Charities’ resilience will be tested this year

Facing a troubled social and economic landscape once again, Nazreen Visram explores what charities need to do to keep delivering for their beneficiaries.

Nazreen Visram

Head of Charities, Barclays Corporate Banking

Looking back at 2022

The charity sector emerged from the pandemic during the first quarter of 2022 in better shape than expected, thanks to government grants and public and donor support.

Fast-forward to the second half of the year and returning optimism dwindled as political instability, the cost-of-living crisis and soaring energy prices hit the UK, and once again charities found themselves under pressure to assist growing numbers of people.

As an indicator of the deteriorating situation, between August and October last year Citizens Advice referred 85% more people for emergency charity support or to food banks than in the same period in 2021, and 133% higher than two years ago.

And the number of people donating to charity fell by nearly four million in November, typically the peak month for giving.

Rising demand, falling income

As 2023 unfolds, charities are in the middle of a perfect storm of growing demand, rising operating costs, and a widely predicted and significant income drop.

Charity Excellence, the research, data and resource hub, warns funding is the sector’s most critical challenge this year and at the same time nine out of ten charities expect greater calls on their services. Pro Bono Economics asserts that in real terms charity funding will fall by £1bn over the current financial year, and by a further £2bn in the following one.

A recent survey by the Charities Aid Foundation (CAF) reveals more than 50% of the UK’s charities are digging into reserves, half fear they won’t survive the cost-of-living crisis, and only 49% think they have enough funds to meet current demand.

CAF points out that, based on experience, smaller charities will be hardest hit by economic stress, but larger organisations will also feel the squeeze as they fill gaps opening up in public services. Inflation is also eating into charities’ reserves.

Mitigating solution

Charities will be looking to maximise their return on any investments, maintain existing donation levels from givers, and diversify their income by establishing new revenue streams. They may need to establish more corporate partnerships and sponsorships, such as the three-year partnership we recently signed with the Trussell Trust to help households facing hardship and hunger to unlock financial support.

I expect to see more smaller charities merging, and an uptick in collaboration between organisations to reduce campaign costs while increasing their potential reach and impact.

We can also expect greater adoption of digital payment options and innovative tech to make it easier and quicker for people to donate. Our report Giving: a new landscape found that more people now want to donate digitally than pay by cash and we have a range of digital payment and technology solutions available to help charities maximise their income this way.

But moving to a more digital environment makes charities increasingly vulnerable to cybercrime. The government’s recent Cyber Security Breaches Report reveals over a quarter of charities suffer a cyber-attack at least once a week.

With criminals evolving ever more sophisticated ways to defraud charities, in the months ahead it’s vital they take steps to beef up their cyber security, and we’re keen to provide advice and support for clients looking to do this.

Rising energy costs and meeting Environmental, Social and Governance (ESG) targets

According to a Pro Bono Economics survey^, energy costs is charities’ third biggest worry for charities after income and inflation (the second biggest for small charities) with 55% digging into cash reserves to pay fuel bills.

The latest Government energy support package will see the Price Cap removed at the end of March for businesses in England, Scotland and Wales, replaced by a new discount mechanism based on wholesale prices. Charities are likely to see an increase in costs and impact on their bottom line.

Whilst investment in longer term solutions may hit charities as an extra cost in the short term, it might also be imperative to look at how they can future-proof their running costs by developing a more sustainable/renewable approach to their energy consumption. With sustainability high on the agenda, it is important that the cost of doing business does not overshadow this important transition.

Supporting sustainability and environmental goals can also attract potential employees – particularly Generation Z and millennials – to join the sector and confirming a sustainable approach to investing and dispensing the charitable funds could removes a potential barrier to giving.

Recruitment and pay challenge

Recruitment and retention will continue to be a major challenge. Charities are having to find the money from stretched financial resources to meet demands for inflation-related pay increases to keep the talent they need to deliver their services and some, like Shelter, have even been facing potential industrial action.

Relying on volunteers to plug staffing gaps isn’t the solution either, given evidence from previous recessions suggests there’s a drop in formal volunteering rates during economic downturns.

The good news is charities that actively embrace diversity, equity and inclusion (DE&I) are more likely to be in a strong position in terms of recruitment and retention.

But while the sector is making progress in DE&I, it still has some way to go. For example, recent survey by ACEVO showed the gender pay gap is widening at all levels and the proportion of charity leaders from Black, Asian and Minority Ethnic backgrounds remains low and static.

A DE&I-focused environment could also make the workplace more attractive. So, charities may want to make DE&I a focus to ensure they reflect the communities they serve, from board and trustee level all the way down.

How we can help

Undoubtedly the next 12 months is going to be very tough for charities but as so many demonstrated during the pandemic, they have the determination, agility and resilience to continue their vital work in adverse conditions.

For our part, we’re proud to be a trusted banking partner to the sector, and where we can, we’ll support charities in the demanding year ahead.

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