living Wage rose to £10.42, which is an increase of 92p (+9.7%.)  While this benefits low-income staff aged 23 and over, it presents another challenge for budgeting. 

Cost of giving crisis

Another problem the charity sector faces is that with everything costing more, people are naturally starting to donate less. According to research from UK Fundraising, 55% of the public stated that their financial situation makes it harder to donate. The increase of prices across so many parts of everyday life – from fuel and food shops to energy bills and eating out – have entered the charity sector.  

The value of donations

However, it’s not all bad news. According to the research listed above (published in July 2022) online donations were at their highest level since this research began in 2020 – with 45% of people donating this way. The public’s intention to keep donating was a positive 73%.  

Research taken from the end of last year – November 2022 – demonstrated that people stuck by this intent. According the Benefact Group’s Value of Giving report showed the annual value of volunteering in the UK reached £18.7bn last in 2022, and charitable donations added £4.3bn. This makes the overall value of volunteering and donating £23 billion last year. 

76% of people donated money to charity in 2022, up from 64% in 2018/19. Unfortunately, while more people gave – they gave less. Donations were down £5bn from 2021’s £9.3bn. This was spurred on by the cost-of-living crisis. However, the figures show that while people may not be able to donate as much as they have previously, there’s clearly still a strong desire to help. 

Increasing demand

Research from ProBono Economics and Nottingham Business School showed that 71% of organisations in the social sector reported a rise in demand for their services over the three months to November 2022. It also showed that nearly half of charities (49%) expected demand to exceed their ability to meet it, with 19% of charities expecting to fall significantly short. Poverty and disability organisations were in particularly high demand, but all parts of the sector were affected. Alongside this increase in demand, a number of charities reported that they were dealing with more complex needs. 

Cost of living – looking forward

Having looked at the current impact, what about what could happen next within the sector? 

Economic faltering

One of the largest risks to the charity sector is economic faltering. As we mentioned earlier, the UK narrowly avoided a recession. According to the Charity Excellence Framework, UK banks are much stronger than they were in 2008. However, with so much funding having been poured into the shadow banking system, a potential banking run remains a possibility. 

Budget cuts

Budget cuts also present a large risk to the charity sector, and we are already seeing government funding falling. Analysis from the National Council for Voluntary Organisations  (NVCO) showed income from the government for the public sector fell by £684m in 2019/20. This funding accounted for just over a quarter of the sector’s income (26%), which was the lowest proportion since 2004/2005.  

In the short-term we’re likely to see central government departments and local authorities reduce their charity fundings, to make up for higher costs elsewhere. Moving forward to the medium-term, the Institute of Fiscal Studies’ analysis of the Autumn Statement highlighted shifts for government departmental funding after 2025. This will grow by 1% a year in real terms, versus 3.4% a year under previous plans. This will mean further reduced spending in some areas.  

The knock-on effect will be the common and sadly recurring theme within the charity sector- doing more with less. As service user demand increases, implementing cost-effective tools to help boost efficiencies in your front-line team will be crucial when looking to weather this economic storm. 

Deepening inequities

Current inequalities that have been made worse by Covid-19 – such as health, education, housing and employment – could deepen in the year ahead. The pandemic exposed how these existing inequalities – and the interconnections between them such as race, gender or geography, can impact a person’s quality of life. It’s important for sectors to continue to act to take steps to reduce these inequalities. 

Blueprint for action

We understand that reading through this data may give you concerns about the future of the charity sector. However, behind the data and numbers there are people across the country that still need our help. What can we do? 

1. Evaluate your funding

We’ve highlighted that with government funding could see further cuts. If your organisation relies on government funding – can you find other sources of income to fall back on?  

2. Using your reserves

If you’ve got reserves, now is the time to use them. You won’t be alone in doing so. Research by ProBono Economics and Nottingham Business School found 55% of charities are using their reserves to meet operating costs, as demand for their services soars. But remember, it’s important for you to think about how sustainable this is for the long-term. 

3. Make your funding go further by embracing digital

We’ve previously written about how to make your charity funds go further. Our tips included embracing the digital, employing Digital Assistants, and exploring Intelligent Advisors. 

4. Outsourcing your helpline

Outsourcing your helpline may seem daunting but it’s a trusted and cost-effective solution.  It helps you to reduce business overheads, increase productivity and save money in the long-term. As the UK’s leading inbound outsourced helpline service, we’ve seen the improvements an outsourced helpline can have on time, budget and resources. 

5. The value of volunteering

A Value of Giving report highlighted a post-pandemic, with the proportion of adults giving up their free time to help good causes rising from 17.9% in 2018/19 to 29.7% in 2022.  

Have you reviewed your volunteering programme, and can you better ultilise your volunteers?  

6. Work with your local community

There’s strength in your community and you can tap into local knowledge and resources you may not know existed. Did you know about the Community Partnership Network? It can help your organisation funding to deliver vital services. It operates across the UK, and allows you to access all sorts of national knowledge, with a localised approach. 

7. Clear communications and decision making

We understand the difficulties behind tough decision making, however it’s important you don’t delay making them. The timing of your actions can make a big difference. 

We’re here to help. Contact us to discuss how our services can help reshape and support your charity.