The chancellor has confirmed there will be no exemptions or reimbursements for charities

Rachel Reeves faces outrage from across the third sector after she confirmed there will be no mitigations provided to deal with the increased cost of National Insurance (NI) contributions. 

The Labour chancellor has been accused of a “lack of understanding of our essential sector” after she confirmed the increases facing employers will hit charities and voluntary groups. 

Following the autumn budget in October, more than 7,300 charities and voluntary organisations signed an open letter calling for action on the planned increase to employer NI contributions.

Ms Reeves' proposals will see employers start to pay NI contributions on any employee's earnings over £5,000 instead of the current £9,100 threshold. 

The rate of NI will increase from 13.8% to 15%, with an increase in the Employment Allowance that employers can claim, rising from up to £5,000 to up to £10,500.

Responding to the open letter, the chancellor said “the government recognises the important role charities play in our society", saying ministers had “made it a priority to reset the relationship with civil society and build a new partnership to harness their full potential”, “recognising the sector as a trusted and independent partner”. 

She described the increase to NI contributions as “one of the toughest decisions we took” in the budget, pointing to support on offer for voluntary organisations and charities. 

But she also confirmed there would be no exemptions or reimbursements provided to the sector to deal with the rising cost of NI, with this support limited to some of the public sector and government departments. 

She added: “We remain committed to ensuring that the sector is recognised and valued for the crucial support it provides to so many people and look forward to continuing to work together. I hope this response is helpful and I thank you for taking the time to make me aware of both your and the wider sector’s concerns.”

The Scottish Council for Voluntary Organisations (SCVO) has warned their estimates show this will cost the voluntary sector in Scotland as a whole around £75 million. 

Across the UK, this will stretch to £1.4 billion, the National Council for Voluntary Organisations (NCVO) said. 

SCVO’s head of policy and research, Kirsten Hogg, said: “The chancellor's decision not to support voluntary sector employers with increasing National Insurance contributions is shortsighted, and belies a lack of understanding of our essential sector. We will continue to push Westminster to put in place mitigations, in recognition of the very significant impact that this will have on some voluntary organisations, and on our sector's ability to operate sustainably.

“A failure on the chancellor’s part to develop a UK-wide solution to this problem will put significant strain on the environment in which Scottish voluntary organisations operate. As part of our ongoing Fair Funding work we will continue to call on all funders to cover the core costs of the organisations they fund, including the any increase to NICs. This will include seeking to influence the Scottish Budget next week, but there will also be significant financial implications for local authorities, IJBs and independent funders.

“We cannot afford to throw this issue around like a political hot potato. If a solution cannot be found it is voluntary organisations, their staff and the communities they serve who will suffer.  We must not allow that to happen.”

Those across Britain have said it is important to continue to challenge the government and build partnerships where possible. 

In a joint statement, Saskia Konynenburg, executive director of NCVO, Jane Ide, CEO of the Association of Chief Executives of Voluntary Organisations (ACEVO), and Clare Mills, deputy chief executive of the Charity Finance Group (CFG), said: “The number one priority for charities is always the people and communities they support. The burden of these increases, with little time to prepare, means there is a need for many organisations to cut or reduce services, and the knock-on impact it will have on individuals, communities and local economies who rely on us will be devastating.

“The reply from the chancellor acknowledges the vital contribution of civil society while reiterating the scale of the challenge ahead for the new government, and why this decision has been made and cannot be changed.

“Although this isn’t the news we want, we’re committed to raising the voice of the sector on this issue so that government understands the very real impact it is having, and where possible will seek to minimise the impact of these changes.

“While we do that, it’s important that we commit to developing a stronger partnership between government and the sector in the future. In her letter, the chancellor recognised our role as a trusted and independent partner.

“Part of partnership is having difficult conversations, and it’s important that we, as an independent sector, continue to challenge where challenge is needed.”