The 2025 Autumn Budget, delivered by Chancellor Rachel Reeves, has prompted a mixed response across the charity sector. While some measures offer practical help for organisations and the communities they support, many of the structural pressures charities face remain unchanged or have intensified.
The result is a Budget that provides pockets of relief but little in the way of long-term stability for a sector already stretched by high demand and constrained resources.
Budget highlights for charities
Higher staffing costs due to NLW increases
Previous increases to employer National Insurance contributions have already reduced margins for charity employers, particularly those running large retail or frontline workforces. Increases to the National Living Wage (NLW) present a further challenge. From April 2026, NLW will increase by 4.1%, and the National Minimum Wage will go up by 8.5% for 18-20-year-olds and 6% for 16 and 17-year-olds. The hourly rate for each will be:
- National Living Wage: £12.71
- National Minimum Wage for 18-20-year-olds: £10.85
- National Minimum Wage for 16 and 17-year-olds: £8.00
While the rise is positive for low-paid workers employed within the sector, it also places strain on staff cost budgets that are already stretched. This may translate into difficult decisions about service levels and staffing structures.
VAT relief on business donations
One of the most significant announcements for charities was the introduction of VAT relief on business donations of goods. From April 2026, businesses that donate items for onward distribution or direct charitable use will no longer be liable for VAT. This is a long-sought change and is expected to encourage more companies to donate surplus goods. For organisations such as food banks, homelessness services, and projects providing refurbished devices or essential household goods, this policy could improve supply and reduce costs. Sector bodies have described this as a clear and meaningful win that supports both environmental and social goals.
Welfare measures that may ease demand
The Budget also included wider welfare reforms, most notably the abolition of the two-child benefit cap, which is likely to lift financial pressure from many low-income families. Although not targeted at charities directly, these measures may help reduce the number of people reaching crisis point, offering some indirect relief to organisations that work at the frontline of poverty, financial hardship, and child welfare.
Fiscal drag – impact on philanthropic giving
The ongoing freeze in income tax thresholds continues to push more earners into higher tax brackets. This phenomenon, known as fiscal drag, reduces disposable income in real terms. Charity sector bodies worry that this may affect individuals’ ability to donate, particularly at a time when many rely on public contributions more than ever. Small, regular donations form a vital stream of unrestricted income for many charities. If households feel financially squeezed, such voluntary giving may decline.
Concerns expressed by sector bodies
Sector bodies have stressed that, although some Budget measures are welcome, they do not address the deeper challenges facing charities. Many organisations report facing a combination of falling real-terms income, rising operational costs and increased demand for services. For those with trading arms, continued uncertainty around business rates adds to operational strain.
While VAT relief on donated goods is helpful, it assists only a portion of the sector and does not compensate for broader financial pressures. Groups, such as the Charity Tax Group and others, have repeatedly called for wider reforms to charity tax rules and administrative burdens. These calls are likely to continue.
Implications on charities’ service users
For the people who rely on charitable support, the Budget’s impacts are similarly mixed. Welfare changes, such as the removal of the two-child benefit cap and NLW increases, may ease hardship for many families. Increased availability of donated goods, supported by the new VAT relief, could also strengthen community-based support.
However, if charities struggle to absorb rising costs and face reductions in donations, they may need to scale back services. This could leave gaps in provision for vulnerable groups who already face multiple disadvantages. Without broader reforms, concerns about the long-term sustainability of the sector and its ability to meet rising need are likely to persist.
