Cost-of-living crisis: the challenges in 2023

Recent years have been extraordinarily challenging for charities, most notably due to COVID-19, which caused severe disruption to services and loss of income.

 

Still reeling from this health disaster, the last 12 months have seen a fresh challenge emerge for charities, around the cost-of-living crisis.

 

This has already seen the value of donations fall amid double-digit inflation, energy bills rise, and demand for support increase.

 

Charities are already having to make difficult decisions to safeguard their future amid this financial turmoil. Many more tough choices will have to be made in 2023.

 

Several charities have been forced to shut their doors. At the start of 2023, Cornwall-based mental health charity Sea Sanctuary announced it had become the latest to be defeated by the cost-of-living crisis, after its last-minute fundraising plea for £200,000 to avert closure failed.

 

Here we detail some of the key challenges charities face this year as they battle for survival.

 

 

Reducing costs

 

An important way to tackle the cost-of-living crisis is to cut expenditure where possible.

 

In January 2023 the Charity Commission produced a guide for trustees to help tackle the “difficult decisions about their charity’s financial position”.

 

Advice suggested how charities can reduce outgoings by mothballing, for example, or stopping non-essential costs, while also considering any cancellation fees.

 

The regulator urges charities to find cheaper ways to operate. This includes investing in technology such as chatbots, which can save on staffing costs, as well as digital organisational tools to improve efficiency.  

 

 

Reviewing funds and loans

 

Further advice in the Charity Commission’s latest guidance is for charities to talk to their lenders to see if any loan repayments can be rescheduled over a longer period to help better manage finances.

 

Charities are also urged by the regulator to review their reserves to see if they can be used to meet urgent financial concerns. This may mean cancelling future, longer term capital spending, but could be the difference between survival and closure.

 

A Charities Aid Foundation (CAF) survey of 700 charities published in November 2022 found that more than half (51%) of charities are already using their reserves to cover costs. This is up on the same period the previous year when four in ten were delving into their reserves in this way.

 

CAF Chief Executive Neil Heslop says that “charities are running out of options, forcing them to rely on their reserves and cut back on the services they provide”.

 

 

Tackling rising energy bills

 

The charity sector has been dealt a devastating blow in 2023, as government help to meet the cost of energy bills is being significantly scaled back.

 

The government’s energy bills discount scheme for non-domestic customers, including charities, had been worth £18bn for six months over winter until the end of March 2023. But this will be reduced to £5.5bn worth of help from April 2023 through to the end of March 2024.

 

This reduction in support for charities means they will have to consider ways to reduce their energy costs, such as closing centres and offices for part of the day.

 

Help could be at hand. At the time of writing, charity sector infrastructure bodies were lobbying government for targeted help for “all high-energy use charities to get enhanced support, such as hospices, refuges, social care and community leisure providers”, according to one of the groups involved the NCVO.

 

“We appreciate the government cannot subsidise energy bills forever, but there is a significant risk to charities if we don’t urgently start working on a long-term plan,” added NCVO Chief Executive Sarah Vibert.

 

 

Combating cyber threats

 

The cost-of-living crisis and economic downturn are “potential catalysts” for an increase in fraud, in particular cyber-threats, “according to research carried out by anti-fraud charity Fraud Advisory Panel and accountancy firm BDO.

 

Their survey of 100 charity representatives found that 58% of charities believe the risk of fraud will increase in 2023. The biggest increase will be the threat of fraud carried out by staff and volunteers, the research warns.

 

“Long experience shows that in times of recession fraud risks are often greatest just when defences are weakest,” says Fraud Advisory Panel Chair David Green.

 

 

Treating staff fairly 

 

Cutting staffing costs can be another effective way for charities to reduce costs. But any such measures must be done fairly and consider employees’ own mounting costs.

 

Ways charities can cut costs can be to limit pay rises, reduce staff numbers, or re-allocating staff.

 

Charities need to be aware that conflict can occur where charities feel they are unable to offer staff more pay, and staff want better wages to meet their own costs.

 

Among the most high-profile recent disputes has been strike action by staff at homelessness charity Shelter over pay. In January 2023 the union Unite announced that the pay dispute had ended “after workers accepted a vastly improved pay offer”, that doubled a previous pay proposal by management.