How to beat the cost-of-living squeeze

At the start of 2022 came the unpleasant news that consumer price inflation increasing at its fastest rate in just under 30 years. The rate of 5.4% announced in January 2022 was the highest since March 1992’s figure of 7.1%.

 

According to latest official estimates, inflation is set to remain above 3% until 2023 and not return to more manageable levels, of under 2%, until 2024.

 

This presents several challenges to charities as they face rapidly increasing costs. Paying for rising wages, to help staff keep up with escalating prices, is a chief concern. So too is real terms cut in the value of donations.

 

In addition, demand for support is set to rocket as the cost-of-living squeeze impacts on beneficiaries, many of whom were already struggling financially.

 

To help charities meet such inflationary pressures, think tank Pro Bono Economics has released a raft of guidance and information.

 

Here we highlight the practical advice being offered to charities to meet the cost-of-living squeeze, which threatens to dominate voluntary sector finances over the coming years.

 

 

Staff costs

 

According to Pro Bono Economics charities will need to spend an additional £2bn on wages in 2024 to help tackle inflation. This is an increase of just under 10% from 2021.

 

“This means that a charity with an expenditure of £1m would need to spend an extra £32,600 on wages in 2024 to ensure their staff are not worse off,” the think tank warns.

 

Many charities will be “unlikely” to be able to afford such a hike in wages.

 

Given that the sector is already battling with low pay, the prospect of a “significant churn” in the workforce looms as charities struggle to recruit and retain employees.

 

Being recommended is for charities to think about wage negotiations “as early as possible” and ensure these take into account that “staff are likely to be struggling already” with low pay.

 

 

Cut in value of donations

 

As charities seek to find more money for wages they face the further financial threat of reduced income. This is most notably through inflation reducing the real terms value of donations.

 

Pro Bono estimates that the real value of a £20 donation made in 2020 will fall to £17.20 by 2026, a reduction of 14%.

 

It recommends charities talk with donors now about their current levels of giving and make them aware of the financial pressures inflation is causing on the sector’s finances.

 

These discussions should focus particularly on “those on direct debits – and to update their estimates of what services cost to deliver as inflation continues to drive those figures up”, adds the think tank.

 

Charities also need to update their estimates of what services cost to deliver, as inflation drives up those figures.

 

 

Savings strategy

 

The charity sector as a “whole is a net saver, not a borrower,” says Pro Bono Economics.

 

But with high rates of inflation money held in reserve risks losing its value, with interest rates remaining low, despite a slight increase in 2021.

 

“This should prompt further discussions about investment strategies for those organisations with reserves,” says the think tank.

 

“Charities which have excess funds need to ensure the money is being worked hard to minimise the fall in its value.”

 

 

Changes in demand

 

As if increasing costs and a fall in the value of income was not enough for charities to contend with, they also face increasing pressures on demand.

 

This is in terms of more support needed from vulnerable beneficiaries caused by inflation.

 

Pro Bono warns that increases in benefits for vulnerable people, such as those out of work and with disabilities, is rising at a far slower rate than consumer inflation.

 

This will increase the need for charity support services, in areas such as debt counselling, employment training and help with mental health challenges.

 

It cites research by the Joseph Rowntree Foundation that 100,000 people will be pulled deeper into poverty amid rising inflation.

 

At the end of 2021 “the cost of food was the single largest contributor to inflation”, says Pro Bono Economics economist Jamie O’Hallaron.

 

“This is fuelling a cost-of-living crisis that will leave those on low incomes struggling to make ends meet and looking increasingly to foodbanks and other charities for support. The charities running these vital resources are set to be stretched further as demand for their services surges,” he adds.

 

Culture and arts charities will also face a pressure on demand, through a reduced footfall at events and exhibitions.

 

“The rising cost of living is also likely to affect charities such as visiting museums, theatres, and exhibitions, which provide services that people consume more of as their income increases,” Pro Bono says.

 

Charities are advised to plan now for any potential impact of inflation on demand for their services over the coming years.