Pay now, or pay (more) later? How the cost-of-living crisis is squeezing the third sector.

UK inflation remains above 10%. For food and drink, in the 12 months to this February, it was around 18%.

The cost-of-living squeeze continues and, even though it should inevitably calm down in the next few months (because of how inflation is calculated), does anyone really expect the cost of living to get any easier?

Wages are unlikely to rise at the same pace as prices. The Prime Minister has stated that he thinks a sharp rise in pay could fuel more inflation, and he does not want that to happen.

Even if the cost of living stops rising as quickly as it has been, the effects of the past year or two will persist. The bleeding may slow down, but the wound remains.

For charities, this creates its own squeeze.

Income tends to go down. The public is less financially secure, leading to fewer donations. Government finances are stretched, putting statutory grants and commissions under pressure. Other major funders can also see their available spending shrink. And, of course, the effects of inflation come into play directly – every pound received in 2023 is worth a lot less than a pound received two or three or five years ago.

At the same time, demand goes up. People and communities face more hardship, in all aspects of life. Third sector organisations are left trying to do more with less.

That is, quite obviously, a difficult scenario. How is the community and voluntary sector (VCSE) dealing with this?

In the past year, NICVA carried out two surveys of Northern Ireland organisations on this issue, one last July and the other early this year. The findings were published last month.

Findings

Some services have been lost alongside the rise in the cost of living.

One organisation was forced to reduce the number of days they provided oxygen therapy sessions to service users, in a bid to reduce heating and electricity consumption.

Another said they had “reduced and withdrawn services that commissioners were expecting to get for the same price agreed 9-10yrs ago.”

Overall, the findings show that children have been affected the most.

Per NICVA’s report: “Several organisations have been forced to reduce the services they provided to families, children, and young people. In particular, parenting programmes, family support sessions and family advocacy services for parents/carers of children, young people and adults with disabilities/additional needs. Some families have now been placed on waiting lists to gain access to support services…

“An organisation reported a reduction in refreshments provided to children and young people at a drop-in centre. In many cases, this was the only warm evening meal that these children received.”

Third sector organisations exist to provide services to those in need. Reducing services at a time when demand is rising is a double whammy.

But concerns do not end there. Organisations cannot run without stability.

The top three cost-of-living concerns for VCSE Sector organisations reported in 2023 survey were the increasing cost of fuel and energy (78.9%), wellbeing of staff/volunteers (56.5%) and the potential increasing of staff wages (54.3%). Those findings were consistent with the results of the July 2022 survey.

“[Funding] from Government departments/institutions did not increase in line with inflation. Several organisations were struggling with basic running costs, falling memberships and the closure of membership groups due to members not being able to afford the expense of membership.”

Alongside fuel, other inflationary costs identified as concerns by the sector included staff salaries, travel costs, venue costs, food refreshments, insurance and medical equipment.

How are organisations squaring this circle?

Participants said the main methods “used to manage the cost-of-living concerns were ‘using our financial reserves’ (57.9%), ‘sourcing new donors’ (39%), ‘making your premises more energy efficient’ (36%) and ‘increasing charges for services’ (31.6%).”

Other options cited include downsizing office space, turning the heating off, redundancies, requesting management of fees from funders, tendering for additional contracts, trying to increase sales, developing new social enterprises to support costs and only using premises on a part time basis.

Asks and the future

According to NICVA: “VCSE Sector organisations within Northern Ireland are being impacted severely by the cost of living crisis. Organisations are experiencing an increase in expenditure, loss of funding and service reduction despite an increase in demand in some situations.”

What can be done?

With regards to NICVA’s surveys, the top three requests identified by the sector to ease cost-of-living concerns all involve more money:

1. Continued direct financial support to reduce energy costs
2. Continued direct financial support to reduce other running costs
3. Continued direct financial support to reduce wage costs

NICVA is also hosting a series of events around Northern Ireland to allow the third sector to come together and develop more detailed policy requests and share other ideas.

The thing to remember is that good services do important things. They help vulnerable people.

However, many of these services provide great consequential value as well. So, when it comes to asking for more money, it’s not like this means a great pile of cash will go towards charitable provision, never to be seen again.

Instead, many good services can involve spending now in order to save later.

Consider the UK Shared Prosperity Fund (UKSPF). It was billed as a replacement for the European Social Fund (ESF), and some other EU funding streams. In Northern Ireland, the ESF has been the financial bedrock of our employability services. The size of the UKSPF falls far short of the annual value of the ESF, meaning local employability services are going to shrink.

Boosting employability is a huge spend-to-save endeavour. Chancellor Jeremy Hunt said recently that reducing economic inactivity is one of his tentpole aims. That would be great, but how does he expect that to happen without investment?

Childcare is another area where NI could spend to save, but does not. Mental health support? Of course – work on prevention and early intervention can lead to huge savings for the public purse. Physical health? That too.

This is what a reduction in services means. Instead of the virtuous circle and good spend-to-save programmes can build and maintain, we are entrenching a vicious circle.

Save today, spend more tomorrow. This is the dynamic of decay.

Money might be tight. Spending might seem risky – but is it really riskier than stripping services to the bone, and hoping for the best?