The economic realities are sobering. We read time and again about charity closures and hear from our members in practice that referrals to insolvency practitioners are increasing. We also know this from you: 84% of those who have already registered for our 2025 Charity Conference named ‘financial / fundraising challenges’ as one of the three key issues that their charities (or charity clients) face; the most pressing issue for you by far.

As finance professionals, you play a key role in helping charities navigate financial challenges, but there are systemic challenges that make this more difficult, especially for charities working with underfunded councils which have lost £13.2bn in local government funding in the last decade, as a PBE study estimated earlier this year.

The new government has been vocal about its plans to reset the relationship between civil society and civil servants, with a new Civil Society Covenant in development, but are the Budget announcements setting the right tone?

Charity sector leaders have been working with the government to develop a new agreement that sets out how the partnership can work effectively. Referred to as a ‘Covenant’, the agreement will aim to harness the knowledge and expertise of voluntary, community, social enterprises and charities to deliver better outcomes for communities right across the country. The Covenant is expected to be published in 2025 and will be based on 4 key principles:

1. Transparency: to ensure civil society and government have the information needed to best serve people and communities
2. Recognition: to ensure a strong and independent civil society
3. Participation: to ensure people and communities can be heard and make a difference
4. Partnership: to ensure effective service delivery and policy making, and shared learning of best practices

The Department for Culture, Media and Sport (DCMS) has issued six engagement questions for you to consider, including:

• what are the enablers of effective partnership and what are the examples of best practice?
• what are the barriers to meaningful partnership and collaboration?
• how do we make the new relationship a reality, especially in the current economic context?

Your responses will inform the Covenant and can be shared with us, and via charity umbrella organisations such as NCVO and ACEVO who are coordinating responses from the charity sector.

The government had carefully managed expectations of its first Autumn Budget, advising us in advance that it would be painful because of the ‘£22bn black hole’ in government finances. You can read ICAEW’s wider analysis of the Budget announcements and our article What’s in it for charities? A look at the Autumn Budget 2024 to find out how charities will be affected by the changes in more detail. However, given the financial pressures for many charities, the increase in employers' national insurance costs is a concern, as Nick Sladden, Partner at RSM and Advisory Group member for the Charity Community, explains:

“As expected, the headline change and biggest revenue raiser in the Budget came in the form of changes to employers' national insurance contributions (NIC). The Chancellor’s announcement amounts to a significant additional tax on jobs for those working in UK charities.

“Charities typically rely on a large number of people, and an increase of at least £615 a year in the cost of employing a full-time member of staff will have a disproportionate impact on the sector. On top of rises in the National Minimum Wage rates announced previously, not to mention the increased administrative burden from the Employment Rights Act, this will leave some charities on a financial cliff edge.

“With effect from April 2025, the rate of employers' NIC will rise to 15% (from the current 13.8%) and the secondary threshold, above which employers' NIC is payable, will drop from £9,100 annually to £5,000. The threshold change results in an additional £4,100 potentially subject to charge at the new higher rate.

“On a more positive note, the increase in employment allowance from £5,000 to £10,500 from April 2025 insulates smaller charity employers from these additional costs.”

Click here to read more about the government’s commitment to develop the Civil Society Covenant.