Spiralling inflation leaves charities facing tough dilemmas

This article was first published in Third Sector

As we wait to hear the outcome of elections that will decide our next Prime Minister, what should be at the front of mind for charities?

Over the past two years, Covid-19 provided the opportunity for many small and local charities to be recognised and rewarded by funders, many of whom increased their support and responded rapidly and flexibly.

But this was only possible because asset prices rose rapidly. With falls of between 20 and 30 per cent this year – and huge uncertainty as to whether that is the bottom of the market – funders won’t have the scope to repeat the gesture unless they are prepared to eat into their core endowments.

The majority will not do so, believing that they have a responsibility to the future that must limit their response to today.

Alongside this, as Leesa Harwood notes in her excellent summary of the sector’s financial position, After The Storm, direct debits from the public are flat or declining. And while larger charities may think that legacy income is protected by inflated property prices, this will likely be more than offset by falls in stock market-related legacies.

In the meantime, the cost-of-living crisis will compound the impact for those with income tied to contracts that were agreed at a time when inflation was benign.

Many charities will face a moral and financial dilemma: on one hand wishing they could support rises for staff, often on minimum wages and vicarious contracts, on the other, knowing they will be unable to do so without putting the charity itself into a financial crisis.

This echoes back to the public sector privatisation drive in the 1980s, when many new not-for-profit providers faced the same issue at a time of high inflation.

It was why I left the social care sector – as a senior manager I couldn’t stomach having to meet contractual demands that forced us to drive down terms and conditions for already low-paid staff.

Analysis is all very well – but what is to be done?

Early steps

Of course there are the obvious early steps: looking at cost bases, re-examining service models and perhaps considering staff/volunteer ratios to reduce costs.

But these are likely to only yield marginal returns to tide over the short term. And there is a risk that action to address costs will compound the stress and staff wellbeing issues that have come to the fore post-Covid-19. Many charities will face questions of whether they are able to continue.

Leesa Harwood concludes that the best mitigation is a “strong, competent collaborative team, dynamic planning and improved external orientation”. No argument there.

But I would go further in the current political and economic context.

Serving communities

Our primary responsibility is to those we serve – many of whom will be at the sharpest end of the cost-of-living crisis. They will need us more than ever.

Many small and large charities will face tough questions of what and who to prioritise – the unspoken outcome, of course, being who to deprioritise?

Even as a funder we are doing this. In our new strategy we will focus on where we think we can make the greatest difference and who will benefit most from what we can offer.

But we will also double down on our influence and advocacy, and work to seek longer-term solutions to the intractable problems we fund through our core grant-making. This means we will have to make some tough calls.

This will be even more critical against a backdrop where tax and spending have rocketed to the top of the political agenda in the competition to be our next Prime Minister.

The outcome of that debate may be more consequential for those we serve than anything we can ever do directly. We need to be ready for that as it plays out in Whitehall and town halls.

We won’t achieve this by spending the next three years, Scrooge-like, scrutinising our books to save odd pennies to survive. Rather, we would be wise to follow his latent advice to “keep our eyes on the Ghost of the Future and fear (her) more than any spectre (we) have seen”.

We have only begun to get a glimpse of the impact of the cost of living on the poorest. It may be hot out there – but an economic winter is coming.

Being able to champion the people and issues who are our very raison d’etre is likely to become more important than ever. Be prepared.