A briefing paper on the effects of inflation highlights how the rising cost of goods and services seriously erodes the value of charitable donations and the amount charities can do with the same level of income.

For example, the value of a £1,000 donation decreased by 15% between 2000 and 2008 when adjusted for inflation, making it worth £846 in real-terms by 2008.  It means a £1,000 donation made in 2000 would need to increase to £1,154 by 2008 in order to keep pace with inflation.

Published as part of the UK Giving research programme run by the National Council for Voluntary Organisations (NCVO) and Charities Aid Foundation (CAF), the paper points out that as donors tend to give round amounts, it is unlikely that individual donations will keep pace with changes in inflation, and suggests that 'charities may need to nudge donors up to a higher price point, rather than simply trying to keep up with changes in inflation'.

This is also an issue for regular donations such as those made by direct debit or payroll giving, which now account for almost one-third (31%) of the total amount donated. A £50 per month donation started in 2004 would only be worth £47.70 per month by 2006. Again, the report suggests, 'it makes sense for charities to ask donors who give by regular methods to review their giving on an annual basis and to consider incremental increases in the amount given.'

Karl Wilding, head of research at NCVO, says, “Donations from individuals are an incredibly important source of income for the voluntary sector. But with inflation spiking at 3.5% a year it’s easy to see how charities will begin to lose real money.

“Charities can do two things: first, adjust their inflation expectations when planning ahead, and second, begin conversations with supporters that their regular donation might not be worth as much as it was when they first began to help.”

Some charities do just that. Gill Raikes, director of fundraising at the National Trust, says, “Inflation can cause us challenges with our generous donors who give through monthly or annual programmes. However, we communicate with our donors frequently and we assess annual giving levels particularly.  Recently we raised our benefactor level from £500 per year to £1,000 per year to reflect the very special benefits we give to our benefactors.  Our donors were most supportive of this move (and donors who wished to stay at the £500 level are still part of our 'family'). Through regular communication and donor stewardship I hope we can encourage our donors to be alert to the cost of inflation and adapt their gifts – but not all do that and it is a concern for us.”

Caroline Underwood, director of philanthropy and partnerships at Save the Children UK underlines the effect of the inflation on what can be done with the money. “My experience is that donors are often asked for a gift of a round number - many fundraisers have a natural instinct to round up the value of a gift and then spread this over a number of years. But sometimes this masks the real cost of the project which may change over time and be affected by inflation. Donors might like to ask about the cost of the programme or project split on an annual basis and allowing for a sensible amount of inflation over the lifetime of the project."

Underwood also highlights an issue with giving overseas. “It is inspiring how many philanthropists there are in the UK with the vision and humanity to support projects in other countries – including in countries where instability in the local economy is one of the very causes of hardship. However, unexpected fluctuations in the local economy or value of the local currency can mean that the level of the gift is not sufficient to realise the project. We have had a recent example of this with a project to help desperately poor children in West Africa – we went back to the donor and explained the situation and they very generously agreed to bridge the gap to complete the project, understanding that changes in the foreign exchange rates were completely out of our control,” she concludes.

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