What does the Autumn Budget mean for the charity sector?

The Autumn Budget was the first for Keir Starmer’s new government and the first by a Labour government in 14 years. In this piece, we will take a look at the key announcements and what they mean for the charity sector in the coming months and years.

We will ultimately conclude that, although there are positive long-term signs, the Autumn Budget is a challenging one for UK charities and rising costs will cause significant pressure in the short term.

1.   High costs are here to stay

A clear takeaway from the Budget is that the high costs of recent years are not going away anytime soon. Charities have been battling these for a while – with the cost-of-living crisis and war in Ukraine driving up energy and everyday costs. These announcements made by Rachel Reeves confirm that the end is not yet in sight.

In fact, the Budget will increase the operational costs for charities over the short-term. Titled ‘Fixing the Foundations to Deliver Change’, the Budget will aim to address the alleged ‘blackhole’ in the public finances, with headline policies centring on raising tax and recouping money for public services.

This will impact the charity sector and the most notable policies are:

• An employer National Insurance increase from 13.8% to 15%
• Threshold reduction for when an employer starts paying NI on an employee’s salary, from £9,100 to £5,000
• Living Wage to increase to £12.21 per hour (6.7% rise)
• Apprentice minimum wage to increase to £7.55 per hour

These changes are some of the single largest tax-raising measures in British history, with the increased employer NI contributions projected to raise £20 billion in tax revenue.

Given their scale, it is inevitable that charities will feel the impact of these changes and Clare Reddington, CEO of Watershed in Bristol, says salary increases at the arts venue due to the budget for “this year and next… is the equivalent of 76% of our annual public funding from ACE. This factors in cost of living and today’s NI rise only – not utilities etc which have also increased by over 21% since 2021.”

It is important to note that there are measures in place to mitigate the impact of these increases, including an increase of the Employment Allowance (open to employers with NI liability of less than £100,000) from £5,000 to £10,500. Organisations of any size can also now claim for Employment Allowance, a measure which could support organisations that come into financial difficulty because of the rise.

Nevertheless, NCVO estimates that the rising cost of employer NI will cost the charity sector £1.4 billion per year alone and The Office for Budget Responsibility predicts the average employer will pay an increase of more than £26,000 each year (equating to £800 per employee) when the changes come into effect in April 2025.

Lower levels of tax relief

Alongside increased operational costs, the Budget also revealed that business rates relief, introduced during the pandemic to protect cultural organisations, will be renewed but decreased from 75% to 40%. According to the CEO of Music Venue Trust, Mark Davyd, this decrease puts 350 grassroots music venues “at immediate risk of closure”.

2.   High costs won’t (immediately) be matched with high investment

In the face of rising costs, charities might hope for increased support in the way of government funding and investment.

However, in the short-term, this does not look likely to materialise.

Indeed, the Budget announced the following measures:

• A 2.5% real terms, decrease in day-to-day DCMS spend.
• The winding down of the UK Shared Prosperity Fund (UKSPF).
• A pause on Levelling Up funding.
  • £100 million had originally been allocated for cultural organisations in need of investment but this is now on hold and pending review.

With local government funding – which remains the biggest single funder for arts and culture – down 29% in Scotland, 40% in Wales and 48% in England since 2009/10, the winding down and pausing of these funding sources will be keenly felt.

This is especially true given that many organisations were already reporting that public grants and contracts were failing to cover delivery costs before the announced tax rises.

In light of these changes, charities will need to keep working hard to secure funding in a competitive landscape.

3.   A challenging landscape for fundraising

Corporate fundraising

It is not just the charity sector that will be hit hard by raising taxation, with businesses across the country expecting to feel the effect. Coupled with increases to the National Living Wage and business rates, these increased costs could reduce the appetite for sponsorship of charitable organisations.

Indeed, the British Retail Consortium (BRC) predicts that retailers will pay an additional £2.3 billion in National Insurance, £376 million on the minimum wage and £140 million on business rates, highlighting the scale of the changes.

Individual giving

Increased costs for employers could also have a considerable impact on individual giving, with businesses potentially slowing wage growth and hiring whilst they get to grips with higher operational and staff costs. This could lead to stagnant wage growth over the coming months, impacting charitable giving, as households may seek to act more conservatively to make their money go further.

The wealthiest in society will also face increased taxes, something which may impact the generosity of major donors. These taxes include:

• Increased stamp duty for second homes
• Air passenger duty
• Abolition of the non-domicile tax status

Legacy fundraising

From a fundraising perspective, some commentators see the Budget as bringing positive changes. An increase in capital gains tax from April 2025 and the maintenance of tax relief for charitable giving – which sees inheritance tax liability fall from 40% to 36% when an individual bequeaths 10% or more of their net estate to charity – has led some to believe there may be an uptick in legacy giving as individuals make charitable donations to mitigate the tax impact on their estate.

This could bring much needed funding to the sector, although other commentators are more sceptical and Charity Finance Group warns that the impact of changes relating to inheritance tax “will be marginal at best”.

In summary, charities will continue to face a challenging fundraising landscape and will need to think carefully about how they convey the importance and value of their work to potential donors.

4.   Cause for optimism? A look to the future

Whilst the immediate challenges are significant, the Autumn Budget did bring some reasons to be optimistic, with policies showing a clear intention to invest in the future and support the sector. The Budget has made provision for maintaining research and development budgets and pledges to invest in programmes to upskill and support the sector.

Key policies here are:

• £2.3 billion in additional funding for core school budgets for 2025-26
• 2% rise in core local government funding – this could begin to tackle the chronic underfunding of local government in recent years
• Continued tax relief for the creative industries – predicted to provide £15 billion of support over the next five years.
• A Regional Growth Strategy – details to be announced.
• A DCMS-led Social Investment vehicle.

As such, whilst the headlines from the Budget are rightly focussed on the increased costs charities will face, these policies offer hope for the future and demonstrate a commitment to the sector from the government.

5.   Final thoughts

Whilst there are positive signs of investment and a desire to work more closely with the charity sector over the long-term, the headlines from the Autumn Budget are challenging ones for the sector.

Charities will need to work hard to contend with rising operational costs and will do so without the immediate support of increased investment and funding. For many charities, this will pose significant problems and it is essential that, in the coming months and years, support is there for charities that need it.

6.   Looking for more information?

To read more about the Budget and what it means for the charity sector, see below:

• Read the Autumn Budget in full here
• NCVO’s Budget breakdown
• Campaign for the Arts’ Budget breakdown
• Civil Society Budget reaction
• Employers reaction to the Budget
• Budget reaction: Regional museums in crisis, music venues at risk
• Coverage of the Levelling Up funding pause
• Peers call for clarity on ‘elephant trap’ Autumn Budget for the arts
• NCVO’s open letter to the Chancellor
• What is Employment Allowance?