Impact of rising inflation in UK will increase strain on charities, economists warn

The steep rise in inflation in the UK will put extra strain on charities as costs rise, income depreciates, and demand for services grows, researchers from Pro Bono Economics have warned.

The rising cost of living is also likely to impact donation levels, meaning charity income would struggle to keep pace with inflation. In addition, the value of grants awarded recently is predicted to depreciate.

Already at 5.4%, UK inflation is predicted to peak at around 6% this April, and isn’t expected to return to the more usual level of 2% until 2024. The rise is being driven by the high cost of clothes, food and footwear.

According to a briefing by Pro Bono Economics, the vulnerable are likely to be the hardest hit by the rise in inflation with any rise in benefits not expected to match the rise in the cost of living. This is likely to drive up the demand for many charities’ services, while cultural charities such as museums are also likely to suffer as people have less disposable income to spend.

Jamie O’Halloran, Economist at Pro Bono Economics, said:

“Inflation in the UK is now at a 30-year high having soared to 5.4% in the year to December. The cost of food was the single largest contributor to inflation between November and December, rising by 0.18 percentage points.

“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.”

A further notable pressure point will be staff salaries. To ensure wages keep up with inflation, charities would need to spend an additional £2bn in 2024 ­– an increase of almost 9% from 2021. It’s an increase Pro Bono Economics warns many charities are unlikely to be able to provide, which could mean higher staff churn and more difficulty in replacing those who leave.

Pro Bono Economics is recommending that charity boards and leadership teams factor higher than anticipated costs into any planning assumptions.

O’Halloran added:

“With inflation rising even faster than expected, fears are mounting in the charity sector as it wrestles with its own financial pressures brought on by the pandemic and exacerbated by inflation. As costs continue to rise, the overall income of charities will struggle to keep pace. It is estimated that a £100,000 donation made in 2021 will be worth £94,000 in 2023.

“Charity staff will also feel the strain of inflation as they face the prospect of their salaries reducing in real terms. This poses a risk of significant staff churn in the sector at exactly the same time as rocketing demand for frontline services.”