Inflation could hit charity finances even harder than the Covid-19 crisis has, charity leaders have warned.
Diana Perry, chief executive of the medical research charity the Ectodermal Dysplasia Society, said she expected soaring prices and falling real household incomes to have “a worse effect on charities than the pandemic”.
Richard Moore, the corporate director of business services at Barnardo’s, said his charity was using financial modelling to protect it from the impact of inflation, but cautioned that these preparations would become harder if the financial crisis “has longevity”.
The comments come after Pro Bono Economics predicted earlier this year that the charity sector could lose out on £2bn from falling donations and higher costs caused by inflation.
Perry said: “As a small charity, we rely solely on fundraising and donations to support families affected by Ectodermal Dysplasia in the UK.
“Soaring inflation is having a severe effect on everyone and people are trying their hardest to cut costs.”
The charity’s biggest worry was seeing “a huge decline in donations and fundraising” as household income was squeezed, she said.
Perry said: “I believe the current financial crisis will have a worse effect on charities than the pandemic. More worryingly, a recession may be on the cards, as households are already cutting back on costs and outgoings.
“The cost of living is a big concern for everyone in the UK right now, which will cause a significant reduction in income from charitable giving.”
Moore said the priority for Barnardo’s was the effect of inflation on the charity’s service users, but added: “In terms of the effects on the charity, we think the impact of the inflationary rise will be very different from the pandemic, as there was such a high degree of uncertainty with Covid-19 that we were forced to act very quickly with very little information about what exactly we were facing.
“The current challenges are different, and we have already done some modelling of the potential impacts.
“But these are very dependent on how long the inflationary cycle continues for and how commissioners of our services are able to respond, particularly if this financial issue has longevity.”
Dan Corry, chief executive of the think tank NPC, said charities “must start planning now” for the impact of inflation.
“Inflation reduces the real value of everything, so if you don’t increase spending you are cutting the good you can do,” he said.
“But this is very hard to do when your donors will also be feeling squeezed and commissioners are very unlikely to pay more to cover those extra costs. It’s what makes inflation a uniquely pernicious problem for charities.
“Funders will therefore need to rethink their strategies. Many will have hoped to replenish their coffers after paying out more than usual through the pandemic. But with returns on endowments having done pretty well despite Covid-19, is now really the time to do so?”