What does the cost-of-living crisis mean for the charity sector?

From food banks to community groups, demand is spiralling as the cost-of-living crisis bites – and the sector faces a crisis of its own. Emily Burt reports

Photo by Vuk Valcic/SOPA Images/LightRocket via Getty Images
Photo by Vuk Valcic/SOPA Images/LightRocket via Getty Images

Across the UK, food banks are running out of supplies. In Cumbria, a branch of The Salvation Army appealed for support in restocking shelves that had been “stripped bare” by increasing demand. The Glasgow-based homelessness charity The Marie Trust reported being in “desperate need of help” as its supply of food packages ran short. At a food bank in Yorkshire, manager Tanisha Bramwell showed a reporter from Sky News pictures of an empty stockroom.

“We absolutely ran out of food,” Bramwell said. “I was shocked in some ways, but… this is something that I should have expected because our list has become so overwhelmed and people are reaching out so much more.”

Stories of empty shelves from organisations that provide food and other essential items to people in need are just one element of several grim recurring fixtures in the cost-of-living news cycle. For the charities working on the front lines, demand is already through the roof – and a long winter lies ahead.

An escalating crisis

The UK’s cost-of-living crisis has been gathering pace since October 2021, when a combination of a global spike in the wholesale price of gas and Brexit-related disruptions to supply chains triggered a steep increase in the prices of goods and groceries.

When Russia invaded Ukraine at the beginning of this year, further fuel pressures resulted in a sharp rise in the price caps that typically limit how much the energy providers can raise their prices. Gloomy estimates from the energy regulator Ofgem predict the caps will rise to about £2,800 a household by the autumn.

This is compounded by the highest rates of inflation the UK has seen in 30 years, with the Bank of England warning rates could exceed 11 per cent by October – more than five times the target issued to the regulator. The bank has responded by raising interest rates, further increasing the costs of goods and making debt more expensive.

With real pay unable to keep pace with spiralling inflation, households across the country are facing significant squeezes on their spending. In a survey of more than 4,000 people conducted by the BBC in June, eight in 10 were worried about the crisis, with many changing their behaviours and cutting back on household spending.

More than half (56 per cent) of respondents had bought fewer groceries and the same proportion had skipped meals, while 52 per cent expected to work more hours in the next six months to help pay for bills.

If energy price caps match Ofgem’s predictions in October, 7.5 million families in England will fall into fuel stress, according to think tank The Resolution Foundation, while the social mobility charity the Joseph Rowntree Foundation warned that low-income, single-adult households could be forced to spend 54 per cent of their income on gas and electricity.

Photo by Daniel Harvey Gonzalez/In Pictures via Getty Images

Between January and April this year, the Leeds-based debt advice charity Money Buddies reported a 400 per cent increase in calls to its helplines, with demand for services ballooning from people who are on the cusp of Universal Credit to include those in full-time, well-paid jobs who can no longer afford their bills.

“Ninety-eight per cent of people that we see have never before sought advice from us, or anybody else,” chief executive Sylvia Simpson says. “They are coming in and needing help, and the way I see it, we’re all in good company… we are all facing it in one way or another.”

A donation of £50,000 from the money saving expert Martin Lewis in the spring enabled the charity to quickly increase staffing hours in response to the need, but resource is a persistent problem.

“We end up acting on a lot of goodwill from the debt advisers and money buddies, who are working longer hours than they should because they don’t want to leave anybody hanging in worry or anxiety over their money,” Simpson says. “I am desperately trying to get more funding so I can get the resource they need.”

Five miles down the road in Middleton, Pat McGeever, chief executive of the charity Health For All, which works with communities in inner-city and south Leeds to tackle the root causes of poverty, is worried. The news is failing to talk enough about the daily human costs of the crisis, she says.

“What people are spending on basic items like food, shelter and clothing is taking up all of their money. We have food pantries and the demand has gone through the roof. Putting a decent meal on the table is a challenge for many and single-income families are suffering the most.”

This extends to the charity’s staff as well as its service users, McGeever adds. “We’d consider ourselves a good employer, very flexible and so on, but we can’t pay very high wages,” she says. “A number of our staff who are on low wages are asking for help from food pantries or with travel support vouchers.”

Olu Alake, chief executive of The Peel Institute, a community hub in London, says that, since the Covid-19 lockdowns were lifted, his organisation has found it harder to engage young people – they are no longer coming to activities because they can’t afford to.

“You might think: ‘What’s it going to cost to come to your community centre’, but if the child has not had a meal all day or is embarrassed about the state of their shoes, which their parents haven’t been able to replace, all those things add up,” Alake says.

A surge of older people returning to activities has also tailed off due to the cost of travel. “We charge a little fee for lunch but say, if you can’t afford it, to let us know. More people are telling us they can’t afford the £1.50 or £2 that we charge,” he says.

The Peel Institute is offering a greater number of subsidised meals and, with increasing numbers of homeless people attending the centre, is also putting together free drop-in lunch packs of dry food, “which we never had to do before because we would signpost them to the nearest food bank – but they are running out”, Alake says.

At the same time, The charity is also readying itself for a series of financial challenges. “In our budget this year we had to assume the worst – so a 100 per cent increase on all of those things. Our income is not increasing by 100 per cent, so something will have to give,” Alake says.

Cost challenges

As purse strings tighten, experts are warning that charities should expect to be hit by cuts to discretionary spending.

Research published by the Charities Aid Foundation and YouGov in March found that just 25 per cent of people had made a donation to charity in the previous month – two million fewer people than usual – while six in 10 had made plans to cut back on discretionary spending in the first half of the year.

“People who are on regular direct debits may be taking those away, or one-off gifts,” says Alison Taylor, chief executive of CAF Bank and Charity Services.

“There is the ability for more fundraising events, and for participation in those to go up again, so there might be an element of rebalancing – but the depressing net impact is that if people have less money in their pockets, however that plays out, there’s likely to be a lower share for charities.”

Taylor advises that charities should audit their finances and reserves sooner rather than later to get a sense of their financial resilience and manage cost crunches.

Some interventions might seem obvious but bear repeating, she says. Are charities doing enough to maintain their long-term donor base? Do cash collectors have contactless capability? Are there any ways for organisations to find smarter ways of undergoing procurement? Are they maximising their use of Gift Aid?

While some of these questions might feel inconsequential in the face of such a severe financial crisis, Taylor says: “If you look at every single lever you could tweak, all these little bits mount up to a much better financial outcome than you would otherwise have.”

Photo by Vuk Valcic/SOPA Images/LightRocket via Getty Images

Money Buddies’ Simpson suggests other practical actions that organisations worried about rising costs can take.

“Employee assistance programmes are not an expensive way to provide support to staff, and they will also give money advice. Seek advice sooner rather than later – one client came to see us and did not know that he was owed £10,000 by the DWP,” she says. “And make sure that the advice you are getting is free.”

For the infrastructure body Locality, which supports community groups around the country including Health For All, energy bills are one of the most urgent member concerns. Some have reported increases of between £200,000 and £300,000, according to chief executive Tony Armstrong: “They are often in properties that aren’t at the top end of energy efficiency, like old community centres.”

Health For All’s McGeever can relate. “Our finance manager factored in a doubling of utility costs in our budget this year. In fact the prices that came back were triple what we paid for last year,” she says.

Dianne Williams, chief executive of the charity Moat House Community Trust in Coventry, is another Locality member with fuel stress coming down the line.

“We are under a council arrangement for our fuel that has been in place for three years. It comes to an end in October – can you even begin to imagine how we plan for that?” she says.

“So many of the organisations that are providing food, the places where people are turning, are going to be impacted by fuel and food prices. We know demand is going to go up, but so are our own costs and expenses.”

Locality is calling for VAT rates to be reduced from 5 per cent to zero for charities and social enterprises to create “a bit of relief” on the bills, Armstrong says.

He also argues that there should be a sector-wide energy efficiency programme supported by funders: “It would bring short-term relief, and drive down costs in the long term, with the big prize obviously being the climate action involved in that.”

The membership body is taking steps to support its members with business planning and strategies to generate income during the crisis.

“We have an energy action group, which is a bulk purchasing provider that is having a small impact for people that are able to bulk purchase energy,” Armstrong says. “Another big thing we have been offering is HR support and strategic HR policy, because some members are having to look at whether they reduce staffing, so doing that in the best possible way to keep services going and be respectful to staff.”

Finding the funds

The cost-of-living crisis is shaping up to be the second unprecedented funding challenge the voluntary and not-for-profit sector has faced in three years, hot on the heels of the pandemic.

When Covid-19 took hold, funders responded swiftly – launching emergency grants and pledging to be understanding about how grantees spent and accounted for money as they worked through the crisis.

But The Peel Institute’s Alake is concerned that in the months since lockdown rules were eased, funders and grant-makers have reverted to old, inflexible models of funding. “I think they thought the [Covid-19] crisis was a moment in time rather than a paradigm shift, and are treating it accordingly,” he says.

“There has not been any strategic step back to ask what have we learned, how did the different model of operation that we put into place quickly without any testing or piloting work so well, or how did we work with the right people to ensure the needs are being met.”

With the pandemic set to be the first of a long line of rolling crises to hit the sector, from the cost of living to the climate emergency, Alake adds that funders must evolve their models away from lengthy applications and three-stage funding processes; treating this as “an exciting opportunity rather than an inconvenient crisis management process to be undertaken at a point in time”.

At the time of writing, sector-wide discussion of how charities will financially survive the cost-of-living crisis is sparse. Moat House Community Trust’s Williams suspects the sheer scale of the crisis could be preventing charities and sector bodies from responding quickly. “It’s almost too big for us to think about – it’s on a global scale and no one really knows what it means yet,” she says.

The trust is financially self-sustained, generating funds through a variety of channels including running a community cafe, a chain of food pantries and building affordable housing. But too many sector organisations are overly-reliant on grants for their main source of income, Williams says.

“During Covid-19, there were grants all over the place and some organisations got quite used to that because everybody wanted to help. Now, if you have no independent source of finance you will struggle – the whole sector nationally is at risk,” she says. And funders, although amazing during the pandemic, still have a tendency to focus on specific projects rather than building the overall capacity and resilience of their organisations, she adds.

The grant-givers network London Funders launched the #FlexibleFunders campaign in partnership with the Institute for Voluntary Action Research in 2021, in an attempt to embed the pandemic principles of flexibility into more general funding practice. According to London Funders director of collaboration Helen Mathie, grant-makers are very aware of the pressures, and considering whether additional flexibility can be factored into existing grants.

“Thinking about how to make funding less restrictive, and if funders can shift towards core costs and unrestricted funding rather than short-term project-based funding, won’t help to weather all changes in demand, but it certainly helps charities flex,” she says.

London Funders members have been meeting to discuss how the cost-of-living crisis will affect grantees, Mathie says, with many already taking action. “There are examples of funders proactively offering to increase costs and make sure that increasing energy bills are factored in, trying to do this before grantees get to the point where they are struggling,” she says.

“The relational point is very important – keeping conversations open and being honest and upfront about those costs.”

Some members have launched specific hardship funds so the organisations they support can dip in to meet additional costs, either to be distributed to service users or support operational spending.

“A lot of this is being done on a case-by-case basis, so it does depend on the funder, but it shows that we don’t have to wait for this to become a crisis point again,” Mathie says.

Supporting the sector

Measures announced by the government to help weather the cost-of-living storm include a £150 council tax rebate and a £400 energy bill discount for households, as well as a £650 one-off payment to low-income UK households.

But ministers have been urged to give greater support to people facing impossible increases in living costs, and faced broad, repeated criticism for a failure to respond proportionally to the scale of the crisis. Charities are no exception.

“One of the jobs that we and our partners have is to demonstrate the impact of the cost-of-living crisis on organisations at a local level, which are faced with all of these different struggles and are providing direct services that are essential to people on a daily basis,” Locality’s Armstrong says.

“In the national news rising inflation can sometimes be discussed as a big macroeconomic thing, but it’s impacting so many people directly on a day-to-day level, and the organisations that are their first line of defence also need help.”

Photo by BEN STANSALL/AFP via Getty Images

It’s a sentiment that is echoed by many of the people interviewed for this feature.

“We need to find a way to get them to understand that this is not just an intellectual or fiscal management exercise,” The Peel Institute’s Alake says. “It’s about real people, real issues and real families not being able to live, and future generations having their life chances massively compromised.”

Sector leaders are also unanimous that the role of charities in providing support should be a no-brainer, particularly in the wake of Covid-19. “We didn’t see the pandemic coming, [but] we found the money, spent the money, saved lives doing that,” Alake says.

But the sector will struggle to rally without help. “This is not going to get better. Inflation is not going to go down, and in October we’ve got the energy cap and price increase coming. There will be significant knock-ons for our clients’ mental health and the mental health of staff,” says Money Buddies’ Simpson.

“If, at the really bleak end of the spectrum, you end up with a situation where charities have to retrench and reduce services right at the point where they are more needed, that hugely concerns me. It’s also likely to sit alongside a reduction in government and local-government-funded services,” warns CAF Bank’s Taylor.

“Charities will collapse under the weight of increased demand, increased costs and reduced funding. I don’t know any senior manager in any charity that provides frontline services over the last couple of years who has not felt under immense stress,” says Alake.

“The people who need the services of those charities are going to suffer the consequences.”

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