Effects of the Cost of Living Crisis on Charities

Charity Finances

The chief executive of a UK charity has been quoted as saying earlier this year that she expected soaring prices and falling real household incomes to have a worse effect on the fundraising income of charities than the pandemic. An economic think tank has said that it expects that, due to falling income and inflation, charity income will reduce by billions of pounds in 2022 and subsequently, and that as a result, charities’ reserves will shrink. Operating costs of charities have been rising, and these include, depending on the particular services provided by a charity, its costs of purchasing food, energy for heating and lighting, fuel for travel and delivery of services, and staff pay.

For some charities, it will be impossible to survive this crisis even if they do all they can to make cost savings and other changes. For others, they will survive but will be financially squeezed to an extent that they have never been before. The financial prognosis for charities is not looking good and it appears that for the remainder of 2022 and into the new year, the situation will worsen for charities and their beneficiaries.

Beneficiaries’ Needs

Against that background, however, more people are in need of the type of help that charities have hitherto provided, but will charities be able to cope with that demand? Charities’ beneficiaries are already suffering from the ongoing cost of living crisis, and that suffering is being aggravated by charities’ inability to provide them with the help that they need. The worsening financial pressures on the charity sector on the one hand, and, the increasing needs of existing and potential beneficiaries on the other, has created a perfect storm.

Staff Pay

Staff pay forms a substantial portion of many charities’ total operating costs. It is estimated by the Living Wage Foundation that over 14% of third sector workers are paid less than what it calculates is a “real living wage” (a figure which is higher than the legal minimum wage) but charity staff members need pay rises to keep their heads above water. However, charity pay levels are not rising in line with pay in other sectors simply because charities cannot afford such pay rises. Falling levels of fundraising from donations and events limit or prevent the ability to increase pay, and that means that charity pay levels cannot compete with pay levels offered by those other sectors. The result is that charities face difficulties when recruiting (and trying to retain) staff, and this in turn adversely affects the help that charities are able to offer to beneficiaries.

Trustees and Volunteers

Staff pay is not the only manpower issue: whether or not charities employ paid staff, many charities are dependent on input from volunteers and trustees. Those charities now face greater difficulty not only when recruiting volunteers and trustees but also in trying to retain them, due to the increasing financial pressures that existing and potential volunteers and trustees themselves are experiencing. It may be that this is tending to push actual and potential volunteers and trustees towards finding paid work rather than volunteering their time.

The Issue of Reimbursement of Expenses

A charity might adopt the practice of reimbursing expenses that volunteers and trustees incur on travel between home and the charity’s base as well as travel expenses incurred in the course of volunteering and carrying out trustee duties. If a charity reimburses such costs and expenses, that might help a charity attract and keep volunteers and trustees, but there nevertheless remains a problematic aspect where an individual uses their own vehicle.

A volunteer or trustee who uses their own vehicle might receive an allowance based on the relevant mileage driven by them, and charities, like any other organisations, will adopt a fixed sum per mile allowance that is equal to (or less than) the mileage rate set by HMRC for the purpose. If a charity or other organisation pays any volunteer or trustee at a higher rate than the HMRC rate, however, the excess over the HMRC rate is deemed by HMRC to be income in the hands of the individual receiving the payment and, as a result, subject to income tax. Therefore, in practice, charities will pay a mileage rate equal to the HMRC set rate, no more, no less.

The problem is that the HMRC rate was fixed in April 2012, and it has not yet increased to take account of inflation. (The price of fuel, running costs, insurance, and depreciation are all supposed to be covered by the mileage rate, but those costs have all risen considerably since 2012.)

The consequence for volunteers or trustees is that when they receive payment at that rate, they are not fully compensated for the cost of using their own vehicle. This is not conducive to encouraging individuals to join or stay with the charity, because many cannot afford or are unwilling to be out of pocket as a result of their work for the charity. A group of eleven charities wrote to the Chancellor in July 2022 about this problem, asking him to increase the HMRC mileage rate, and a petition to HM Government to the same effect ran until mid-August 2022. The trade union Unison considers that the rate per mile for use of a car or van should be increased from the present rate (45p per mile) to 59p per mile. At the time of writing, there has been no indication that there will be any movement on the HMRC rate.

Simply-Docs Expenses Document Templates

Amongst Simply-Docs’ numerous charity documents, there are a number of templates which are designed to be used to establish a charity’s policy on the reimbursement of expenses incurred by trustees, volunteers, and employees. They are accompanied by corresponding template expense claim forms. Together, these documents cover the whole range of expenses which a charity might reimburse:

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