Charities warn of “potential sector meltdown” over cost of living crisis

YMCA, which provides services including housing and mental health support to youth work and food banks, is calling for urgent action from the new leadership as it says the sector “teeters on the brink of collapse”.

An increased demand and high cost pressures including inflation, rising energy bills and falling donations mean charity leaders will need even stronger financial management and ingenuity to survive.

Most significantly, rising energy prices risk compromising the future of some YMCAs, as many of those coming out of fixed price set-ups face eye-watering increases of up to 600%, with one local YMCA citing a potential rise from £680k in 2021-22 to £2.5M. Many fellow sector partners are reporting the same very real issue.

Government help to date sees many charities falling outside the scope of assistance – the government’s proposed energy price caps do not apply to charities, and its £400 domestic rebate is only available to individuals.

Further analysis by by the Charities Aid Foundation (CAF) has also found an increased demand together with a raft of cost pressures due to inflation, falling donations and burnt-out reserves following the pandemic are creating a perfect storm for the sector, with a third worried about their survival.

Alison Taylor, CEO of CAF Bank and Charity Services at CAF says with prices rising faster than they have done for 40 years, communities and families are feeling the effects. “Many more people are relying on charities, including food banks, mental health and disability support, and organisations offering financial guidance.”

Rising bills are also taking their toll across the third sector, with 82% of charity leaders concerned about how they are going to pay their own utility bills, including rent, energy and fuel.

As the growing crisis pushes many more people into poverty, Amanda Tincknell CBE, Cranfield Trust Chief Executive, says the need for charity leaders and managers to do more with less will become more extreme in the coming months.

Meanwhile, wage inflation is making it even more difficult to recruit and retain staff in a sector already struggling to compete with private sector salaries: “There has been a high level of job mobility since the pandemic, and many of Cranfield Trust’s client charities are finding it difficult to fill staff positions and are seeing higher levels of staff turnover. Some long-serving leaders are standing down – they’re close to burnout and deciding to leave before a further high-stress period,” Tincknell says.

However, most charities have less financially available to them; CAF’s research has found that 40% of charities relied on their reserves to help get through the last two years and one in seven regular donors are considering cutting back on donations in the next six months, while one in 10 say they have already chosen not to make a one-off donation. At the same time, inflation means that donations are not worth as much. Pro Bono Economics estimates that a £20 donation in 2021 will be worth £17.60 in 2024.

“Fundraising will be more challenging, with much more competition for funds – fewer people will be able to afford to donate to charities, and public funding will be stretched. The co-ordinated response of many grant-making trusts and foundations to the pandemic has not yet shown signs of recurring in response to the current crisis, and even if there are special funding initiatives, they won’t reach all the charities whose services are vital to people experiencing increasing hardship,” Tincknell says.

YMCA say they have welcomed the news that the new Prime Minister intends to set out plans to further help with rising energy costs within the first week of taking office.

Denise Hatton, Chief Executive of YMCA England & Wales, said: “It is not an exaggeration to say, after having talked with many of my colleagues in the sector, that the current economic situation – particularly the impact of inflation on costs and surging energy prices – has the potential to push many organisations already vulnerable following the impact of the COVID pandemic past breaking point.

However, YMCA strongly urges the Prime Minister to consider the plight of charities and the impact that a collapse in the third sector will have on the many communities they support across the nations, in the package she intends to announce.

“YMCA does acknowledge that some assistance has been put in place, but it is nowhere near adequate, and it does feel from the announcements made so far that the role of the charity sector and its importance in providing key support to communities across the nations is being overlooked and undervalued.

“The new Prime Minister’s package must ensure that any new emergency assistance gives the same support to charities as it does to business and households. It is imperative that any support is sufficient and immediate to ensure that the charity sector, and the millions of people reliant upon it every day, are not left further behind.”