The Scottish Council for Voluntary Organisations is the membership organisation for Scotland's charities, voluntary organisations and social enterprises. Charity registered in Scotland SC003558. Registered office Mansfield Traquair Centre, 15 Mansfield Place, Edinburgh EH3 6BB.
SCVO Briefing: Scottish Budget 2025/2026
Summary
SCVO and colleagues across the voluntary sector welcomed the Scottish Government’s commitment to deliver Fairer Funding for the sector by 2026, including exploring options to implement multi-year funding deals.
Despite this renewed focus, 18 months on from the policy prospectus, there has been little progress.
Our sector continues to face unprecedented challenges. Voluntary organisations’ costs are climbing, funding is falling, and demand for services continues to increase. As a result, eight out of ten organisations report that financial difficulties rank among their most significant challenges.
These pressures have been exacerbated in recent weeks by planned changes to employer National Insurance Contributions announced by the Chancellor in the Autumn Budget. The Chancellor has in recent days confirmed the intention to limit support for these increases to the public sector and government departments.
The voluntary sector is a significant employer, employing around 133,000 people in Scotland - 5% of Scotland’s workforce. SCVO estimates these changes will cost voluntary sector employers in Scotland more than £75 million per year. We continue to urge the Chancellor to change course – and welcome both the Scottish Government’s and the Scottish Parliament’s support for these calls.
Action is urgently needed in the 2025/26 Scottish Budget to recognise, resource, and support the voluntary sector and our essential services by:
- Ensuring grants and contracts Scottish Government, their agencies, and other public bodies award, cover the full costs of employing staff, including at least the Real Living Wage, any increased NICs costs, and inflation-based uplifts on par with those offered to public sector staff.
- Aligning the Scottish Government’s “Fairer Funding” principles with SCVO’s definition of Fair Funding.
Fair Funding
SCVO welcomes the Scottish Government commitment to deliver ‘Fairer Funding’ by 2026. SCVO continues to call for this approach to be aligned with SCVO’s definition of Fair Funding, much of which was endorsed in the Social Justice and Social Security Committee’s Pre-Budget Scrutiny report 2025/26.
As the Committee recognised, despite a renewed focus, 18 months on from the policy prospectus, there has been little progress on the Scottish Government’s “Fairer Funding” commitments and previous calls from the Committee are yet to be actioned.
The Committee’s 2025/26 Pre-Budget scrutiny report focused exclusively on voluntary sector funding. The extensive evidence they received from voluntary organisations on the impact of funding uncertainty was highlighted.
We welcome the Committee’s recommendations. These include:
- Prioritisation of multi-year funding, exploring options for progress in advance of the UK Government’s Comprehensive Spending Review.
- Work towards parity of the voluntary sector with the public sector by providing three-year funding as the default arrangement.
- Ensure funding arrangements include provisions for inflation-based adjustments to ensure that organisations can maintain their service levels and meet wage commitments.
- Take action to support the implementation of the Real Living Wage through its grant funding, including full cost recovery.
- Streamline application and reporting processes and introduce a level of standardisation.
- Take further steps to address delayed notification of funding for the forthcoming financial year.
- Improve the transparency of grant funding decision-making processes.
- Draw the Scottish Government’s attention to oral evidence on the Scottish Government’s recent consultation on Disclosure Scotland fees.
These recommendations overlap considerably with SCVO’s Fair Funding work.
In the 2025/26 Budget, the Scottish Government can make progress on these recommendations, by aligning the Scottish Government’s “Fairer Funding” principles with SCVO’s definition of Fair Funding– which was developed through significant research and engagement with Scotland’s voluntary sector. This includes commitments to:
- Longer-term funding of three years or more.
- Flexible, unrestricted core funding, which enables organisations to provide security, plan effectively, and fulfil good governance requirements.
- Sustainable funding that includes inflation-based uplifts and full costs, including core operating costs.Funding that accommodates paying staff at least the Real Living Wage and pay uplifts for voluntary sector staff on par with those offered in the public sector.
- Accessible, streamlined, proportionate, and consistent approaches to applications and reporting, timely processing and payments, and partnership between the grant-maker and grant-holder.
- Fiscal transparency to support organisations and the public to understand spending decisions, including transparent delivery goals, timelines, and accountability mechanisms – such as reporting and stakeholder groups - to ensure progress on “Fairer Funding” can be scrutinised by the voluntary sector, scrutiny bodies, and Parliament – in the Budget and beyond - is crucial.
Long term funding should also be provided to local authorities, to allow them to enter into multi-year agreements with voluntary organisations. Between one quarter and one third of voluntary organisations receive funding from local authorities.
Without these commitments, achieving “Fairer Funding” by 2026 becomes increasingly unlikely.
Additionally, as mentioned above, in their pre-budget scrutiny report, the Committee raised Disclosure Scotland’s recent consultation on introduction of fees for the voluntary sector. We reiterate our opposition, alongside our Volunteer Scotland colleagues, to remove the Protecting Vulnerable Groups (PVG) scheme fee waiver available to voluntary organisations. We disagree with any move by government bodies or agencies to balance their budgets on the back of the voluntary sector.
Testimonials
| “Planning in the current climate is extremely difficult - funding agreements which cover 3 - 5 years would enable us to plan staffing and resources to meet needs.” Registered Charity “The longer-term funding allows us to give much better value for money, we can plan long term, employ staff on more secure contracts therefore allowing us to utilise staff more efficiently.” Registered Charity “The lack of inflationary increase to our funding is the most unfair aspect of our current arrangements, we effectively suffer a cut in funding year on year.” Registered Charity “Everything we do is dependent on funding, and amounts are often not confirmed until very late in the financial year”. Registered charity “Due to annual funding from Scottish Government, which doesn’t cover our core costs, recruitment is often on short-term contracts or is subject to ongoing funding, of which there is no guarantee”. Voluntary sector intermediary |
Significant employer
The voluntary sector is a significant employer, employing around 133,000 people in Scotland - 5% of Scotland’s workforce. The voluntary sector delivers vital public services – like social care and youth work, as well as a host of essential services that people and communities across Scotland rely on.
The increases to employers’ National Insurance Contributions (NICs) set to go ahead next year would, therefore, have a significant impact on medium and large voluntary sector employers, as SCVO shared with the Chancellor ahead of the Budget.
SCVO estimates that these changes will cost voluntary sector employers in Scotland over £75 million per year, plus inflation. Despite this, in recent days the Chancellor has confirmed the intention to limit relief for these increases to the public sector and government departments. SCVO welcomes recognition from the First Minister and MSPs across the Scottish Parliament, that the Chancellor’s intention to increase employers’ National Insurance Contributions will have a significant impact on the voluntary sector in Scotland and his calls for support for the sector.
SCVO will continue to press the UK Government to reverse its decision on these increased costs for the voluntary sector. If the Chancellor cannot be convinced to change course, the Scottish Government must ensure that their financial commitments to voluntary organisations cover these new costs – and that other public bodies have the funds to do the same.
Similarly, while SCVO welcomes the increase to both the National Living Wage and National Minimum Wage - Fair Work for the voluntary sector workforce, including at least the Real Living Wage, is an SCVO priority- the First Minister should also support and resource voluntary organisations in receipt of public funding, through grants and contracts, to deliver on their wider Fair Work ambitions.
In the 2025/26 Budget, the Scottish Government can take a Fair Funding approach to these changes by:
- Ensuring grants and contracts Scottish Government, their agencies, and other public bodies award, cover the full costs of employing staff, including at least the Real Living Wage, any increased NICs costs, and inflation-based uplifts on par with those offered to public sector staff.
Case-study
| Turning Point Scotland is a large social care provider working across 18 local authority areas. Supporting between 8,000 and 12,000 people at any one time. We employ 1,200 people, and have an annual turnover of £44 million. We are entirely commissioned to deliver public services on behalf of Local Authorities and Scottish Government. The National Insurance increase will cost us £1.1 million per year; £274,000 in relation to the rise in employer NI contributions, £778,000 associated with the lowering of the NIC threshold. This equates to a 2.7% increase to our payroll costs. Every service that we operate will go into budgetary deficit – none of our services will receive enough money to cover the costs of providing that service. One service we provide is already looking at a £60,000 deficit for next year – with these changes that deficit will become £160,000. Without a radical change, none of our services will be financially viable. Many will face closure in the very near future. If that change does not come from the UK or Scottish Government, we will need to make those changes with our service commissioners– what will be lost? Will we have to reduce the number of staff? Will we have to disinvest in training, development and support? Will we have to cut pay? Every cut will impact on the number of people we can support, the quality of the support we provide, the attraction and retention of our workforce, and the safety and viability of our services. We consider ourselves a financially healthy organisation in terms of both cash and reserves, but without action to address the impact of these changes, we will not survive in our current state. We risk losing many of the services that we deliver, and we know that our sister organisations in the social care sector are facing the same, if not a worse outlook. The impact on Scotland’s social care system and the people who rely on it cannot be overstated. |
Conclusion
Scotland’s voluntary sector is an employer, a partner, and a vital social and economic actor central to delivering on the Scottish Government’s missions to end child poverty, grow the economy, tackle the climate emergency, and improve public services.
The 2025/2026 Scottish Budget is an opportunity to recognise and support the sector’s contribution, and address the pressures facing the sector.
The Scottish Budget can and should take much needed and meaningful steps towards a Fair Funding system that offers long-term, flexible, sustainable, and accessible funding by aligning their Fairer funding principles with SCVO’s definition of Fair Funding and actioning the many recommendations in the Social Justice and Social Security Committee’s Pre-Budget Scrutiny report 2025/26.
Fair Funding can and should cover the full costs of employing staff. Scottish Government must ensure grants and contracts they, their agencies, and other public bodies award cover the full costs of employing staff, including at least the Real Living Wage, any increased NICs costs, and inflation-based uplifts on par with those offered to public sector staff.
Additional information
Letter to Scottish MPs - UK Budget: Impact of NI changes on charities in your constituency
SCVO, NCVO, NICVA, and WcVA letter to Rachel Reeves, Chancellor of the Exchequer: Autumn Budget 2024 – employers’ National Insurance contributions
Letter to Scottish MPs: UK Budget: Support the voluntary sector in your constituency
SCVO letter to Rachel Reeves, Chancellor of the Exchequer
