It has been reported by the Office for National Statistics (ONS) that inflation hit a high of 5.4% in December and is forecast to continue to rise until at least April, and that such high rates are likely to remain for the next two years. This will mean that costs will be significantly higher than anticipated Charities should be considering the impact this may have on organisational costs, value of donations and investments, and increasing demand for their services.
There are three main ways in which inflation is likely to affect charities:
Charities will see costs rise, especially for staffing:
Wages for charity staff will need to rise by 9% in two years to keep up with the predicted inflation. Salaries will be one of the most notable costs increases, which coinciding with the new national insurance rates increase from April 2022 which could see many charities unable to keep up. If the sector salaries start decreasing this could result in significant staff turnover with many positions left unfilled which can only exacerbate the current resource shortfall.
Charity income is unlikely to keep up with inflation:
Charity income relies largely on donations, grants, and/or reserves. These are three areas that are likely to impacted by inflation. For donations this may simply be that the donation value will not increase too, meaning that the same amount of income will not represent the same value to the charity.
Changes in demand due to the cost-of-living squeeze:
Many charities provide services and support to the most vulnerable in society, who already have an increased need for help following the pandemic. The increased inflation is likely to drive up demand for charity services further. With increased costs, and a lower value of income, it may be difficult to meet these demands.
For charities that rely on consumption from individuals, e.g., museums, theatres etc., they too are likely to experience decreases as people may have less disposal income available to partake.
It is key that those charged with governance of the charity factor in these increases into their planning assumptions as the impact may continue for years. Key areas to consider are changes in demand for services provided, wage negotiations for employees, and revised planning of income targets and delivery.
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