The cost-of-living crisis and its impact on charities.

Impact and the strategic challenges facing the non-profit sector.

Challenge 1: Unprecedented Surge in Demand

As high inflation and rising utility, fuel, and food costs squeeze household budgets, more people are turning to charities for essential support.

Area of Increased Demand	Description of Need
Poverty & Financial Aid	Massive increases in people relying on food banks, clothing banks, and seeking financial advice for debt and money management. Many are “just-about-managing” households whose salaries no longer cover basic living costs.
Housing & Homelessness	Rising rents and mortgage costs lead to an increase in evictions, rent arrears, and a greater need for housing and homelessness charities.
Health & Mental Health	Financial stress, anxiety, and depression surge as a result of economic hardship, increasing the need for mental health and well-being support services.
Service Reduction Risk	Charities are forced to make tough decisions, with some reducing the size of their provisions (e.g., cutting a food parcel from a week’s supply to three days) or limiting the range of their services, even as need grows.

While demand is rising, the charity sector’s ability to respond is diminished by internal and external financial pressures.

Individual Donor Drop-off: Facing their own budget pressures, a significant portion of the public has cancelled or reduced their regular donations or plans to do so. Small, community-based charities that rely heavily on household giving are hit the hardest.
Reduced Corporate/Foundation Giving: Businesses and foundations that rely on investment returns for their grants are facing tightened budgets or a real-terms drop in the value of their endowments, potentially leading to smaller or more competitive grants.
Real-Terms Devaluation of Income: The actual purchasing power of donations and grants secured years ago is severely eroded by inflation. A $100,000 grant from last year now buys significantly less in terms of supplies, food, or operational capacity.

Utility Bills: Charities, especially those with physical premises like shelters, hospices, and community centres, are grappling with the same spiralling energy and fuel bills as households and businesses.
Cost of Goods: Non-profits that provide direct aid—like food banks, which must purchase food to supplement donations, or homelessness charities that buy bedding and supplies—face dramatic increases in their procurement costs.
Staffing Costs: To retain skilled staff in a high-inflation environment, charities face pressure to increase wages, adding a significant strain on already tight operational budgets.

To survive and continue delivering their vital missions, charities are adopting strategic measures:

Prioritize Unrestricted Funding: Encouraging corporate and foundation partners to provide unrestricted grants gives charities the flexibility to allocate funds where they are most urgently needed—often for core operational costs like energy or staffing, which are rarely covered by restricted project grants.
Enhance Donor Retention: Focusing on strengthening relationships with existing, loyal donors is more cost-effective than acquiring new ones⁸ This involves transparent communication about the “double whammy” they face and showing the tangible impact of every donation.
Diversify Revenue Streams: Exploring new income sources, such as payroll giving schemes, corporate partnerships, digital fundraising, and leveraging non-cash assets like stock or cryptocurrency donations.
Collaborate and Consolidate: Working with other charities to share resources, office space, or procurement deals to achieve economies of scale and reduce operational overheads.