Regulator identifies financial resilience as a serious risk for charities
Stuart McKay · Posted on: October 13th 2025 · read
The Charity Commission has published its first-ever ‘Charity Sector Risk Assessment’, highlighting financial resilience as one of the most significant and systemic challenges facing UK charities. The report draws on data from annual returns, serious incident reports, and casework to identify emerging risks that could impact charities’ ability to deliver their objectives or maintain public trust.
Financial pressures and rising deficits
The assessment paints a picture of mounting financial pressures across the sector, including rising staff costs, inflationary pressures, and unprecedented demand for services. Indeed a report from early this year highlighted how 9% of people now relied on food, medical or financial support from Charities, up from 3% 5 years ago.
According to the Commission’s analysis, 22.5% of charities reported an operating deficit in 2023, up from 20% in 2022, indicating a growing reliance on reserves to cover shortfalls which can limit future strategies for expansion.
Sustained shortfalls could leave charities vulnerable to external shocks as they spend their reserves on day to day expenditure rather than being held as cover for more significant events and plans. Chair of the Charity Commission, Mark Simms OBE has had his say noting that services and operations may have to be restructured in order to address ongoing funding struggles.
Risks to public benefit and trust
The report also warns of a smaller but serious risk arising from the misuse of charitable structures, including unauthorised private benefit, false Gift Aid claims, and attempts to establish charities for unlawful gain. Although such incidents represent a small minority, the Commission notes that even isolated cases can damage public trust, creating a systemic risk to the sector as a whole.
Wider risks identified include governance weaknesses, safeguarding concerns, cybercrime, and geopolitical tensions—all of which have the potential to disrupt operations or undermine confidence, which when considered with the widespread financial uncertainty, paints a challenging picture for the sector as a whole.
Regulatory and trustee responses
To support trustees, the Commission has announced an autumn awareness campaign to promote its financial guidance and help boards strengthen forecasting and risk management. It urges trustees to remain “clear-eyed” about their financial position, adopt early warning systems, and take prompt action when financial risks are identified.
The regulator also encourages boards to ensure that all trustees understand their charity’s financial position - not just the treasurer or finance lead - and to maintain realistic reserves policies backed by scenario planning.
What this means for charities
The report serves as a reminder that financial stewardship is a cornerstone of good governance. Trustees should review their cash flow, budgeting, and reserves policies regularly and ensure contingency plans are in place.
"As the regulator notes, while the sector has shown remarkable resilience, charities must continue to evolve their financial management and governance frameworks to withstand ongoing economic uncertainty."
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