Inflation and foundations

15 July 2022

Fed by pent up demand and bottlenecks in supply, and then with further dislocation caused by the Russian invasion of Ukraine, inflation seems set to be with us for some time yet.

We’re working out how we can help foundations respond to this with an event on 16 August to discuss what inflation means for foundations and this survey for members. 

This blog covers some of the consequences for foundations to think about in terms of the impact of inflation on people and communities, on grantees and on foundations themselves. 

But first some context. The Bank of England expects CPI inflation to be over 9% during the next few months and to rise to slightly above 11% in October. Their expectation is that inflation remains high well into 2023, with the economy either going into recession or facing zero growth. 

Inflation’s impact on people

The Government’s £37bn package of support for consumers on energy bills is estimated by the Resolution Foundation to “in effect offset 82% of the rise in households’ energy costs in 2022-23, rising to over 90% for poorer households”. Former Chancellor Rishi Sunak chose to provide support as one-off payments rather than in uprating benefits, which have fallen in real terms now for many years. 

Food prices are also rising fast. One industry report suggests that annual food inflation will peak at 15% this summer, with the average household paying almost £400 more for food this year than last. The stalemate in Ukraine and disruption to its food production and distribution could mean still higher costs and for much longer. 

Low income households face higher inflation. 

  • The Resolution Foundation say that the lowest-income households are facing inflation rates at least 1.5 percentage points higher than the highest-income households, because of rising energy costs (though low income householder gain most from the package of support)
  • A third of adults are cutting spending on essential items
  • Those on fixed incomes (eg benefits if not uprated) or employees in sectors where bargaining power is low are particularly likely to struggle. Lower income households also dipped into their savings to manage during Covid-19, whereas higher income households built up savings as discretionary spending opportunities were limited
  • The Joseph Rowntree Foundation report that arrears on all personal debt among low-income householders have more than doubled from £1.8bn to £3.8bn since October last year.

Inflation and grants

Inflation also obviously affects the value of grants, as it eats into what can be bought with the money over time as wages and other costs rise. IVAR have pulled together some ideas from their Open and Trusting community of funders on what can be done to support grantees.

Foundations might also draw on approaches taken to support grantees during Covid-19, for instance new grant programmes, increased funding, closer collaboration with other funders and greater flexibility with grantees.

However, after two years of additional spending and pressure from Covid-19, foundations also have a challenge in continuing to match financial and staff resource to growing demand for help. Many are also looking to use this period to consider their strategic approach rather than continue more of an emergency response to what’s going on around them. 

Impact on foundations’ costs and investments

The third area is the pressure on foundations themselves, though as relatively light organisations and often with sizeable endowments, this is probably manageable for most. But we’re keen to hear on this too, as part of our survey. We haven’t included investments in this piece of work at the moment. 

Inflation will also affect the ability of investments to generate returns that allow an endowed foundation’s ability to maintain its grant giving but, while inflation is likely to remain high well into 2023, forecasts do generally see inflation rates falling again from the end of 2023. Inflation also brings greater risks to the economy, and measures to counter it could see economies slip into recession, potentially affecting asset values.

Finally, ACEVO have brought some useful resources together here which are worth a look.

Don’t forget you can book a place at our event to discuss this with other foundations. 

And add your thoughts to our survey