The Road Ahead 2025

The broader economic context in which we operate remains a concern for the Labour government. Measures to control interest rates, inflation, and government spending will significantly impact the cost of service delivery. In recent months we have seen a number of announcements, including cuts to international aid, benefits and welfare, Winter Fuel payments and increases to employer National Insurance Contributions.

Despite inflation nearing the Bank of England’s 2% target in late 2024, it is expected to rise again to 3.7% in 2025. And the inflation spike of 11.1% in 2022 continues to have lasting effects. With cost increases now embedded into the operational landscape of charities, the cost of energy, insurance, and day-to-day expenses are unlikely to fall. Economic growth also remains sluggish, with a 0.1% GDP increase in the final quarter of 2024.

In the financial year ahead, the key areas of focus are likely to include:

• Spending review and funding pressures: The spending review is slated for June 2025, and the voluntary sector must navigate the implications of the resulting government fiscal policy, which may involve further constraints on funding. At the time of publishing this report, it is still too soon to say what we may expect to hear in the spending review, but it is safe to assume there will be many announcements that either directly or indirectly impact or affect the sector.
• Employer National Insurance Contributions and minimum wage increases: At the time of publication, increases to employer National Insurance Contributions and the minimum wage have just recently taken effect. While many charities that are affected will have been working ahead of time to prepare for the effects these changes will have, it is likely we will not see or feel the full impact for months to come.
• Public service grants and contracts: While government seeks to work with the voluntary sector more as part of public service delivery, it will be important to ensure charities are not seen as a supplier, but as a partner. Ensuring the outcomes of the Civil Society Covenant consultation (see below) are realised will help ensure this partnership is equal, fair and built on lived experience, while enabling the sector to play its crucial role of critical friend in policy decision-making.

As we approach the first anniversary of the general election, we are still getting to grips with the reality of the Labour agenda and how charities will, and can, play a role. The government’s Plan for Change outlines a mission-driven approach to policy, with specific goals for economic growth, public service improvement, and social equity. However, concerns persist regarding the feasibility of these goals given economic constraints, and we still need to build our relationship with government to make sure charities are central to mission delivery.

The newly established Mission Delivery Unit and procurement reforms will be central to ensuring the voluntary sector’s role in achieving policy objectives is recognised in government planning, particularly in areas like community engagement and social services delivery.

Local governance continues to undergo significant structural and financial changes, with implications for service delivery and community support networks. The government’s devolution agenda aims to enhance regional decision-making, but concerns remain about the redistribution of resources and governance capabilities.

While multi-year funding settlements have been promised, they will not take effect until 2026–27, leaving many councils facing continued shortfalls in the interim. The National Association for Voluntary and Community Action (NAVCA) has produced guidance on navigating local government financial difficulties. The guidance outlines six key stages that you might expect to see if your local council is experiencing financial difficulties.

While there have been some positive examples of collaboration, the sector's relationship with the government has been transactional for too long. The new government is keen to work with us to develop a more collaborative approach, so we can tackle society’s challenges together.

In late 2024, NCVO and ACEVO, in partnership with Number 10 and the Department for Culture, Media & Sport (DCMS), launched a call for feedback on the Civil Society Covenant Framework, a consultation to develop a new agreement to improve and ‘reset’ the relationship between civil society and government.

Several key legal and regulatory developments in 2025 will influence the operational environment for charities and voluntary organisations:

• Procurement Act and National Procurement Policy Statement (NPPS): New rules on public service contracts will impact funding opportunities for smaller charities.
• Charity Law and SORP Consultation: Potential changes to financial reporting and accountability standards will require compliance adjustments.
• Failure to Prevent Fraud Legislation: Organisations must strengthen internal controls to mitigate risks associated with fraud liability.
• Digital Markets Act: This legislation will alter the regulatory environment for online subscriptions and digital fundraising strategies.
• Data Protection and Fundraising: New rules under the Data (Use and Access) Bill may provide greater flexibility for charities but also introduce compliance challenges.

Beyond direct economic and policy impacts, broader structural shifts in public service delivery, industrial strategy, and social policy warrant attention:

• Public service reform: Reduced staffing and adoption of data and AI approaches, and the more agile 'test and learn' approach may bring both opportunities and challenges.
• Industrial strategy and growth plans: The government’s focus on economic expansion may overlook the economic value and role of the sector.
• Devolution and regional strategies: Greater local decision-making authority could benefit regional organisations with the capacity to engage but may also create disparities in service availability.
• NHS 10-Year Plan: Long-term healthcare planning and reorganisation following the abolition of NHS England will impact voluntary organisations involved in health and social care services.
• Youth and community strategies: Upcoming policies in these areas will determine funding priorities for youth-focused initiatives and community-building efforts.

The political landscape in 2025 presents a complex mix of challenges and opportunities for charities, voluntary organisations, and service providers. Strategic engagement with policymakers, proactive adaptation to regulatory shifts, and a focus on sustainable funding models will be critical in navigating the road ahead.