Winter woes: The outlook for charities after the Autumn Statement 2022 In the foothills of a recession, with inflation spiralling, and with a mess to clean up from the previous government’s tumultuous tenure, the Chancellor warned of storm clouds overhead as he delivered his Autumn Statement today. He responded with substantial tax rises, public spending constraint with boosts for education and the NHS, extra money to help with energy bills, and some important commitments to support many of those on benefits. A grim winter ahead for charities serving the vulnerable From food banks to health charities, tutoring organisations to homelessness services, many charities have already sounded the alarm about high levels of demand, with the cost of living and backlogs in public services both acting as significant drivers. Between August and October, the number of people that Citizens Advice referred for emergency charity support or to food banks, for example, was 85% higher than in the same period in 2021, and 133% higher than two years ago. This demand is likely to continue spiralling over the winter. The Chancellor has taken some crucial steps to bolster the incomes of the most disadvantaged, having committed to uprating both working-age and pension benefits in line with inflation, and making additional payments of £900 to households on means-tested benefits, £300 to pensioners on pension credit and £150 to those on disability benefits. However, as the uprating doesn’t kick in until April and the payment eligibility and timelines are still unconfirmed, charities serving those populations will be expecting sustained pressure as winter progresses. And even once that support kicks in, many households will still be struggling and in need of charitable support next year. Prices will continue to rise throughout 2023 as although inflation will fall from its current rate, it is still expected to be far higher than normal at 7.4% next year. Wages will rise, but not enough to keep up with prices; real wages are expected to fall 2.2% in 2023. And some people will lose their jobs, with unemployment forecast to rise by over 500,000. Overall, living standards are expected to fall by 7% - wiping out the improvements of the last eight years altogether. As the chart below shows, by the start of 2024 incomes will be lower than they were 10 years before, a stark contrast to the pre-financial crisis state of affairs, during which decade-on-decade income growth averaged 29%. The resources charities have to manage this demand will be dangerously stretched In addition to working to meet the rising demand that these challenging economic circumstances create, charities will be managing the dual threat of increasing costs and suppressed income growth within their own organisations. The need to ensure sufficient pay rises for staff will be one of those major cost pressures. On average, charities spend over 40p in every £1 on staffing costs. Based on the OBR’s expectations, were the sector’s expenditure on staffing costs to keep up with inflation, the sector would need to find an additional £3.8 billion by 2023 and £4.8bn by 2024, compared to 2019/20. Income, meanwhile, will struggle as a result of people having less money in their pockets to donate, and donations will be devalued as a result of inflation. Taking into account rising costs, government spending plans and household finances, we have analysed the new data from the OBR and estimate that charity income will rise by around £1bn in cash terms during 2023-24 (1.6%), but if costs rise in line with broader inflation then the real value of that income for the charity sector will decline by £2.2bn over that time period. This is roughly a 4% real terms decline from the expected level for 2022/23. There are already some indications of that having an effect: nearly one in ten people (9%) said that in September they held back from donating as a result of the cost of living crisis, and 6% said they had reduced or stopped a regular payment to charity because of increased living costs. Government spending levels can’t be counted on Different parts of the charity sector will experience these pressures differently. The Chancellor’s plans for public spending are less severe than expected, with spending cuts delayed until 2024-25 and significant real terms budget increases earmarked for the NHS, social care and education next year. This should go some way towards protecting the incomes of charities which deliver commissioned health and care services and support around schools. It may also ensure that capacity in these public services to engage with the benefits that charities can provide does not diminish substantially. However, charities which currently receive a substantial amount of their funding from government should still regard this as a risk, as pressures on public spending will not be lifting any time soon. This year, the amount that government spends on debt interest will double in cash terms. As the Treasury notes, “...if debt interest spending were a government department, its departmental budget would be second only to the Department for Health and Social Care.” Charities focused on employment and training, non-profit playgroups and nurseries, and law and advocacy charities are particularly exposed to this risk, as government income makes up such a significant proportion of their income. Volunteer recruitment may not be a reliable way to meet rising demand in a recession With all these challenging forces at work in the economy, the OBR confirmed today that the UK is in a recession. That recession is expected to last just over a year – until Q3 next year. Evidence from previous recessions suggests that the charity sector can experience a ‘social recession’ when a financial one occurs, where volunteering rates fall. This creates an additional difficulty in meeting demand. Between 2008 and 2011, formal volunteering – or regular volunteering that takes place within established groups, clubs and non-profit organisations – sharply declined by around 6%, while the proportion of people providing informal help – like helping a neighbour with the shopping - fell by around 12% in the space of around two years. This played out more substantially in disadvantaged communities: in the least disadvantaged quartile of communities, rates of volunteering for organisations barely registered the recession at all, remaining remarkably stable. However, in the most disadvantaged quartile of communities, volunteering in organisations declined by nearly 7%. A similar pattern emerged for informal helping. If volunteering rates are affected by this recession, it will come on the heels of a tumultuous period in volunteering. While the pandemic led to a 5 percentage point rise in informal volunteering rates, it prompted a comparable fall in formal volunteering. Many charities have not yet had the chance to recover from this blow to their volunteering pool, and it is one of the factors affecting their ability to meet demand. A social recession would exacerbate this. There is light at the end of the tunnel All this means that there is a tough time ahead. However, the government has done a lot to blunt the pain. Without the Energy Price Guarantee and cost of living payments protecting the population, the record drop in household disposable income projected by the OBR to land this year would have been twice as bad. And the challenges are not expected to last forever. Inflation - which the Chancellor today branded as “the enemy” – may peak this quarter, falling over the years following this one, and finally stabilising at its 2% target in 2027. The rise in unemployment is also expected to fall back to its estimated structural rate of 4.1% by that same year. There are also opportunities to shape what the government is doing. The government announced a new review into the levels of inactivity in the labour market, which many employment charities can contribute much to. And a new Energy Efficiency Taskforce has been promised, which charities should seek to be part of to ensure that the sector is included in plans to reduce energy usage going forward. Finally, there is also still the potential of further support for the sector. December will bring the three-month review into the energy bills relief provided to businesses, charities and public services, and the newly-published Terms of Reference for the review promises that government will consider sectors’ ability to absorb costs and improve energy efficiency. Charities still have a chance to influence that review’s findings by responding to the State of the Social Sector Survey before Monday 21 November. The challenging economic circumstances the country faces over the coming two years are significant. Charities will be crucial players in helping much of society face into those challenges and overcome them. The sector does so from a difficult position post-pandemic, and it will experience high levels of demand and falling income in real terms. A stormy period for sure, but one which the sector will – as ever – navigate. It will take the country along with it, and we should be ready to give it the scope to help mould the shape of country that emerges on the other side.