Monthly charity donations of £20 started as direct debits in 2017 will be worth £14.90 in two years’ time, according to a new report by Pro Bono Economics and the Charities Aid Foundation.
The cost of giving: What UK charities need to know about inflation, published today, shows that the £5.7bn of total donations made to UK charities in the first six months of 2022 would be worth £500m less in real terms by the end of the year.
PBE’s projections are based on the Bank of England’s latest inflation forecasts, according to which inflation will reach a high point of 13 per cent later this year.
CAF estimates that 31 per cent of all charitable donations are made via direct debit, which fall in value over time.
Grants and contracts will also be affected, according to analysis. Figures show that a three-year £100,000 grant or contract awarded in 2022 will be worth the equivalent of £90,660 in 2023 and £88,300 in 2024.
According to the report, if the sector’s expenditure on staffing costs were to keep up with inflation, charities would need to find an additional £3.8bn by 2023 and £6.1bn by 2024, compared with 2018/19.
Charities’ reserves are also at risk, the report warns. It says that by 2023, charities with annual incomes of between £500,000 and £1m would hold an average of 3.5 months’ worth of activity if expenditure rose in line with inflation.
Charities with incomes between £1m and £10m are projected to hold reserves that would cover no more than 3.1 months of activity.
Neil Heslop, chief executive of CAF, said: “This new analysis reveals that inflation will wipe off half a billion pounds of hard-earned money already given to charities during the first half of the year. Inflation is eroding the value of donations and reserves in real terms.
“Despite falling donations, charities are working hard to help the growing number of families at the sharp end of the cost-of-living squeeze. Ultimately, charities are having to do much more with much less money.
“Many organisations were unable to rebuild their reserves before this current crisis took hold. As a result, a third of charities are worried about their very survival, threatening the vital services that communities need over the coming months.”
Matt Whittaker, chief executive of PBE, said: “Having stepped up to help the nation through the unprecedented challenges posed by the pandemic, charities are now having to deal with 40-year high inflation and the repercussions of the cost-of-living crisis.
“Donations, grants and reserves are all stretching less far than was previously the case, even as the nation’s demand for charitable support soars.
“It matters in the near term and it matters in the long term, too. The social sector provides indispensable support during times of crisis, but it is precisely during these periods that the financial resilience of charities and community groups is most tested.
“There is no quick fix, but with a new government in place it is important ministers renew and strengthen their relations with a sector that has such a vital role to play in helping the nation navigate today’s cost-of-living storm.”