Autumn Budget 2025 – Christmas Cheer or Bah Humbug?

Like many workplaces and households across the country, at DSC we have the annual good-natured debate about how early is too early to start putting up the holiday decorations. 

This typically ranges from ‘September’s over, let’s get the lights up’ to ‘tinsel is banned until 1 December at the earliest’. Often accompanied by slightly more heated discussions about whether Die Hard is a Christmas movie or not. 

Unprecedented Budget speculation and leaks 

This year it feels like the sheer volume of speculation about the UK government’s Budget has overshadowed even this time-honored cultural tradition. For months, we’ve had almost daily speculation and even a speech weeks in advance from the Chancellor telling us not really very much at all, except that taxes might need to rise. Followed by ‘U-turns’ about potential tax decisions which may never even have been decided in the first place. 

This was capped off by an extraordinary leak from the Office for Budget Responsibility (OBR), publishing the budget forecast document online (apparently by mistake) before the Chancellor had even taken her seat in the Commons before the big speech! I’d always favour the cock-up over conspiracy approach to interpreting government decision-making, but the cock-ups are becoming so consistent I’m starting to wonder.  

Before we get into the details, it’s worth recapping some context. This Government based its General Election campaign on key messages about ‘national renewal’ and ‘mission led government’. Trying to make long-term, structural reforms that would deliver economic growth and better public services. The Prime Minister himself has repeatedly stated he wants civil society to be partners in this reform agenda, announcing a new Civil Society Covenant in the summer to that end. 

Not even six months ago the Government concluded a Spending Review to set departmental spending for the remainder of the Parliament – something that had not taken place properly for years. It contained some good news for charities, with a major win on increasing the Charity Commission budget. All of which stood in sharp contrast to this Budget’s communications drip-feed. Recently it’s felt like policy-making by press release and leaks – but it’s hard to say why, or if this is intentional. 

Christmas pressies or lumps of coal? 

Charities have been burned all too many times by HM Treasury in the past, and most recently by the Chancellor’s early decision to increase the rate of Employer National Insurance Contributions (ENICs) soon after the General Election. This has been estimated to cost the sector billions, and the full effects on already stretched staffing and budgets are now impacting charity employers at a time when they can ill afford any additional costs.  

The Civil Society Group coordinated efforts to influence the Treasury to support the resilience of civil society with a range of tax and policy measures ahead of this Budget, but we’ve also been bracing to uncover some nasty lumps of coal here. Given the complexity of some of the tax announcements the Chancellor made, it may take some time to uncover any hiding in the small print. 

Stocking stuffers 

The Chancellor announced some really good news for people – especially children – living in poverty. Years of campaigning by anti-poverty charities (the Red Book specifically cites work by the Child Poverty Action Group) culminated in her announcement that the government would remove the so-called ‘two-child limit’ on families receiving Universal Credit from April. 

This was introduced by the Coalition Government over a decade ago, and keeping it in place is at odds with Labour’s plans to reduce child poverty. The Chancellor said that scrapping the two-child limit would help lift 450,000 children out of poverty. [Red Book p. 31]

However, she also reiterated that the government would look again at wider welfare reform, following back bench opposition to its legislation that aimed to do so earlier in the year. She announced further changes to work assessments and Universal Credit to get more people back into work, which organisations working those areas will want to scrutinise. [See Red Book 2.72-2.79, pp 49-50]

There was also a tax announcement for charities on page 100 of the Budget Red Book, which the Civil Society Group called for in its submission to the pre-Budget consultation: “4.47 Charity Tax Relief – A new VAT relief will be introduced from 1 April 2026 for business donations of goods to charity for distribution to those in need or use in the delivery of their charitable services.” It may be a small measure and we need to see more details, but it shows that the government is listening to constructive policy proposals. 

Lumps of coal 

Despite all the speculation, the Chancellor (sort of) opted to keep to Labour’s election promises not to increase income tax, VAT, or National Insurance contributions on ‘working people’ intact. Any increase to VAT would have been unexpected and very damaging to charities that are largely unable to reclaim it. Changes to income tax rates also risked disrupting the amount of Gift Aid that can be claimed, so thankfully these lumps of coal were left at the North Pole. 

However, the Chancellor did confirm that the thresholds at which people start to pay income tax and the different rates of income tax will not increase. Whilst technically not a tax increase, this will still increase the amount of taxes collected! By not uprating thresholds to account for inflation, more people will pay proportionately more of their income in tax over coming years as wages rise and these thresholds remain frozen. 

This won’t affect charities directly, but it will mean that charity employees wind up paying more income tax over time, even considering that their salaries have likely not kept pace with recent inflation compared to other sectors. At the same time, the Chancellor confirmed an already planned increase to the National Living Wage, to £12.71 per hour. This is good news for lower-paid workers, but will further increase cost-pressures on charities and makes it even more critical that public sector contracts and grants are uprated to account for added costs. 

There could also be some further lumps of coal still to be dug up over the coming days. Specifically, the Red Book mentions the following:  

“4.186 Charity compliance – The government will introduce legislation to strengthen the charity tax rules on tainted donations, approved investments and non-charitable expenditure. These changes will be legislated for in Finance Bill 2025-26 and will take effect from 6 April 2026.” [Red Book p 115]. 

“4.200 Inheritance Tax: Anti-avoidance – The government will legislate to prevent Inheritance Tax avoidance through certain loopholes, including…restricting charity exemptions to direct gifts to UK charities and clubs. This will be legislated for in Finance Bill 2025-26”. [Red Book p 116] 

The Chancellor also announced a £2000 cap on National Insurance Contributions (NICs) relief for pensions contributions to salary sacrifice schemes, although this is not scheduled for implementation until 2029. Ironically, this could exacerbate the negative effects of the increase in ENICs in 2024. [Red Book p. 27] 

Some charities have promoted salary sacrifice schemes as a way of mitigating the impact of the ENICs decision, so reducing the benefit of those schemes could complicate things. However, this seems to be targeted at higher earners and so the potential impact may be minimal (and distant). If your charity operates salary sacrifice schemes for employees, it would be prudent to get your Finance Director to look into the details. 

Charity Finance Group, the Chartered Institute of Fundraising, and Charity Tax Group will no doubt be getting to the bottom of whether these tax-related announcements are anything to worry about, so check their websites and DSC’s email bulletins for further analysis and potential lobbying actions. 

What’s next 

We’ve already had four ‘fiscal events’ during the relatively short time that Labour have been in power. Each one offers charities an opportunity to influence but also the potential for lumps of coal to be dropped on our heads from a great height without any warning.  

In theory this government says it wants to move to longer-term planning, and for my part, that seems sensible and would be a welcome antidote to recent practice. But given that so much of this Budget was leaked out in advance, who would bet on it? We’ll have to see what the ‘Spring Statement’ has in store in 2026 to judge.