An increase in wage costs is threatening charities' ability to deliver vital services, such as health and social care, a report has warned.

The latest VCSE Barometer Survey has found around half of voluntary organisations anticipate negative impacts from changes to the National Living Wage (NLW) and Employers National Insurance Contributions (ERNICs).

Less than half (48%) feel prepared to absorb these increased costs, and one in five (19%) said they were not prepared at all.

Large and medium-sized charities, which employ more staff, appear to be more vulnerable to the policy changes and are anticipating making changes to staffing, overheads and service delivery.

This compares to one in 10 small organisations that expect to make changes.

Of those that are most impacted, over half expect to decrease staff recruitment (59%), while increasing redundancies (55%).

Organisations expecting to make changes to service delivery anticipate an increase in service prices (53%), a reduction in free services (45%) and the overall number of services offered (42%).

“The potential harm these policy changes may cause to organisations is already well understood. However, their unintended consequences for health and social care - undermining the very goals the government aims to achieve - have received far less attention," professor of organisation studies at Nottingham Business School, Daniel King said.

“We are already witnessing the effects of funding cuts on direct service providers, even those who benefit from government grants.

“For example, we’ve seen headlines that Macmillan Cancer Support is facing job cuts at a time when early cancer detection rates are increasing, while redundancies and efficiencies have been announced at Save the Children during a time of increased child poverty.

“The latest Barometer results indicate that adding further financial pressure and uncertainty to essential support organisations will only be counterproductive.”

The Barometer was first launched during the pandemic and aims to temperature-guage the challenges facing the charity sector.

This latest survey highlights income, increasing demand and volunteer recruitment as the top three concerns for charities.

Around three quarters of respondents rated grants from government, trusts and foundations as high to moderate risk.

Professor King added: “The Barometer highlights the ongoing challenges facing the voluntary sector, which is under pressure from all sides.

"The upcoming costs increase risk, exacerbating long-term issues and potentially leaving a critical gap in community support - support that health and social care services depend on. As some respondents warn, this could be the final blow that pushes many organisations past their breaking point.”

You can find the full report here.

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