Cost of living crisis: Charities face tougher times than the Covid pandemic and 2008 financial crash – Alex Fleming

We are all used to politicians and economists telling us why things have gone wrong after the event, but few of us could complain about a lack of warning of troubles ahead this winter.

Those who are old enough will remember power blackouts of the 1970s but we may have to go back as far as the war for a more accurate comparison of the privations that lie in wait.

The Government can, and we hope will, do what it can to shield the poorest from the worst effects of inflation and rampant fuel price hikes and the recently announced cap on energy bills is a good first step.

But even that may not be enough to protect the most vulnerable members of society – the old, the sick, the disabled, the unemployed and poorly paid. That job, to reach those groups in our communities that the public and private sectors can’t or won’t, will inevitably fall to charities.

Spark, in line with other third-sector organisations is doing what it can to support and ease the financial burdens on our communities. Just as the sector was quick to respond to the challenges placed on disadvantaged groups by Covid, we will face this next, perhaps, graver, test head on.

To give us a fighting chance however, we need to rethink the way charities are funded, to ensure we can continue to provide services that are essential for millions of people.

Even before the nights draw in and the dreaded brown envelopes start hitting hall carpets, we are already in the midst of a cost-of-living crisis that is forcing many people to chose between eating and heating.

A recent study by St James's Place, a financial planning company, showed almost half of UK adults said they feel more anxious and worried than they did last year while around one in five reported suffering from financial-related stress.

Charities face rising costs and falling donations as a result of high inflation and soaring energy prices (Picture: Clive Gee/PA)

Charities too are feeling the pressures and the pinch. Rising inflation and energy bills and falling donations are placing heavier financial pressures on charities at a time when demand for our services is increasing, requiring us to be more creative and resourceful to make ends meet.

Even standing still is not an option because, with prices rising faster than at any time in the past 40 years, existing revenue streams are worth less than they were this time last year.

Added to that, many charities have chronically depleted reserves following the pandemic, which have combined to create a perfect storm of misery for the third sector.

Alison Taylor, chief executive of bank and charity services at the Charities Aid Foundation, recently warned that four in every five charity leaders are concerned about how they are going to pay their own domestic utility bills – including rent, energy, and fuel – let alone help those whom they are supposed to be looking after.

Unlike private companies, they can’t pass on higher costs to their customers or look to grow their business, borrow or dig into their reserves to cope.

There is a bitter irony that while the state relies on charities to catch those who fall through the gaps in the welfare state – at Spark we are a referral service of last resort for GPs, care services, day centres and occupational therapists – and yet we are increasingly denied the resources to cope.

So, what can be done to ensure we are properly equipped to survive in what will be a time of unprecedented demand?

There are some measures that can be taken by charities themselves and their supporters and stakeholders.

Current rules around Gift Aid help charities to increase the value of donations. Making improvements to the process could help to deliver desperately needed cash and ensure that more of the £500 million of Gift Aid tax relief currently left unclaimed is taken up by charities.

Donors could provide more unrestricted funding, which is not tied to a particular campaign, so that charities can decide where to invest their funds. Larger donors, including corporates and high-net-worth individuals, could consider committing top-ups to account for inflation.

The first thing the government could do is to include charity-owned buildings and facilities among those which will benefit from the energy price cap. This would ensure that organisations like Spark will be able to plan ahead for the coming months with some measure of financial certainty and keep our doors open through the winter months, offering warmth and sanctuary to those unable to heat their homes.

Similarly, any support packages or tax adjustments for the private sector should be extended to the charity sector.

There are some specific tax measures the government could introduce immediately to benefit the third sector.

To help address the decline in donations, ministers could raise the Gift Aid rate to 30 per cent temporarily. Another potential measure would be introduce a ‘domestic reverse charge’, allowing charities to self-account for VAT at five per cent if they are VAT registered, with a rebate scheme introduced, similar to a scheme that already exists for churches.

With petrol and diesel prices at an all-time high, ministers could raise tax-free mileage for charity workers to adjust for inflation.

We are not asking for charities to be given a free pass or made a special case. In many instances, they would simply redress tax policies that are outdated and anachronistic.

Charities have already weathered two adverse generational events in the past 14 years – the financial crash of 2008 and the pandemic – both of which led to a fall in donations and came close to decimating the sector.

Rising fuel prices and creeping inflation, added to a cost-of-living crisis, will certainly eclipse those in terms of severity and now is the time to act. The government will not be able to say that it wasn’t warned.

Alex Fleming is operations manager of Livingston-based social enterprise Spark, which provides a range of work and social-based services to the community