Rachel Reeves had been warned of the effect such a move would have on charities and community groups
The Labour Government has ignored warnings from the voluntary sector about the consequences of hiking national insurance for employers as the party outlined its first budget since taking office in July.
Chancellor Rachel Reeves outlined her party’s spending plans on Wednesday, with “additional” funding for Scotland part of the announcement in the House of Commons.
Charity leaders across the UK had pleaded with Ms Reeves not to impose employer National Insurance (NI) increases on the sector.
But their pleas fell on deaf ears, with confirmation during the budget that increases to the NI rate will hit charities and community organisations.
The government says raising NI - as well as reducing the threshold that employers start paying it at - could generate £25 billion, with Ms Reeves describing it as a “difficult” decision.
The rate of employer National Insurance will increase by 1.2 percentage points, to 15% from 6 April 2025. The Secondary Threshold – the level at which employers become liable to pay national insurance on each employee’s salary – will reduce from £9,100 per year to £5,000 per year.
Organisations will be allowed to to employ up to four National Living Wage workers full time without paying employer National Insurance on their wages.
Despite these assurances, concerns remain for charities - particularly those supporting crucial, frontline services.
Poverty Alliance chief executive Peter Kelly said: “It’s right that big companies pay their fair share towards building a strong society, but the Chancellor must urgently consider how increases to employer National Insurance will hit charities and community groups.
“The support and advice provided by these organisations is vital for people who have been pushed into poverty, but too many are already struggling through a lack of fair funding, and this NI increase could push many over the edge. That would be a disaster for our communities, and leave more low-income households facing destitution and despair.”
The national charity for hospice and end of life care, Hospice UK, said its members were now facing a huge financial burden.
Toby Porter, CEO of Hospice UK, which represents the UK's 200 hospices. He said: "We are disappointed the Chancellor hasn't immediately addressed the crisis in the hospice sector in today's Budget.
"This couldn't be more urgent - the number of people dying each year in the UK is going up significantly, and right now, hospices are making service reductions and redundancies. Without an exemption to the rise in Employer National Insurance Contributions, hospices will face even further financial burden.
"Hospices ease pressure on the NHS and mean more people die in their preferred place of death with the care they need. It makes good sense for patients, families, and the taxpayer for this to be recognised in the upcoming spending review and NHS ten-year plan.”
Concerns about the effect of the budget on NGOs was also raised.
Hannah Bond, co-CEO of ActionAid UK said she was “profoundly disappointed” at the lack of uplift in the Official Development Assistance (ODA).
She said: “We are profoundly disappointed that the Chancellor has chosen not to uplift the ODA budget in the Autumn statement today. For a government that came to power pledging to reset its global relationships and place tackling climate change at the core of its foreign policy, this statement is an indication it plans to do anything but.
“After the previous government took a wrecking ball to projects aimed at tackling gender inequality, Labour is following in their footsteps by further abandoning women and girls when they need it the most. We urge them to rethink this decision and consider what it signals to the rest of the international community."
Selena Victor, senior director of policy & advocacy for Mercy Corps Europe, said: “While it is some relief to see the UK maintain its current level of ODA – this remains at a 17-year low.
“We urge the government to return to spending 0.7% of GDP on oversees aid urgently.
“Times are tough indeed, but investing in development – in stability, poverty reduction, disease prevention, education, economic development, peace - is a down payment on our shared future prosperity. While failure to do so is just building future costs – in terms of both humanitarian needs and lives lost.”
The UK’s network for NGOs, Bond, criticised the decision by Labour to stick to strict “fiscal rules” which is limiting support for vulnerable people overseas, as well as those in the UK - such as asylum seekers.
Gideon Rabinowitz, director of policy and advocacy at Bond, said: “The government has made the short-sighted decision to slash UK aid in the Autumn budget. By refusing to renew the top-ups made by the previous government to offset the rising costs of housing asylum seekers in the UK, UK aid will plummet this year.
“We must support asylum seekers, but funding should come from a dedicated budget – not at the expense of other marginalised communities around the world.
“By sticking to the previous government’s restrictive fiscal rules for returning to 0.7%, the government not only jeopardises support for those facing poverty, humanitarian crises and climate change, but it also reneges on its promise to return to 0.7% and re-position itself as a reliable development partner ahead of upcoming summits like the G20 and COP29.”
Other charities in Scotland said that concerns about funding remained, despite promises of an increased settlement for Scotland in the budget.
John Dickie, director of the Child Poverty Action Group (CPAG) in Scotland, said: “The Chancellor brought good news on universal credit deductions, but this was not a Budget of bold action on child poverty. She missed a golden chance to scrap the two-child limit, a policy that will pull 16,000 extra children into poverty by the time the government’s child poverty taskforce reports in spring.
“We welcome the new UK government’s ambition on child poverty but this budget played for time, time that children and families can’t afford. The UK spending review next spring will have to deliver much more to make a significant difference for children in poverty.
“Here in Scotland and looking ahead to the Scottish budget it is vital that wider Barnett consequentials are now used to fund the action needed to deliver on the First Minister’s number one priority of ending child poverty. That must include funding a real terms increase to the Scottish child payment, expanding childcare provision, delivering on free school meal promises and increasing the supply of affordable family housing.”
Mary Glasgow, chief executive of Children First, added: “Children First recently declared a childhood emergency, after 2/3 of adults in Scotland told us growing up here is worse than ever.
“With less money available we need to do things differently, to avoid more costly interventions down the line. Removing the two-child benefit cap would have been one of the quickest and most effective ways to make an immediate difference to families.
“The Scottish government has made lifting children out of poverty their top priority. We’d urge them to use the increase in the block grant to invest in this.
“Poverty ruins lives. It is an unacceptable and avoidable tragedy that one in four children continue to live in poverty.
“Our teams across Scotland are supporting families who are struggling to afford the basics. The number of families coming to us for support with their finances almost doubled last year.”
Others said that there was still a way to go, despite some progress being made in Wednesday’s budget.
CAS spokesperson Emma Jackson said: “We said we would judge this Budget on how it delivers for the people who are experiencing the most hardship. The Budget contains several welcome measures, but we need to go further and faster if we are to stop people experiencing harm.
“Reducing maximum debt deductions from Universal Credit, increasing the earnings threshold for Carers Allowance and extending Household Support Fund are all welcome and will mean some more money for some households. But what we really need to do is address the fundamental flaws in Universal Credit that mean far too many households don’t have enough income to live on. We need systemic change to the social security system.
“Keeping the previous Government’s cuts to payments to disabled people is disappointing, as is cracking down on ‘fraud’ in the benefit system.
“On energy, households across Scotland are desperately worried about their gas and electricity bills. Our energy markets are broken and need to be changed. Everyone should be able to afford to heat their home, be able to sleep at night, not worrying about debt. We welcome additional support but need to see this targeted at those who need it most. This is why we need the introduction of a social tariff and targeted debt write-off schemes. We urge the UK Government to take action here.
“Increased spending on social homes is welcome, and we will need to see the details of what this means in terms of additional funding coming to Scotland. We urge the Scottish Government to use all available capital to build more affordable homes. Our real concern is that there was nothing in regard to unfreezing local housing allowance. Our evidence demonstrates far too many cannot afford their rent, forcing far too many into arrears and potential homelessness.”
Poverty Alliance’s Peter Kelly added: “People across the UK believe in a nation based on justice and compassion. Today’s Budget was an opportunity for the Chancellor to turn those values into action, and to rebuild trust in government. Despite some welcome changes, there is still some way to go.
“We know that too many people on Universal Credit find themselves pushed into destitution when they are chased for debt by public bodies, so it’s good that the maximum amount of benefit that can be taken from them has been reduced. But the Chancellor could have gone further, by strengthening our social security with a boost to Universal Credit that would guarantee that households can afford life’s essentials.
“She could have made it clear that every child matters, by scrapping the unjust and ineffective two-child limit, and ditching the unfair benefit cap which stops households getting all the support they are entitled to.”
Those working in the housing sector also said that the Scottish Budget - due to be announced in early December, should be watched with interest.
Shelter Scotland Director, Alison Watson, said: “Having declared a housing emergency it’s clear that the Scottish Government must back words with actions.
“It is vital that any capital funding which becomes available as a result of the Chancellor’s investment plans is in turn used by Scottish Ministers to deliver social homes here, but we also need to see growth in the capital budget over a sustained period to support continued investment.
“Delivering more social homes remains the single most effective way to tackle the housing emergency in Scotland, and only the Scottish Government can decide how much of its budget it commits to that endeavour.
“However, we can’t ignore the role that austerity has played in exacerbating Scotland’s housing emergency.
“The freeze on local housing allowance and the two-child limit has forced thousands into poverty; they will continue to do so as it seems the Chancellor has chosen to keep them in place.”
