Chancellor, Rachel Reeves, released her Autumn Budget on 30 October 2024. Amongst her key mantras were ‘rebuilding Britain’ and ‘fixing the foundations’ of public finances, whilst avoiding austerity.
Charities and civil society organisations did not feature significantly in the Budget, but some of Ms Reeves’ announcements will certainly affect the sector.
One key announcement is that a social impact investment vehicle would be established, where the Chief Secretary of the Treasury would work with the Department for Culture, Media and Sport. Its aim is to bring together the voluntary sector, philanthropist investors and the government to tackle complex social problems.
Notably, the Chancellor announced that there will no longer be ‘biannual fiscal events,’ meaning the Spring Budget will contain no tax changes. The government believes that this will cultivate a more stable economic environment.
The reception from charities to the Budget has been mixed, with some pleased by its focus on investing in public services but concerned by how its contents will increase the operational strain on their organisations.
Here is a summary of some of the relevant changes…
The headlines
The Chancellor announced there will be…
- £1 billion dedicated to extending the Household Support Fund and hardship payments, which allows people struggling with essential cost, such as energy and water bills and food, to seek help from their local councils
- £1 billion to support children with special educational needs and disabilities
- £500 million increase to the Affordable Housing Programme, raising its total budget to £3.1 billion
- £30 million more funding for free breakfast clubs
- £26 million investment in health crisis centres
- £233 million to prevent homelessness
Minimum wage
Legal minimum wage for over-21s to rise from £11.44 to £12.21 per hour from April 2025.
The rate for 18–20-year-olds will increase also to £10 per hour, where a standardised minimum wage will be applicable to all adults in the future.
Whilst a fairer wage will help some charity beneficiaries, this measure will also increase the costs of employment for charitable organisations themselves, who were already feeling the pinch over recent years.
National Insurance
From April 2025, businesses will have to pay NI on workers’ earnings above £5,000 (currently £9,100), with the rate increasing from 13.8% to 15%.
However, the employment allowance will increase from £5,000 to £10,500, which allows certain organisations to reduce the NI liability, which may soften the blow. The threshold for claiming this allowance has been removed.
Alongside the minimum wage increase, employers’ NI contributions will contribute to higher costs. Some are concerned that these new strains on businesses (and other organisations) will lead to a reduction in employment and therefore less funding and higher demand.
Charities will have to balance their own budgets and effectively manage their resources, whilst continuing to support their beneficiaries.
Over 1,000 charities, including the NCVO and ACEVO, published an open letter to the Chancellor, expressing their worries about how this change to employers’ NI will impact the voluntary sector.
Local government
The funding for local government will increase 10% (in line with inflation), with at least £600 million committed to new funding for social care.
Local government has a vital role in delivering public services, in partnership with charities, who receive grants and contracts to help those most in need. Therefore, there’s hope that stimulating this area will decrease demand on the voluntary sector.
However, it’s worth noting that this increase in funding comes alongside the greater financial demands of employment from higher wages and NI.
Private schools
It has been confirmed that private school fees will subject to VAT from January 2025. The business rates relief will also be removed from April 2025.
However, private schools that ‘wholly or mainly’ provide full-time education to pupils with special educational needs or disabilities (and have an Education, Health and Care Plan) will be compensated for their VAT charge and will remain eligible for the business rate relief.
Tax legislation
From April 2026, new legislation will be introduced to prevent the abuse of charity tax rules. These will ensure that:
- Charitable investment rules are not misused
- Filing and payment obligations are met
- Donors do not obtain any financial benefit from their contributions
- Non-charitable expenditure rules are clearer
The vast majority of charities and civil society organisations will already be meeting these requirements, so this new system of compliance should hopefully simplify the process, whilst also making it more difficult for those who discredit the sector to achieve their aims.
Unemployment
The Chancellor confirmed that from April 2025, Universal Credit and some other Department of Work and Pensions benefits will rise by 1.7% in line with inflation.
From September 2024, people claiming Employment and Support Allowance will be moved to Universal Credit, an action that was due to take place in 2028. This is designed to better support those looking for work.
A £240 million package has been promised for the Get Britain Working initiative to bring together and streamline work, health, and skills assist to disabled people and those on long term sick leave. Recognising that poor health is a key reason for unemployment, this programme aims to better align the support services in both areas.
Additionally, in 2025-26, £115 million will be invested into the Connect to Work scheme, so people with disabilities or health conditions are matched with suitable job vacancies. Active charities in this area might benefit from the increased funding.
Inheritance Tax
Currently, unspent money saved in a pension and then inherited is not included in the calculation for Inheritance Tax (IHT). From April 2027, this will no longer be the case.
The IHT threshold of £325,000 will be frozen until 2030. The rate is 40% and is only charged on the part of the estate that surpasses that threshold. This threshold can rise to £500,000 when passing residential property to a direct descendent.
A contributing factor for people when leaving legacy gifts in their wills are the financial reliefs available in these circumstances. The Budget has confirmed that IHT tax reliefs will remain, which is a boost for the voluntary sector amongst other less well received changes to this system. In fact, these financial incentives could become even more impactful should more estates qualify for IHT, as a consequence of the IHT thresholds freeze.
If someone bequeaths 10% (or more) of their net estate to charity, the IHT liability on what is left is reduced from 40% to 36%.
Pensioners
Ms Reeves announced that the state pension would rise in line with average earnings, increasing by 4.1% in April 2025, reiterating her commitment to the ‘triple lock.’
However, as previously announced, the winter fuel payment (up to £300) will be lost by pensioners who are not on Universal Credit or other benefits.
It has been estimated that up to 970,000 older people could be missing out on Pension Credit and will also lose their Winter Fuel Allowance despite being on low income.
Carers
Carers’ earnings threshold will rise from £151 to £195 a week from April 2025, so they can earn more before losing allowance benefit, currently £81.90 a week. However, nothing has yet been done to deal with the cliff edge when you earn £1 over the threshold. There will also be an independent review into Carer’s Allowance overpayments.
Need some guidance?
Whilst we have covered some of the key announcements, we encourage you to check out the full budget to explore the reforms above in more detail and stay abreast of other changes.
Burton Sweet has a longstanding commitment to charities and civil society organisations, offering practical, professional and passionate support. We want to assist you, so you can deliver effectively for the communities you serve and show the good you do.
If you require any guidance as a result of any of the changes made in the Autumn Budget, please get in touch with us. A member of our team will be happy to assist you…
Further reading
For some opinions on how the Budget will affect charities and civil society organisations you may wish to read…
- Charity Finance Group: Autumn Budget and Spending Review 2024
- UK Fundraising: Sector responds to first Labour budget for 14 years
- Civil Society Media: Charities urge chancellor to ease sector’s £1.4bn National Insurance rise from Budget
