Following the Spring Statement from the Chancellor, Pro Bono Economics has released its same-day analysis, looking at the challenges that lie ahead for households accessing charities’ services, estimating the impact on charity finances and the sector’s ability to meet increasing need.

The analysis shows that:

• With real disposable income set to drop by an average of £488 per person in 2022-23 compared with this year, demand for charity services will rise. Even before the rate of inflation began to increase, 55% of charities were reporting an increase in demand, with over a quarter saying demand had gone up by more than 25%.  
• Today’s figures lead us to estimate a drop in real charity income of 3% from 2021 to 2022, or approximately £2 billion. Based on a pre-pandemic association between real household disposable income and real charity income, we expect to see a nearly £5bn shortfall in charity income compared to what we expected from 2019 forecasts.

The expected increase in inflation to 8.7% by the end of this year will directly impact charities’ finances, reducing the value of donations and grants already committed, as well as increasing costs and impacting reserves.

A £20 donation in 2021 will be worth £17.60 in 2024 according to forecasts, while a grant of £100,000 in 2021 will be worth £88,100 by 2024. With many charity contracts and grants operating multi-year and CAF estimating that 36% of donations to charity are made through fixed direct debits and standing orders, this will very rapidly become an issue for charities.

This decrease in the value of donations needs to be seen in the context of escalating staffing and operating costs. Pro Bono Economics now estimates that for charities to ensure wages do not fall in real terms because of inflation, they would need to spend an additional £3.3bn in 2024.

This second wave of challenges for the charity sector comes directly on the heels of the pandemic, where one in four charities experienced a drop in their income of greater than 40%.

Matt Whittaker, CEO at Pro Bono Economics, said:

“Financial pressures and employee burnout were already major concerns for the UK's charities ahead of the latest squeeze on living standards. Many charities found their funding hit hard over the course of the pandemic, and we estimate that the sector's total income may now drop by another £1.9bn in 2022.

“It is imperative policymakers are alive to this predicament and act to remove the barriers preventing charities supporting people in most need. As government looks to improve the skills, innovation and strength of the private sector, it should be looking to do the same for charities. Doing so is crucial, particularly in the areas of the country where charities are weakest. By strengthening and deepening its relationship with charities, government would also be in a much stronger position to make a difference to the most vulnerable families.

“Meanwhile, those who have benefited from today’s measures and an increase in savings over the pandemic are a particularly important target for charity fundraisers. In difficult times, generosity from the wealthiest can make an enormous difference to others, as we have seen with the outpouring of good will in response to appeals concerning the war in Ukraine.”

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