Rising wage levels and changes to salary sacrifice schemes will have an effect on third sector.
Senior figures across the third sector have said the UK Government must ensure charities are supported to cover increasing costs as a result of budget decisions outlined on Wednesday.
The Labour Government’s budget, outlined by Chancellor Rachel Reeves, scrapped the two-child cap on benefits - a long-term campaign for a number of third sector groups - as well as raising minimum and living wage levels.
The Chancellor also announced changes to salary sacrifice schemes that will come into effect in 2029, meaning there will be a lower cap of £2,000 per year of pension contributions which will be exempt from employer and employee NI contributions.
Changes to minimum wage from April 2026 will see workers aged 21 and over paid at least £12.71 an hour, up from £12.21. For those aged 18, 19 or 20, minimum wage will rise to £10.85 an hour, up from £10 - while the rise is to £8 an hour, up from £7.55 for 16 and 17-year-olds.
Charities and voluntary sector organisations will be subject to these changes, potentially costing significant amounts in an already challenging financial landscape.
Ahead of the Autumn Statement Scottish Council for Voluntary Organisations (SCVO), and organisations across the voluntary sector urged the Chancellor to ensure further burdens were not placed on the voluntary sector.
Following the budget, Anna Fowlie, SCVO chief executive, said: “The late timing of the Autumn Statement is disappointing, resulting in a delayed draft Scottish Budget in January 2025 and uncertainty and funding delays for local authorities and voluntary organisations across Scotland.
“SCVO support Fair Work and we welcome increases in both the National Minimum Wage and the National Living Wage, though the government must go further to meet the Real Living Wage rate. The end of the two-child limit is also hugely welcome. This is a major win for organisations across the voluntary sector that have campaigned for many years.
“To support the voluntary sector to meet these increases the Government must ensure grants and contracts cover the full costs of employing staff, including increased employer National Insurance Contributions costs, payment of at least the Real Living Wage, and parity with public sector pay, addressing long-standing disparities between the public and voluntary sectors, and ensure Scottish Government funding that accommodate these increases.
“Changes to salary sacrifice schemes will result in additional costs and pension inequality is an extension of the pay disparity between the voluntary and public sectors. It is essential that the Government engage with the sector on these changes before they come into effect in April 2029 to understand any unintended consequences for voluntary organisations and their staff.
“The UK and Scottish Governments must work together to provide clarity and ensure UK Budget decisions support the Scottish Government’s commitment to Fair Work and Fairer Funding for the sector by 2026.”
This feeling is echoed across the UK, with National Council for Voluntary Organisations (NCVO) raising concerns about the financial pressures facing charities.
Leigh Brimicombe, NCVO’s chief influencing officer, said: “Charity workers deserve fair pay for the vital work they do, so we welcome the rise in the national living wage. However, many charities are already under severe financial pressure to meet the rising cost of delivering services.
“With employer national insurance also increasing in April, higher wage bills will add further strain at a time when funding is falling. Many organisations will have to review the services they offer as a result, which puts staff and the communities they support at risk.
“For charities delivering public services, the government must ensure future funding includes adequate inflationary uplift, including increased wage costs."
Richard Sagar, head of policy at the Charity Finance Group, told Civil Society: “However, for many charitable organisations, this increase – which significantly exceeds current inflation rates and average earnings – comes at a particularly challenging time.
“Following the sizable rise in National Living Wage and National Minimum Wage in April this year, alongside the increase in employer national insurance contributions, our research shows that many charities are already at financial breaking point.
“Our members have told us that they are making the difficult decision to reduce services and are being forced to consider recruitment freezes and redundancies.
“This doesn’t just affect charitable employees – it directly impacts the vital services that vulnerable communities and people depend upon every day.
“Unlike for-profit businesses, charities cannot simply pivot to generate additional income. They rely on the generosity of the public and the support of funders. Without corresponding increases in grant funding and contract uplifts, many organisations will face impossible choices about which services they can continue to deliver.
“While we fully support fair pay for workers, we are concerned that without additional financial support for the sector, these increases risk the unintended consequence of reduced charitable services precisely when they are needed most.
“We hope the government will recognise this pressure and work with the sector to ensure that making work pay doesn't come at the cost of the communities we serve.”
