Charities which are “already in a dire situation” could be hit by an estimated £1.4 billion rise in tax following the Budget, a body representing the sector has warned.
The National Council for Voluntary Organisations (NCVO) said charities across the UK will be forced to make “difficult choices” in the coming months including reducing staff and cutting salaries.
It comes after changes announced by Chancellor Rachel Reeves which will see employers’ national insurance contributions increase.
Reeves announced in Wednesday’s Budget that the rate of employers’ national insurance (NI) will rise by 1.2 percentage points, from 13.8% to 15% from April next year.
Our estimates show planned increases to employer national insurance contributions will cost the charity sector £1.4bn a year.
— NCVO (@NCVO) October 31, 2024
Many charities will be forced to make difficult decisions to shoulder this heavy burden. Together with @ACEVO, we’re calling on @hmtreasury to take… pic.twitter.com/IF7YxbxclX
The secondary threshold – meaning the level at which employers start paying the tax on each employee’s salary – will also be reduced from £9,100 a year to £5,000.
The NCVO, a membership group of charities, voluntary organisations and communities, said this will amount to around £1.4 billion more tax paid by the charity sector.
Charities employ about 3% of the UK workforce, the NCVO said.
For the G11 Community Hub, a charity which provides training and education and other services for residents in Cam, Gloucestershire, the rise could cost £20,000 a year, the chief executive said.
Indigo Redfern said: “This year I was already looking at a deficit. I was really hoping there would be a waiver for smaller charities.
“Demand is just going up and up.
“We are responding to what the community needs.”
The charity runs a food bank and hosts social groups such as “knit and natter”.
“The problem is this is on top of a general funding squeeze,” said Ms Redfern.
People are giving fewer and smaller donations
Meanwhile, the RSPCA said the changes could cost the charity more than £1 million next year.
RSPCA chief executive Chris Sherwood said: “We’re really concerned at the impact these employer national insurance rises will have for animal welfare.
“Failure to provide exemptions or allowances for charities when implementing these employer national insurance hikes risks placing additional pressure on what is already a challenging financial backdrop for so many charities.”
Sarah Elliott, CEO of NCVO, said the planned national insurance increase will be “absolutely unsustainable” for many charities.
“We know charities are closing because their own costs are going up,” Ms Elliott told the PA news agency.
“Over the last few years charities have had to cut things to the bone.
“Public sector funding has been declining but also the public are understandably tightening their belts. People are giving fewer and smaller donations.”
The number of charities signing our letter to @hmtreasury is growing by the second. What's clear to us is not only the strength of feeling, but the real need for action.
— Sarah Elliott (Vibert) (@sarahvibert82) November 1, 2024
Am proud to see our sector come together in this way. If you haven't signed yet, there's still time to join! pic.twitter.com/eMMeTLnDZD
The NCVO and the Association of Chief Executives of Voluntary Organisations (ACEVO) have written an open letter to the Chancellor urging her to address charities’ concerns and exempt them from the planned rise.
At the time of writing, the letter has received nearly 300 signatures, the NCVO said.
Ms Elliott added: “Charities across the country are already in a dire situation, juggling a triple threat of rising demand, escalating costs, and falling funding.
“This additional cost, for which there is no headroom in budgets to cover, will be devastating.”
Ms Elliot welcomed the Chancellor’s increased investment in public services including hospitals and housing, but said charities will have to continue “plugging gaps” until the impact of new funding is felt.
HM Treasury was contacted for comment.
