UK charities feel post-Covid squeeze as cost of living crisis bites hard

It is a sign of the straightened circumstances in which many people are now living that at the Cedarwood Trust community centre in the north-east England town of North Shields business has never been so brisk.

The number of people using the facility on the Meadow Well housing estate tripled during the Covid-19 pandemic, and the cost of living crisis has inflicted a fresh wave of economic pain on people already struggling to pay food and energy bills.

As a result, the Cedarwood centre is now a lifeline for mums and toddlers using the free early learning centre, or residents subscribing to a “community pantry” stocked with surplus supermarket food. On the day the Financial Times visited there were six new sign-ups alone.

But rising demand for services means rising costs, and charity groups are warning that the voluntary sector is now facing an unprecedented squeeze: rising prices, falling donations and inflation eroding the value of pre-existing grants and contracts — just as demand for their services is skyrocketing.

For a pensioner like 68-year-old Marion, a retired civil servant who looks after a 15-year-old grandchild and has just been notified her energy bills will double from £120 to £240 a month, the pantry’s role cannot be overstated.

“Everything has got so expensive, it’s just ridiculous,” she said after paying £4 to select a fixed number of items. “Every time you go shopping the prices are more and more, some things have doubled. This place is just such a help, it’s a godsend really.”

Wayne Dobson says it will be a battle for Cedarwood to meet the anticipated demand © Ian Forsyth/FT

Cedarwoood’s chief executive Wayne Dobson said that like any business he faced sharply rising costs but unlike for-profit enterprises he cannot pass those increases through to his clients.

Over the past year the monthly bill for ingredients at Cedarwood’s catering academy has risen from £1,000 to £1,500, while electricity costs are up by £300 a month since April. Yet the value of the three-year contract with the local government to deliver those services was fixed in cash terms in 2020.

The financial squeeze at Cedarwood is being experienced across swaths of the voluntary sector, which has expanded rapidly over the past decade: it now employs nearly 1mn people and has a growing role in providing frontline community support.

Inflation is also biting on the real-terms value of charitable grants and direct debits. Calculations by Pro Bono Economics, a charity providing economics expertise to the sector, estimated that a grant of £100,000 in 2021 will be worth £88,100 in 2024.

Donations are also falling. Research for the Charities Aid Foundation, an advisory group, found that 60 per cent of people were planning to cut discretionary spending, with 2mn fewer people donating to charity in February 2022 than the long-run average.

With larger grants now harder to come by and costs predicted to rise further, Dobson, who is already juggling pots to keep his early learning centre going, said that without further intervention it would be a battle for Cedarwood to meet the anticipated demand.

“It will reach a point where we don’t have the funding to support the numbers of people who are demanding our services, and that means people who we save from the brink of crisis, tipping over into full-blown crisis,” he said.

Bistro chef Michael Brown serves roast dinners at the Cedarwood Trust © Ian Forsyth/FT

Lindsey MacDonald, the chief executive of Magic Breakfast, which delivers meals to schoolchildren across the country, said the organisation had doubled the number of schools it served during the pandemic and, depending on resources, expected the number to double again.

“Maintaining our provision is going to be a challenge,” she said, urging the government to commit £75mn to fund breakfasts. “We’ve got multiple pressure points — rising costs of breakfast food, rising staff costs and pressure on workforce which understandably makes it hard for us to compete for talent.”

The cost of living crisis comes at a vulnerable moment for a voluntary sector that had depleted its cash reserves during the pandemic, according to Alex Farrow, networking lead at the National Council for Voluntary Organisations.

A Charity Commission survey found last October that a third of organisations expected to generate less revenue from fundraising during 2022, while nearly two-thirds anticipated “a threat to the charity’s financial viability” in the next year.

The NCVO is urging the government to produce a package of support for charities including deferring value added tax payments, offering match-funding to encourage donations and helping local government increase existing contracts to keep pace with inflation.

“Demand is increasing at a time where charities are facing a decline in income and rising costs. We need to see action to alleviate immediate costs for charities, incentivise public giving, and establish routes to long-term funding,” Farrow said.

The Treasury did not respond to a request for comment.

Across the River Tyne from South Shields at the Gateshead Older People’s Assembly, a community centre for the over-50s that sits in the middle of three of the poorest wards in the country, there are the early signs of a toughening funding environment.

Ukulele players practice at the Gateshead Older People’s Assembly in Gateshead © Ian Forsyth/FT

GOPA recently received an email from a local charitable foundation reluctantly advising that it could no longer provide its annual £15,000 contribution because of a 75 per cent fall in revenue as a result of the Covid-19 pandemic.

The foundation noted that this was a bad moment to be pulling funding, as winning grants had generally become “more competitive” with many having less money to give.

The loss is not existential for GOPA but comes as demand for the centre’s subsidised singing, music and exercise classes has risen by more than 40 per cent since the start of the pandemic, according to chief executive Craig Bankhead.

“We are increasingly applying for grants so that we can make more things free of charge, so that people don’t have to feel they have to cut classes,” he said, adding that GOPA had just opened its own surplus supermarket food scheme.

Fortunately GOPA’s finances are robust, but Clare Mills, director of policy at the Charity Finance Group, which has over 1,400 charities in its membership, warned that a growing number of organisations were at risk after depleting reserves in weathering the Covid-19 storm.

“I don’t think we’ve seen the full adjustment yet,” she said. “Over 40 per cent of charities have no reserves whatsoever, and we know that casualties don’t come at the moment of a financial crisis, but often 12 to 18 months later, when reserves are gone and then people call it a day.”

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