Impact of the November 2025 Chancellor’s budget on the UK charity sector

The Autumn Budget of 26 November 2025, delivered by Chancellor Rachel Reeves, was widely viewed by the voluntary sector as a “mixed bag” containing a handful of welcome measures but intensifying many long-running structural pressures. Overall, it offered limited direct support for charities at a time when demand, costs, and financial pressures remain exceptionally high.

Below is a summary of some of the key areas impacting charities

Increase in National Living Wage (NLW) and National Minimum Wage (NMW)

These increases support fair pay but significantly raise payroll costs for labour-intensive charities (social care, retail, community services). Many organisations already struggle to maintain staffing levels, so these changes may lead to:

• Reduced service hours
• Delayed recruitment
• Pressures to raise supervisory pay to maintain internal pay ratios

National Insurance (NI) Threshold Freeze

Income tax and NI thresholds remain frozen, deepening the effects of fiscal drag. Impacts include:

• Higher employment costs, as more employees cross NI thresholds
• Reduced net pay, increasing financial strain on charity workers

Fiscal Drag and Donor Behaviour

The extended freeze on tax thresholds is expected to pull more people into tax-paying or higher tax brackets over the coming years. Consequences for charities include:

• Reduced disposable income for donors
• Potential reduction in regular giving

VAT Relief on Business Donations

One of the most celebrated measures is the introduction of VAT relief on donated goods from businesses (effective 1 April 2026). Impacts include:

• Encourages companies to donate surplus goods
• Reduces costs for charities such as food banks and homelessness services
• Helps divert usable items from landfill

Welfare Reforms and Indirect Relief on Demand

The Budget removes the two-child benefit cap from April 2026, expected to lift a large portion of children out of poverty. Impacts include:

• Could reduce crisis demand for family support charities
• Eases pressure on frontline services addressing poverty, debt, and welfare issues

Funding, Commissioning, and Public Sector Pressures

Local authority budgets remain under long-term strain. Many councils have continued to:

• Reduce grants to voluntary organisations
• Shift cost burdens back onto providers

The Budget continues a broader trend: charities are expected to absorb increasing societal need with limited structural support, requiring resilience, strategic adaptation, and careful financial stewardship.

If you wish to discuss this in further detail, please get in touch with one of our Charities experts here.