Autumn Budget 2025 - What it means for charities
Stuart McKay · Posted on: December 8th 2025 · read
Chancellor Rachel Reeves’ Autumn Budget on 26 November 2025 was put forward as a ‘fair’ rebalancing: scrapping the two-child benefit cap and cutting household energy bills, funded largely by a £26 billion package of tax rises by 2030.
However, for charities already facing what NCVO has described as a “big squeeze” of rising demand, rising costs, and constrained income, the Budget may feel more tightening than relief.
High-tax environment and ‘fiscal drag’
The Budget extends the freeze on income tax and National Insurance thresholds by a further three years to 2030-31. The Office for Budget Responsibility expects around 1.7 million extra people to be brought into paying income tax or pushed into higher bands, such that almost a quarter of taxpayers will be in the higher or additional rate bands within five years. This impacts charities in a number of ways:
- Staff – pay awards over the rest of Parliament will increasingly leak away to tax and NI, affecting take-home pay even where salaries only just track inflation.
- Mid-level donors – people who might previously have been basic-rate taxpayers will find themselves in higher bands, potentially reducing headroom for regular giving.
- Major donors – higher-rate and additional-rate taxpayers will shoulder the largest share of the £26 billion tax rise, on top of earlier NIC increases. Sector commentators have already warned that concentrating tax increases on wealthier households could dampen large-scale philanthropy.
Changes to wealth and investment taxes
Reeves has explicitly targeted investment income and property wealth via:
- A new tax surcharge (dubbed the ‘mansion tax’) on homes worth over £2m
- A 2p increase in tax rates on income from dividends, savings and rental property
- From April 2029, a cap so that only the first £2,000 of pension contributions via salary sacrifice per employee per year will be free of employer and employee National Insurance.
As such, donors relying on investment income are likely to feel poorer in real terms, potentially resulting in lower donations to charities. Furthermore, the salary-sacrifice cap will increase payroll costs where charities offer relatively generous pension arrangements for senior staff or force a redesign of schemes over the next few years.
Labour costs: minimum wage and employer NIC
From April 2026, the National Living Wage for workers aged 21+ will rise to £12.71/hour, with rates for workers aged 18-20 increasing to £10.85, and to £8 for under 18s and apprentices.
For labour-intensive charities – particularly those involving social care, retail, or community services – this will mean higher pay at the bottom of the scale, and knock-on pressure to raise supervisory and managerial salaries to preserve differentials. These uplifts sit on top of the earlier increase in employer National Insurance contributions from April 2025, which professional bodies estimated cost the sector around £1.4 billion a year in extra payroll tax.
Taken together, this confirms that staff costs will continue rising faster than many contract and grant uplifts, unless funders explicitly recognise the new wage floor.
Welfare and cost-of-living changes
The two-child benefit cap will be abolished from April 2026, at an estimated cost of £3 billion a year. It’s reported that this could lift roughly 450,000 children out of poverty and increase support for hundreds of thousands of families.
At the same time, the Budget cuts average dual-fuel household energy bills by around £134/year from April 2026 by ending the Energy Company Obligation levy on bills and moving most of the Renewables Obligation cost into general taxation.
These changes are primarily aimed at individuals rather than organisations, but they will influence demand profiles. Some charities supporting low-income families and children may see slightly less acute need over time, though the effect will be uneven and gradual. The reduced pressure on household budgets may, at the margin, ease demand on crisis services such as food banks and grant-giving schemes. But this should be considered against the backdrop of continued constraints in local government and public-service funding set by the earlier 2025 Spending Review.
VAT relief on donated goods
One of the more directly positive announcements for charities is the confirmation of new VAT relief for business donations of goods. From April 2026, businesses will no longer have to account for VAT on eligible goods they donate to charities for onward distribution to people in need or use in the charity’s own services. MHA’s VAT team have published this overview to help charities understand what it means for them.
The Autumn Budget largely confirms rather than transforms the financial direction of travel: a high-tax, high-cost environment in which charities continue to face a ‘triple squeeze’ on demand, costs and income.
In practical terms, boards may look to:
- Refresh medium-term financial forecasts to reflect the new minimum wage, continuing NIC rates and the salary-sacrifice cap.
- Stress-test philanthropic income, particularly where a small number of high net-worth donors, endowed funds, or investment-backed trusts are material to their budget.
- Review reserves and investment policies to ensure sufficient ability to absorb policy-driven cost increases while maintaining mission-critical activity.
- Plan proactively for the VAT change on donated goods, working with operational teams to identify where in-kind support is realistic and aligns with their risk appetite and logistics.
- Engage early with commissioners and funders where contracts or grants do not automatically uplift for wage and tax changes to avoid unsustainable delivery.
"The Budget will not come as a surprise to most in the sector, but it does narrow the room for manoeuvre. The charities best placed to cope will be those that revisit their financial strategy, consciously price in the new cost structure, and actively seize opportunities such as the VAT relief on donated goods rather than waiting for pressures to build."
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