What charities need to know and do about the October budget

Since the UK Labour Government’s budget was announced on 30th October, there has been a wave of concern from across the charity sector over the impact of several announcements to charitable finances. In the past few weeks since, this concern has led to multiple open letters, political advocacy and lobbying, and even fast-moving fundraising appeals to counteract the forthcoming hits to charity budgets

What do I need to know?

The key points coming out of October’s announcements that may adversely charities are as follows:

• The rise in Employer National Insurance Contributions (ERNICs, or NICs)

You know those fiddly add-ons you have to bundle onto the salary costs for your fundraising team? One of those will be your team members’ NICs. From April 2025, that add-on will increase from 13.8% to 15% on any earnings over £5,000 (on average £800 per employee according to the Office for Budget Responsibility).

While some of the smallest charities will be protected by the rise in Employment Allowance (up to £10,500 is now exempt from National Insurance contributions), overall this change will have a significant impact on the cost of staff for charities. In fact, NCVO and ACEVO, in their open letter to the Chancellor signed by 7,361 charities, have estimated this cost to the charitable sector to be a staggering £1.4 billion. In Scotland, the SCVO have estimated the cost for the Scottish voluntary sector to be £75 million.

• The rise in National Living Wage (NLW) and National Minimum Wage (NMW)

The rise in NLW to £12.21 per hour (for all workers aged 21 and over), and to NMW (for all workers aged 18 – 20) from April 2025 will have a second impact on the cost of staff for charities.

For those charities delivering frontline services – hospices, animal shelters, and homelessness shelters to name a few – the impact of this rise is significant. Not least as charities can’t pass on these increased costs onto service users. For those charities with retail arms, there are also major cost implications to these rises, leading to more pressure on securing volunteers to support retail sites.

There are also knock-on effects of this rise in NLW and NMW for other roles. Charities will need to look at the impact on their salary banding and grading structures to make sure the increase in NLW and NMW doesn’t create overlaps with more senior roles, creating a domino effect in salary increases that will further increase the salary budget.

• Changes for private schools

While private schools that are registered charities (around 50% in England) will retain that status, their ability to claim charity business rates relief will be removed from April 2025. They will also need to charge 20% VAT on their fees.

As schools with charitable status navigate how to bridge the gap for these increased costs, those which fundraise will likely need to think creatively. There may be an increased cost burden on parents to cover it, which could reduce their ability to donate to school fundraising.

How has the charity world responded?

October’s announcements have led to many charities speaking out about the impact of these announcements. The open letter drafted by NCVO and ACEVO has been joined by:

• An open letter from the homelessness sector, spearheaded by Homeless Link and signed by 110 charities, estimates that the budget will lead to an estimated £50-60 million loss to homelessness services.
• An open letter from the Voluntary Organisations Disability Group (VODG) signed by 125 organisations cautions that the rise in staffing costs will result in the cutting back of services and staff, as well as forcing stretched charities to hand services back to local authorities.

Hospices UK, the charity representing 200 hospices across the UK have also voiced their concerns given they estimate the hospice sector to already be around £60 million in deficit due to increased staffing costs. The UK Government have responded to this, and report they are looking at options to ease the burden of the budget on the hospice sector; they’ll announce the outcome before Christmas.

Some charities have used messaging in fundraising appeals to directly reference the increased burden of the budget– Dorothy House Hospice raised an incredible £377,000 in just 36 hours to aim to cover their estimated additional cost of £422,000 as a result of the rise in NICs.

What does that mean for fundraising?

Whilst some of the challenges outlined above may present real threats to charities, there are some positives.

• Inheritance tax incentives remain for those leaving gifts in Wills, so this area of fundraising is unaffected.
• Increased funding for local governments could lead to more support for charities working in their local communities.
• The forthcoming Social Investment Vehicle, to be spearheaded by the Chief Secretary of the Treasury with the Department of Media, Culture and Sport (DCMS). Whilst detail on this vehicle is light, it has been announced as a programme bringing together the UK Government, voluntary sector and socially motivated investors to tackle complex social issues by mobilising private capital.

As fundraisers, responding quickly to gaps in our charity’s finances is not a unique demand. Thinking creatively about how this challenge is presented to donors will be an advantage. For example, is this a way to bring to life the value of unrestricted support? Could that make the difference for a high value donor that you’re planning an ask to?

The corporate world is particularly affected by NICs. Are your corporate supporters, or donors that own or run businesses affected? It’s likely they’ll understand and recognise the impacts of these changes, and if so, building on that shared awareness and understanding could be an opportunity here to secure further support.

Could this form the basis of an emergency appeal to your donors, or be incorporated into existing messaging? Using content that people can relate to, especially if they are personally affected by the budget announcements, could help you connect with your target audiences.

Now, more than ever, creative and effective fundraising will be crucial for charities – and we at THINK are here to help however we can – you can get in touch with us here.

Hannah Hyde, THINK Consultant
November 2024

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