Real-terms public spending cuts of £19.1bn and an increase in the National Living Wage could force charities to cut services or eat into their reserves, experts have warned.

This week’s Autumn Statement included no additional spending for public services, despite charity bodies calling for an uplift to public service contracts involving charities. 

The Office for Budget Responsibility forecasts that the lack of uplift will mean real-terms cuts to departmental budgets of £19.1bn by 2028, while the think tank Pro Bono Economics predicted “charity sector income is likely to be £9bn lower than the pre-Covid-19 trend”.

Richard Sagar, head of policy at the Charity Finance Group, said “budgets fixed in cash terms and higher inflation” will eat into the value of public service budgets.

“The Institute for Fiscal Studies, among others, has pointed out that these plans imply making sizeable cuts to unprotected budgets, including local government.

“As a result of this, charities that rely on contracts and grants could see further cuts. At the very least, they are unlikely to see them updated in line with inflation. 

“This is not sustainable, with charities having to eat into reserves to subsidise government contracts.”

Sagar warned that if additional funding is not supplied many charities will be forced to either reduce services or “face risk of closure”.

This formed the basis of an open letter from the NCVO sent to the Chancellor before the statement was read, which called on him to make it mandatory for public bodies to uplift all existing and new grants and contracts.

Sarah Vibert, chief executive of the NCVO, said: “Commissioners know charities will do everything possible, including subsidising public services with charitable funds, to prevent closing their door to someone. But this can’t continue.

“Despite the backing of more than 1,400 charities, our call on the Chancellor to address chronic underfunding of public services was overlooked.

“Not uplifting grants and contracts to cover the true cost of delivering them means some charities will be forced to close or reduce the services they offer, leaving people at risk.”

Jay Kennedy, director of policy and research at the Directory of Social Change, said the Autumn Statement made the already difficult position for charities dealing with the impact of high inflation even worse.

“Local authority and health service budgets have been under huge pressure for years, with enormous knock-on effects on the charity sector," he said.

“In the round, this Autumn Statement looks set to make this situation even worse and it’s likely that more and more charities will have to hand back loss-making contracts in the foreseeable future or risk their own financial sustainability.”

Sagar also told Third Sector that while the increase to the National Living Wage was welcome and would benefit “many people on lower incomes”, it too could have a negative effect on charities.

He said: “The increase means that the operating cost for many charities will increase, and without an additional uplift to grant income to pay for these higher rates, charities will have to use reserves, hand back contracts or cut back elsewhere to pay for these increases.”