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Nov 84 min read

Implications of the budget for the Third Sector



With the Budget announced last week, we have compiled some of the key announcements for the Third Sector. The budget is characterised by increases in spending, taxes and borrowing. The increase in National Living Wage is welcome however alongside the increase in employer NI contributions, will create challenges for Third Sector organisations already struggling to cover costs.


  • The employer national insurance contribution [NIC] will increase by 1.2%, from 13.8% to 15% from April 2025. The threshold above which employer NIC is paid will be reduced to £5000 from £9100.

  • National Living Wage to rise by 6.7% to £12.21 from April 2025. The National Minimum Wage for 18 to 20-year-olds will rise to £10 per hour, an increase of 16.3%.


This will either squeeze overheads or see organisations having to subsidise additional costs from reserves or other charitable sources. Secondly, this further reduces the differential in pay between roles that are paid National Living Wage, with officer / administrative roles attracting salaries of £23-27,000 per annum. This is unlikely to aid continuing recruitment challenges. The costs of increased employer NICs are likely to be reflected in reduced wage increases over the next couple of years, contributing to continued pressure on overall household income for many employees.


Here is a local example of how these changes will effect this anonymous charity in B&NES:


A local charity has a turnover of £3.8m per annum and employs 142 members of staff. They will see an increase in employer national insurance of £88,000. To cover these additional costs in 2025-26, they will need to either reduce the services they provide, or reduce staff hours or posts.


For small Third Sector providers (less than 10 staff or largely part time staff), there should be little impact, as the Government has raised the employers' NIC allowance from £5,000 to £10,500. This increase in allowance should offset the increased employer NI costs. But for our larger providers, we know that this places extra strain on budgets and the sums are far from small, when you are already managing increased costs across the board and often no contract uplifts.


Locally, 3SG has written to all of the B&NES MPs - Wera Hobhouse, Dan Norris and Anna Sabine, to express our concern and to ask for them to lobby on the Sector's behalf for an exemption. We are also raising this in local authority spaces and with WECA as a key concern.


Other Headlines from the Budget courtesy of NAVCA*:


  • £1Bn for Household Support Fund and Discretionary Housing Payments in 2025-26.

  • Most departments have seen an increase in funding, with a 1.5% real terms increase in revenue funding and a 1.7% increase in capital expenditure across government.

  • 2% in productivity and efficiency savings will be expected across all departments.

  • The overall budget for local government has increased by £1.3Bn primarily through additional funding for social care [£600M], and £230M for homelessness and rough sleeping.

  • There will be a £22.6Bn increase for day-to-day spending for the NHS and an increase of £3.1Bn in the capital budget for 2024-25 and 2025-26.

  • The UK Shared Prosperity Fund [UK SPF] will continue for a further year at a reduced rate of £900M.

  • £240M for pathfinder projects for employment support programmes as part of plans in the Get Britain Working White Paper.

  • Charitable relief for business rates is retained, including for charity shops. There will be 40% relief for retail, hospitality and leisure (RHL) properties from 2026-27, up to a maximum of £110,000.

  • The Department Expenditure Limit [DEL] for DCMS has reduced by £100M from the current financial year to £2.3Bn in 2025-26.



The significant injection of additional day-to-day and capital spending into the NHS is extremely welcome. The change in approach to thinking about health is currently being consulted on via proposals for a Ten Year Plan for the NHS. Moving from hospital to community, sickness to prevention, and from analogue to digital will require a sizeable contribution from the VCSE sector and local infrastructure, which needs to be fully funded and resourced.


The continuation of the Household Support Fund [HSF] and Discretionary Housing Payments [DHP] will alleviate some pressures on the poorest households, and enable many VCSE organisations to provide frontline services for the most vulnerable. It is currently unclear how funding will be allocated between the HSF and DHP, though funding both of these will help relieve potential additional unfunded costs that would have been borne by both the VCSE sector and councils if funding had stopped in April 2025.


The continuation of the UK Shared Prosperity Fund [UK SPF], albeit at a reduced total of £900M for 2025-26, is very welcome. However, the total amount available to local authorities will reduce by £600M from £1.5Bn in 2024-25. This will enable the continuation of important work conducted by many LIOs and VCSE organisations, and prevent a cliff edge in April 2025. However, there will still be cuts in funding given the reduced overall budget, and the future for UK SPF and other Levelling Up funds will not be confirmed until the Spending Review, due to be published in late spring 2025.


Local government has done comparatively well from this budget, although many local authorities will still face significant budgetary pressures. Additional funding for social care, homelessness, HSF, special educational needs [SEND] and UK SPF, will bring some limited relief.


The Office for Budget Responsibility and the Resolution Foundation both suggest that these spending plans are more plausible than previous government spending, which would have seen significant cuts across all departments, but there will be considerable pressure on spending within the forthcoming spending review, due to be published in late spring.




Headlines courtesy of NAVCA (The National Association for Voluntary and Community Action)*


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