Cost-of-living crisis – priorities for charity trustees
9 February 2024
Much has been written over the last few years regarding the cost-of-living crisis. Given the recent ONS data (showing inflation remained at 4.6% for December) and the Prime Minister’s comments that cost-of-living pressures are “starting to ease”, should we be feeling optimistic that the “cost-of-living crisis” is no longer a crisis? Has the storm been weathered?
Whilst there might be glimmers of hope, many people are still struggling, and charities continue to be under pressure to meet the increasing demand for services and the consequent impact on staff and finances.
In this article, we provide our top tips on what charity trustees should be considering as they seek to balance competing priorities whilst remaining responsive and adaptive to changing circumstances.
1. Know your charity’s purposes
Although this may seem obvious, it is imperative that charity trustees understand the scope of the charitable purposes of their charity and avoid mission drift. It can be tempting in times of crisis to want to adapt services and activities to meet emerging needs, but a charity can only act in furtherance of the charitable purposes for which it is established. So, before making any significant strategic changes, it is critical to check whether what you want to do is within your charitable purposes and if you are in any doubt, seek legal advice.
If what you want to do falls outside your charity’s purposes, consider whether you can change them. New legislation due to be implemented in March will make this easier (and cheaper), but Charity Commission consent in some form is required for any changes to a charity’s purposes, so don’t do anything new until you are sure that you are permitted to do so.
2. Check your charity’s finances
As demand for charity services continues to rise, so too have the costs of delivering those services. With donor incomes squeezed, many charities are in a challenging financial state – as many as half of all charities are thought to be operating at maximum capacity, with many scaling back their activities and using reserves to cover shortfalls.
Charity trustees bear a heavy responsibility for stewarding their charity’s finances. In January 2023, the Charity Commission offered helpful guidance to charity trustees covering a variety of topics, including whether or not charities should consider selling investments and assets, and the potential advantages of merging with other organisations. The key is knowing your charity’s financial position so you can consider your options at the earliest opportunity.
It might be possible to manage short-term shortfall through loans or asset sales, but this is not a long-term solution if your charity’s costs exceed its income. When in this situation, it is important to consider other options, such as collaborating with other charities or organisations, adjusting your approach to fundraising, and unleashing the creativity of existing staff, volunteers and donors to generate funds through currently untapped means (for example, using social media platforms for fundraising challenges or competitions).
If you are not on top of your finances, a short-term difficulty could become a longer-term, existential threat. So, make sure you review your finances regularly (preferably in conjunction with your risk register), check whether you are eligible for any grants or support (e.g. for energy costs), update your budget and cash flows, check whether you can release any permanent endowment or restricted funds (and whether you need Commission consent to do so), look at alternative sources of income and use reserves if necessary. If you think you have arrived at the point at which effective financial stewardship is no longer possible, seek professional help as soon as possible.
3. Safeguard your charity’s people
Recruitment and retention of staff remains a big problem for charities, and as they try to operate a full service with reduced financial resources and reduced staffing levels, there are risks around staff wellbeing that should not be ignored.
Whilst financial pressures might not allow for increased salaries, there are other ways to support staff and alleviate stress and burnout. Creative solutions might be considered, such as extended periods of annual leave, rewarding loyalty (either financially or through annual leave), and providing well-managed training, L&D opportunities and clear pathways for progression. Creating a working environment which is supportive and collaborative, with mentors and buddies, can often provide staff with the release valve they need. There is no one-size-fits-all approach, so research what other charities are doing, try out different things, adopt what works and abandon (quickly!) what doesn’t.
4. Manage your charity’s risks
Charity trustees must also be mindful of their duty to safeguard everyone who comes into contact with the charity (beneficiaries, staff and members of the public), as well as the charity’s assets and reputation.
Charity trustees should be able quickly to identify the risks relevant to their charity, and the easiest way to do this is to maintain a risk register. If you don’t currently have a risk register, the Charity Commission has published helpful examples, which can be used as a template. The risk register should be reviewed and updated on a regular basis, allowing you to plan and adapt your strategy and activities according to changing circumstances.
Even with a robust risk register and risk management plan, there will inevitably be times where difficult decisions must be taken, where there is no obvious correct choice, and it won’t always be possible to mitigate, or even anticipate, every risk. The Charity Commission recognises that sometimes things go wrong despite the best efforts of trustees to act in their charity’s best interests. If you find yourself in that situation, it is important to report serious incidents to the Charity Commission as quickly as possible and take steps to minimise any further harm or loss. Again, it is also important to take professional advice where appropriate.
5. Look after yourself
As the obligations and responsibilities of charity trusteeship have increased, the burdens (mentally and emotionally) of this voluntary role can take a toll. As such, it is important to ensure that you have your own support structure in place. Trustees should share the load and support each other (particularly those new to the role), using all resources available. There are many useful, online resources including the Charity Governance Code, NCVO, Charity Excellence Framework, Getting on Board and, of course, the Charity Commission. You may also find support from trustees in other local charities, or via organisations such as the Association of Chairs. Lastly, do reach out to your professional advisers – they are there to help.
The Birketts view
These are still worrying times. The cost-of-living crisis is a very real issue for many people, and charities are uniquely placed to understand the needs within society and respond quickly. However, this means that they are also often relied upon to provide the required response, despite having inadequate financial resources and/or insufficient support for service delivery. Charities and their staff and volunteers need to be more widely recognised for the value they bring, and charity trustees should be celebrated for the work they do to ensure that their charities continue to function for the benefit of the public.
As charity trustees do their best to lead their charities in responding to the ongoing cost-of-living crisis, despite the challenges they themselves are facing, we will continue to partner with our charity clients, supporting them with whatever they need whether it be a solution to a complex legal issue or simply a listening ear. In the words of that fine philosopher Piglet, “It’s so much more friendly with two” (courtesy of A.A. Milne).
If you would like to discuss your charity’s circumstances with a member of our charities team, please do get in touch. We would love to hear from you.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at February 2024.