Inflation-based ‘triple whammy’ means charities need strategies to tackle soaring costs

Kyle Smith
Kyle Smith, Manager Lovewell Blake

A triple whammy of soaring staff costs, donations being eroded by inflation, and rising demand for services means that charities are having to put in place anti-inflation strategies, says Kyle Smith of Lovewell Blake’s specialist Charity team.

Kyle Smith, Manager Lovewell Blake

Even before the conflict in Ukraine threatened to drive up inflation even further, the UK was already experiencing something of a cost of living crisis – and for charities, that crisis looks set to have a huge impact.

And with the National Living Wage for adults rising by 6.6% in April – not to mention an extra 1.25% employer’s national insurance to pay for the health and social care levy, charitable organisations are about to face cost pressures the like of which they haven’t seen for decades.

Staffing usually forms the major part of a charity’s costs, so the rise in the NLW, coupled with increasing pressure from all staff for pay awards which reflect their own rising cost of living cannot be ignored.  A study by Pro Bono Economics found that wages for staff would need to rise by 9% over the next two years to keep up with inflation, adding £2 billion to the sector’s wages bill.

At the same time, rising inflation is starting to erode the income they receive.  Many donors give regular amounts via standing orders or direct debits; if someone gives £20 a month, then that would shrink in real terms by more than a fifth to £15.94 in just four years should inflation remain at its current level.

Inflation is having an effect on demand for services as well, as more and more families find themselves under financial pressure.

This triple whammy of cost-of-living related factors is going to put huge pressure on charities on the next couple of years – so what measures should they be taking to mitigate the inflation effect?

The first thing is to get a grip on the size of the problem.  Charities need to be putting in place and acting on budgets and forecasts to identify shortfalls resulting from rising costs.

Robust income generation is also key.  This is not just about ensuring that adequate time and resource is put into the importance of fundraising, but also finding new sources of income in the knowledge that individual donors in particular are themselves likely to be finding their family budgets squeezed.

Trustees need to be undertaking staffing reviews to ensure staff are delivering maximum benefit.  This might go hand in hand with a review of structure to ensure high-paid employees are necessary to the organisation’s goals and needs, or a look at whether performance-based rewards could be implemented.

Charities also need to be looking at whether services and other activities could be delivered in other ways, for example by outsourcing or through volunteers.

Above all, this is the time to ensure that the culture of the charity is such that it inspires staff loyalty, motivation and engagement.  Engaged staff are always the most productive staff, and with inflation exerting pressure from every direction, increased productivity is really the only way to keep the show on the road.

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