The Cost of Living Crisis: has it changed how we act as funders?

Is the UK's cost of living crisis no longer a short-term issue? Was it ever? The crisis officially started in late 2021. A year ago, we interviewed funders to learn more about their changes in approach and understand how the crisis might affect their future grantmaking. This September we got back in touch with those same funders to ask about the ongoing impact of the cost of living on both their organisation and groups they support. Does it still feel like a specific focus of their work, or has the cost of living become part of ’business as usual'?

An evolving crisis, an evolving response

We heard from funders that they remain committed to doing all they can to help grantees and are willing to use more resources to do so. It’s clear that the need is not going away. Of the funders who responded to a survey sent out this summer, 100% said their grantees continued to report rising costs of delivering services, and 9 in 10 reported that staff are burnt out and increased demand from beneficiaries continues to be challenging. One funder we spoke to called attention to a 70% increase in demand for their funding this year compared to last.

It’s been key for funders to understand what is driving demand among the communities they support. Some of the local authorities we spoke to are investing in community development staff who can get out into the community to understand and interpret what’s happening, connect with residents and bring this knowledge back into teams across the council. In one borough, this has resulted in the identification of 30 ‘Equality Opportunity Areas’, where funding will be allocated to neighbourhoods that are at the highest risk of missing out. 

As if financial pressures weren't enough, the lingering threat of new Covid variants adds another layer of uncertainty and anxiety for many in our communities. Those who were encouraged to re-engage socially post-Covid are now less inclined due to financial constraints, exacerbating loneliness and mental health issues. Without those financial protections in place, those who are most vulnerable and in need of the most support could find themselves going through another cycle of this pernicious merry-go-round.

Addressing changing profiles

Several funders interviewed last year highlighted a change in the profile of those requiring support. This continues, but so does the concern that many people may not recognise that they need it, know how to access it or that they are entitled to it. Registered housing providers see this as a genuine concern and challenge. We're talking about a diverse group of Londoners: leaseholders, those in shared ownership schemes, renters, and in-work residents who are just outside the Universal Credit system. Local authorities are beginning to focus on the private rented sector, recognising the ongoing squeeze between increasing energy and food prices on one hand, and increasing rents on the other. One funder highlighted the challenge in making people aware of the help available, without overstepping boundaries.

Funding mechanisms and more flexibility

Several adjustments have been made in the funding landscape to meet growing needs. Last year, some funders increased the maximum threshold for revenue grants and this has continued in places. Others offered uplifts but we know not all have continued with this (just over a third of respondents to our survey continue to offer increases or uplifts to multi-year grants). Some funders we spoke to were concerned about the shrinking pool of funding for some groups who find themselves without opportunities to apply for support. This has seen an increase in more speculative applications. One funder spoke of a fund of £1m receiving applications totalling over £6m. This leads to a drain of resources and high levels of disappointment on both sides.  

Of the funders we spoke to this time around, those who implemented longer-term and larger funding have stuck with this approach. Where more flexibility had been put in place as a result of cost of living pressures (in terms of delivery and outcomes of current grants), this has also been maintained by all of the funders who responded to our survey. They recognise the benefit that this brings to grantees, especially in terms of forward planning and security. However, they also shared that for some organisations it’s not always been an easy transition to longer-term funding – one spoke of a prime candidate for a five-year grant being hesitant to apply, as they’d got so used to delivering in the ‘normal’ cycle of short-term funding. Some organisations will need time to adjust internal strategic thinking, shifts in approaches that teams may need to agree to, and have the resources in place to properly allocate funding over longer periods. Again, flexibility must be front and centre.

Funders also need to adjust to central government approaches to allocation. Two spoke about the recent and unexpected shift from 6-month to 12-month funding from the government’s Household Support Grant. This has had the effect of changing the dynamics of resource allocation and made external funding less reliable.

Collaborative communities

All funders recognised that collaboration is still crucial and goes beyond simply getting together to discuss live issues – important though that is. Funders want to understand each other’s priorities and how these have changed to identify areas that might have slipped off the local agenda but are still essential. This could help ensure that funding remains accessible to a broad range of organisations and help address funding gaps. Based on this, they felt a concerted effort should be made to introduce organisations to alternative funding sources – like a 'clearing' style mechanism where declined applicants could be redirected to more suitable funding options. The participatory model referred to earlier also forms part of this dynamic and even ‘collaborative budgeting’ where decisions on funding allocations are made in consultation with groups based on their respective knowledge and needs. And we need to bring together the local and regional London funders to share that cross-commitment approach.

The future of funding is fluid

Funding priorities have always shifted over time. Many of our members have commented that philanthropy has stepped into a space it would not have seen as its territory previously because of pressures like the cost of living. What might have been a focal point a few years ago could now be considered secondary to some funders but remain a priority to local communities. This dynamic landscape makes it challenging to ensure that no essential services or groups fall through the cracks. Is the cost of living crisis simply another challenge to add to an already long list?

Prevention is absolutely an area that funders in this round of interviews saw as a growing area of focus. Some are proactively allocating resources earmarked for those that will be in need, to those that are not yet but are close to being so.

The longer period of core and unrestricted funding is helping to create what one funder described as a ‘model of trust’ between the VCFSE (voluntary, community, faith and social enterprise) sector and funders. As previously noted, this needs to be viewed alongside the fact that many grantees and groups have made their plans based on current methods of funding. So, whilst it is of course brilliant to see the shift to what those who are funded have long been asking for, there will need to be a degree of flexibility in this too.

What I’ve taken from these conversations is a reminder that the cost of living crisis in the UK is a multifaceted, evolving challenge that tests the resilience of both funding bodies and those they seek to help. Yet, in this collective struggle lies the opportunity for systemic change—change that not only adapts to new realities but anticipates future challenges.

On 25 October, we will bring funders together for our monthly insight meeting to discuss further insights and intelligence on funders' response to the cost of living crisis and how we can support our communities going forward. We will also be joined by Trussell Trust who will share what current levels of need look like in London and what the Government should do next. More details and sign up here.