State of the Nation - July' 22

What is it?

War in Ukraine, the rapidly rising cost of living, fuel poverty, Inflation skyrocketing, expected food shortages, covid on the return and crypto crashing. You’d be forgiven for looking at that list and choosing to pull the blanket back over your head and waiting things out till 2023.

After 2 years of pandemic lockdowns and uncertainty, many embarked on 2022 with a hope that ‘the roaring twenties’ would finally be upon us. As one speaker at last year’s CIOF conference put it, “A post-pandemic 'feelgood factor' could result in people being more benevolent towards charity.”

And then reality hit. Mass participation sign ups are down, sponsorship is tanking, challenge events, gaming, lottery and community fundraising are all struggling.

According to most economic forecasters, we’ve not yet faced the worst of what’s to come. The cost of living is going to rise further. Inflation is expected to reach 11% this year. Food shortages are going to run well into 2023 and beyond. Covid rates will continue to fluctuate, and who knows what will happen next in Ukraine.

State of the Nation Analysis

Rather than give into the doom, we wanted to take a pragmatic view through the PESTLED lenses. This state of the nation snapshot looks at what’s happening right now - a horizon scan of events and influences we think you need to be aware of, and preparing for. We’ve focused on those national and global drivers of change that we believe will impact the funding environment and fundraising mechanics for the next 2 years.

Alongside our PESTLED analysis, we’ve also surveyed 23 charities for a snapshot of how they’re performing now, and how they’re preparing for further economic uncertainty.

Next week we’ll consider how other sectors are responding to the economic crisis, and what we can learn from how others and the charity sector have innovated their way out of previous recessions and through the long road to recovery.

Our headline for you at the moment is now is not the time to panic. As Sequoia Capital put it in their ‘Adapting to Endure’ report published in May this year, ‘now is the time to pause and reassess’. Whilst national and global events may feel overwhelming, and some previously bankable fundraising channels may be underperforming, our sector snapshot shows a fragile but determined optimism, and a real appetite to invest in innovation now in order to come out stronger in the long run.

Cost of Living

Growth falling - The OECD forecasts UK GDP growth of 3.6% for 2022, down from the 4.7% forecast previously (in December), and 6.9% forecast in 2021. In 2023, GDP growth is forecast to be 0.0%, down from 2.1%.

Inflation - The Bank of England expects inflation to peak at 11% in 2022 and continue to rise more slowly in 2023. The current inflation rate of 9% is the highest since 1982. Britain has the highest inflation in Europe and, in an attempt to counter inflation, the Bank of England have raised interest rates to 1.25%

Fuel poverty - Russia’s invasion of Ukraine escalated the already rising price of energy. It’s estimated that 8.5 million households will enter fuel poverty for the first time this year, and 1.3 million people will be pushed into absolute poverty next year.

Brexit - The Resolution Foundation and academics from the London School of Economics said the average worker in Britain was now on course to suffer more than £470 in lost pay each year by 2030 after rising living costs are taken into account, compared with what would have followed a remain vote in 2016.

Wages - Stalling wage growth and planned tax rises plus a freeze on the personal income tax allowance mean UK household incomes will fall at an average cost to families of £1,200 in 2022, with households facing a £20bn hit to real disposable income over the next 2 years. The average UK wage falls at the fastest rate in two decades.

Covid Debt - On top of rising costs, we’re also facing a debt tsunami as a result of Covid measures. UK general government gross debt was £2,223.0 billion at the end of March 2021, equivalent to 103.7% of gross domestic product (GDP). How the government chooses to manage this debt could have serious long term implications.

Spending - Older groups are more likely to say they’re spending less– 37% of baby boomers say this compared to around 30% of Gen Z and millennials, and across the board consumers are reprioritising their spending.

So what?

For most Millennials, Gen X and Gen Alpha, they’ve lived through an unprecedented period of economic certainty and stability, with historically long periods of low inflation and low interest rates. Households who were previously getting by comfortably; switching providers, managing their budgets, are suddenly in a position where they simply can’t afford to heat their homes and feed their families.

The Bank of England are taking measures to try and curb inflation, whilst Boris Johnson has warned workers against asking for bigger pay rises to prevent a 1970s-style “wage-price spiral” driving inflation higher.

With a further slowdown in the economy predicted in the autumn, the possibility of a recession is on the cards. "Let me be clear - we're expecting the economy to be pretty much stagnant. It won't take much to tip us into a recession, and even if we don't, it will feel like one for too many people.” Tony Danker, CBI director general.

The Impact of Inflation on Charities

Costs will rise, especially for staffing - Price rises will impact the costs of goods and services, which in turn could impact how much charities can deliver within their funding envelopes. The most significant increase could be in salaries. The most recent NCVO Almanac found that staffing costs account for 37% of total charity sector expenditure, or around £20.4bn. To ensure that wages don’t fall in real terms as a result of inflation, they would need to spend an additional £2bn in 2024. [Source: Pro Bono Economics]

Charity income is unlikely to keep up with inflation - The cost-of-living squeeze is already impacting products like cash, lottery and mass participation, and data from previous recessions show that people give less to charity during these periods. Pro Bono Economics also estimates that the real value of the median amount donated or sponsored of £20 in 2020 will fall to £17.20 by 2026, a reduction of 14%.

Services will be in more demand - The most deprived households’ budgets are already under severe stress, driving high demand for charities supporting those living in poverty. A report by the Joseph Rowntree Foundation outlines how inflation is pushing more people deeper into poverty. Trussell Trust has said it’s witnessing an accelerating crisis across the UK as the need for emergency food dramatically increased in the past six months. This follows the £20-a-week cut to Universal Credit and the soaring rise in living costs that people are facing.

Rocky Year Ahead for UK Politics

Whilst Boris Johnson survived the no-confidence vote in June, his trust and approval ratings from the general public are at record lows, with 74% of UK adults viewing him as untrustworthy according to a June YouGov poll. And in the last 24 hours he’s suffered mass resignations from his government. (50+ and counting when going to press). However it appeared that not even party-gate, by-election disasters, sexual misconduct allegations against his own MPs, and repeated instances of being accused of misleading MPs and Parliament could seem to dint Johnson’s self-confidence.

Well, all that changed as of going to press - Boris has resigned, which will trigger a leadership election.

With a summer of 1970s style strikes ahead (teachers, rail workers, post office staff, bus drivers, BT, airline ground crew, barristers, TFL and traffic wardens), plus Nicola Sturgeon’s plans for another Scottish independence referendum in October 2023, and an attempt by the government to change the Brexit agreement in order to protect the Northern Ireland Protocol, the next 18 months look challenging for whomever leads the conservative party. (Government approval rating is currently on a downward trajectory at 21%).

So What? Whatever happens in this political landscape that’s changing by the minute, what we do know is that the infighting and shenanigans are taking time away from debate and action on the pressing issues - cost of living, inflation, war, poverty, healthy, employment and education.

Covid Fatigue

Despite rising covid rates, it’s unlikely the UK will enter another mass lockdown. The government’s Living with Covid strategy, published in February this year, sets out the plan to move away from government restrictions, and towards a system of personal responsibility.

However rising infection rates will continue to contribute to the stress and uncertainty we’ve all lived through for the past two and a bit years. We've only just started to unpack the long term health and social impacts of Covid-19. From the management and treatment of long Covid, to the health implications of long term cortisol exposure, and the social and developmental impact of isolation on childhood development.

At work, staff and volunteer stress has led to a 221% increase in search terms related to burnout. Leadership is fatigued from trying to maintain business strength and team morale for the past 2 years, whilst also pivoting to new ways of working and governance structures.

So what? Whilst we may wish to be able to close the lid on Covid-19, we’re going to have to live with it, and its impacts, for many decades to come. Building resilience into your operations and creating support structures for your teams are critical. Helping the squeezed generation who have been caring for children and parents whilst trying to work full or part time. Prioritising the mental health of your people and teams.

The Return of Cold(ish) War

On 24th February 2022, Russia invaded Ukraine in a major escalation of the Russo-Ukrainian War that began in 2014. The invasion caused Europe's largest refugee crisis since World War II, with more than eight million Ukrainians fleeing the country and over a third of the population displaced.

The invasion and subsequent sanctions against Russia have caused massive disruption to food and fuel supply chains. Ukraine punches far above its weight as a food exporter, contributing 42% of the sunflower oil traded on the global market, 16% of the maize and 9% of the wheat. Whilst Russia is actively throttling the supply of natural gas through Europe in an effort to put pressure on European nations as they attempt to stockpile ahead of winter.

Over 1,000 international businesses and brands have either ceased trading or pulled out of Russia completely, including: Airbnb, McDonalds, Netflix and Spotify.

In response, the Disasters Emergency Committee Ukraine Humanitarian Appeal has raised over £350 million, setting a new Guinness World for the most money raised by an online campaign in one week - £61,997,547 was donated online between 3-10 March 2022.

For some, the geographical proximity of Ukraine has made the urgency of the ask more real, sparking deeper feelings of empathy and personal fear. Whilst for UK-born Gen Z and Gen Alpha this may be their first experience of war within Europe, brought home even more viscerally through a non-stop supply of content from the front line via TokTok. The platform has both given a voice to Ukrainians on the ground, and become a battleground for state-sponsored propaganda and misinformation from both sides of the conflict.

So What? Whilst we have no idea what will happen with the conflict in Ukraine, or what the outcome might be; the implications of missed harvests and sanctions will continue to impact the rising cost of living in the UK well into 2023. There are also concerns that Russia’s relatively unchallenged aggression in Ukraine sets a worrying precedent for China’s views on the sovereignty of Taiwan.

Talent Turbulence

After the Great Resignation of 2021, came the year of burnout and the rise of sabbaticals. However, the truth is the great resignation didn’t start with the pandemic. So what’s driving this talent turbulence?

The pandemic opened up the opportunity, for some, to consider a different way of working. One no longer location-dependent. They were offered a window in which to pursue their dream job, or transition to a different working practice.

1. The pandemic opened up the opportunity, for some, to consider a different way of working. One no longer location-dependent. They were offered a window in which to pursue their dream job, or transition to a different working practice.
2. Even before the pandemic workers were reevaluating their relationship with work; seeking out employers whose values and business practices aligned more with their own. The prioritisation of impact and purpose before pure financial compensation. Gen Z in particular are bringing a fresh perspective and new expectations from what they want from work.
3. Alongside finding employers aligned to their values, people are now prioritising workplaces that offer more flexibility and valued incentives. Out are bean bags and table tennis tables. In are unlimited holidays, parental leave and support for caring responsibilities and fair compensation.
4. The uncertainty created by Brexit negotiations has impacted the talent pools for many industries. On the flip side, 42 countries have introduced digital nomad visas to encourage mid-term stays for remote workers.
5. The third sector has an issue with low pay. The Living Wage Foundation found that 17% of all third sector workers earn less than the real Living Wage, which jumps to 29% of all part-time sector workers, the majority of whom are women.

So what? Everyone is struggling to recruit. Skilled workers have their pick of roles, whilst more junior or unskilled workers are leaving poorly paid industries in favour of more financially lucrative sectors. As corporates start to pick up the pace on purpose and impact, there’s a risk that talent that might once have been drawn to the third sector will be snapped up by corporates who can offer a higher salary and more lucrative overall package.

What’s happening in the charity space?

There are more charities than ever before, competing for a share of wallet, time and audience - The number of charities has grown steadily over the last 10 years, with 170,000 charities now registered in the UK.

Fewer people are giving to charity - The percentage of people in England giving to charity has decreased from 83% in 2013/14 to 63% in 2021. Recent CAF data shows the number of people giving to charity has fallen by five million since 2019. HOWEVER, a survey conducted by Human Appeal claims that one third of donors expect to give more in 2022 despite rising costs. (Note - we would be cautious about the claims in this survey due to sample size).

Those that give are giving proportionally less - The most affluent are giving less of their proportional wealth, and between 2013 and 2019 the average donation given to charity grew by 10% but the UK’s disposable income grew by 25%.

Pandemic giving behaviours haven’t stuck - Research commissioned by the Covid-19 Support Fund published in April 2021 found that an estimated 2.2 million givers intend to reduce the amount they donate post pandemic and 1.6m had already cancelled at least one charity direct debit. Of those still intending to donate, 11% plan to donate to smaller charities in future.

Previously bankable products are struggling - In our survey all products were mentioned as struggling, but lottery, cash, gaming and mass participation were the ones that appear to be hit the hardest.

“We're not hitting forecasted volumes on any of our products. Any products with a cash ask business model are struggling severely. CPAs have increased so much since they were first launched that ROI is taking a hit and we are having to review our ongoing strategy”

“Our offers to new audiences have been hit, which I think is more to do with the cost of living and potential new supporters not wanting to take on another expense.”

Legacy income could be in for a shock - Legacies are currently shoring up in-year fundraising shortfalls, and many people believe that the value of legacies will continue to increase over the next 5 years. However the generational wealth transfer, putting the control on the hands of female Boomers, may impact those forecasts. This group in particular, wants to see the impact of their philanthropy in their lifetime. Not after their death. Combine this changing behaviour with the financial burdens of care and the size and value of estates left to charities could be significantly impacted.

We asked charities ‘how worried are you about the impact of the cost of living crisis on your charity’s performance?’ No one scored less than a 5 out of 10 on the worry scale, with the average coming in at 7/10. Nearly 55% of charities have seen a drop off in some fundraising products, though another quarter aren’t sure yet as there’s not yet enough data available.

Investing in Innovation - We asked how organisations are responding to the crisis. The majority of respondents are keeping a watching brief and not making any changes yet. Whilst a quarter are actively investing in fundraising to come out of the crisis stronger.

Protecting innovation - Some of the challenges we heard were: Balancing the tension between delivering forecast whilst delivering growth and innovation, and shifting from a short term in-year focus, to valuing long-term investment and returns, especially when you don’t have the benchmarks to forecast income projections. How to project innovation and gather support for strategic initiatives when you’re operating in a conservative culture.

Org appetite for innovation - Around 75% of respondents said that the org appetite for innovation should be around investment to build resilience. Only 10% said they expected no focus on new innovation, with the focus being on core and existing products.

Finally, we asked charities ‘What gives you hope?’

“The continued generosity, empathy and love of the British public.”