Tips to overcome the 2025 financial squeeze

Charities in 2025 face a “perfect storm” of “funding falling, costs increasing, and demand climbing,” according to sector body the National Council for Voluntary Organisations’ (NCVO) Road Ahead report.

 

This situation has emerged after a torrid five years for charities, who have had to contend with a dramatic loss of revenue following the pandemic and a subsequent cost-of-living crisis further impacting their finances. With successive governments over this time squeezing welfare payments and funding for support, people in need are increasingly turning to charities.

 

Further threats have emerged in 2025 to charities finances, most notably US President Donald Trump’s global tariffs adding to cost pressures. Rising wages and employers’ National Insurance contributions are further increasing costs for charities in 2025.

 

Here we look at some of the latest evidence around the financial squeeze facing charities and offer some top tips on beating the triple threat of rising costs, increasing demand, and falling revenue.

 

 

The triple threat of rising costs

 

Surging demand

 

Charity leaders warned in March 2025 that £5bn cuts to the government’s welfare bill, announced by Chancellor Rachel Reeves in her Spring Budget would lead to increased demand for charities over the year.

 

Youth homelessness charity Centrepoint said at the time that benefit cuts would “place even more pressure” on frontline services and are “the wrong choice".

 

A 2025 report by think tank PBE found nine in ten charities supporting women and girls are reporting an increase in demand for help.

 

Meanwhile, an increase in demand has forced some to close their doors to new beneficiaries. This includes London youth homelessness charity New Horizon, which announced in 2025 it had made the move due to a surge in demand.

 

 

Falling revenue

 

For the last 20 years public donations have been the biggest source of income for charities, but economic pressures on households have seen this reduce in recent years.

 

Figures released in 2025 by Charities Aid Foundation found that the number of people donating has fallen to its lowest level since the charity body began its research in 2016.

 

Government funding is also down, according to the NCVO, from 30% in 2020/21 to 26% the following year.

 

 

Rising costs

 

As well as ongoing costs to heat and light properties and offices charities face further inflationary pressures in 2025. This includes an increase in their employers’ National Insurance contributions, which will cost charities a total of £1.4bn extra a year, says the NCVO.

 

 

An increase to the national minimum wage is also impacting charities in 2025

 

The NCVO adds there is a “very real risk of further economic shocks” facing charities due to Trump’s tariffs. These include further inflation on goods and services and possible negative impact on investment income.

 

 

Tips for beating the financial squeeze

 

While 2025 looks to be another tough there is plenty charities can do to beat the financial squeeze.

 

 

Diversifying income  

 

This is important to ensure charities are not solely reliant on one or two dwindling sources such as government grants or public donations.

 

This is particularly an issue for small charities. They receive more than a third of their funding from the government, compared to larger charities who receive a quarter of their funding from this source, according to the NCVO, which acknowledges that finding diverse funding sources “can be difficult”.

 

It urges smaller charities to consider funding opportunities they may be unaware of, such as social investment, where they can take out loans or sell shares to raise capital.

 

 

Investing in technology and artificial intelligence

 

The upfront costs involved can be outweighed by longer-term savings made in long term administrative costs. Currently three in five charities are using artificial intelligence (AI) in their day-to-day work. But 2024’s Charity Digital Skills Report warns that only half of charities have a digital strategy in place to help them find the best ways to use AI effectively.

 

Charities need “to work out how to use AI to best support what they do, while also using it safely and securely," says the NCVO.“AI and automation can support the drive for efficiency, for example in admin tasks and previously paper-based processes, which frees up staff to focus on areas that technology can’t.”

 

 

Greater collaboration in the sector

 

The NCVO urges charities to identify similar organisations they can work with to make work more efficient. This could include sharing expertise and information to better support communities and more efficiently highlight gaps in support. Pooling resources through joint campaigning and lobbying can also cut costs. 

 

Another way to collaborate is to apply for funding together, rather than against each other.

 

 

Focusing on good governance

 

Ensuring charities are being transparent over their governance, including their overall direction, accountability, and effectiveness, is important to increasing trust from the public and in turn encourage them to donate.

 

This focus also needs to ensure charity leaders manage any risks to their reputation so they can take swift action.

 

 

Importance of evaluation

 

This is needed to assure the public and funders that a charity is worth backing with their donations and grants.

 

The NCVO recommends charities develop an impact strategy to understand how the value of their can best be measured and communicated. This can include quantitative measures to show the economic benefits of a charities work, or qualitative evidence showing quotes from service users who have been helped.