The Economy

• Inflation is currently running at around 3%. The Bank of England has warned that it could rise later in the year due to surging global energy prices.  
• High costs for items including energy, insurance and wages continue to put strain on voluntary sector budgets. The high cost of food impacts on staff and volunteers, resulting in pay pressures for employers. 
• Increases in inflation reduce the real terms value of grants and contracts which are generally not adjusted for inflation.
• As households are also impacted by these rising costs, and household budgets feel more stretched, challenges in public fundraising and recruiting/retaining volunteers continue.

• The fiscal environment at UK and Scottish level has been volatile for a number of years, with emergency reviews, delays in budget timetables, and promises of multi-year spending reviews delayed in both parliaments.
• In November 2025 the Autumn Budget took place. The late date of this Budget pushed the Scottish Budget into January 2026, causing uncertainty for local authorities and voluntary organisations due the risk of delays in funding. 
• The UK Government’s 2025 Spending Review (announced 11 June 2025) set out multi-year spending outlooks for all UK Government departments from 2026-27 to 2029-30. This includes the Scottish Government’s indicative budget over this period. The UK Government stated that, in line with the Spending Review, Scotland is set to receive £2.9 billion per year in additional funding over the spending review period. Responding, the Scottish Government stated that the uplift to the Scottish Block Grant falls short of the average uplifts for UK Government departments.
• In January 2026 the Scottish Government set out its own spending review, publishing multi-year spending plans up to 2028-29 for resource and 2029-30 for capital. Despite setting out a multi-annual spending outlook, no new commitments – beyond the “fairer funding” pilots – were made in relation to reforming voluntary sector funding.
• The tight public spending environment is also likely to lead to increased demand for voluntary sector services, as public services tighten eligibility criteria or increase waiting lists.
• The timings of national budgets will mean decisions about voluntary sector funding by some public bodies may not be made ahead of 1 April 2026. SCVO is pressing Ministers to ensure that neither the delay in the budget nor the pre-election period get in the way of timely decision-making and communication of funding decisions.

• At time of writing, it is not yet clear how local authority investment in the voluntary sector will look in 26/27.
• In response to the Scottish Budget 2026/27, COSLA responded that the settlement was insufficient to meet rising demand for Council services. Over the period of the Scottish Government’s Spending Review, the local government settlement looks “very difficult” which may, in turn, have an impact on the voluntary sector.

• Independent funders are reporting an increase in applications, and many funds are heavily oversubscribed. 
• Some funds have closed to new applicants due to this increased demand.
• Other funders have tightened their funding criteria, and focused in on particular issues or areas.
• Competition for funding from public sector and independent funders is likely to continue to increase.
• Combined with the difficulty in public fundraising, and the fact that despite rising costs, grants and contracts are not keeping pace with inflation, this puts a huge strain on voluntary organisations.
• Ongoing global economic turbulence risks weakening investment returns on charitable endowments, reducing the resources independent funders can distribute.

• 6 in 10 people in Scotland donated money to charity in 2022. However, fundraising remains a key challenge for most charities. 
• UK Giving Report 2025 shows a slow decline in the number of people donating money in recent years with many citing the cost of living crisis (CAF 2024). Although this been mitigated by some donors donating larger amounts, only half of people (50%) donated to charity in 2025, down from 58% in 2019 - equivalent to approximately 4 million fewer donors across the whole of the UK. For those who do give, the key factors in choosing which charities to donate to are personal experience, friends and family, and social media. People also respond positively to donors talking about their giving. 
• Charity shops remain an important way for people to give and interact with charities, with around 1/3 of people donating goods and around 1/4 buying goods. 

• Changes to employers National Insurance contributions have had a significant impact on medium and large voluntary organisations employing staff. Wave 11 of the Third Sector Tracker found that the increase to employer contributions had a moderate-significant impact on 43 per cent of organisations. pushing many into deficit, accelerating the depletion of reserves, and forcing cuts to staffing and services. The rise in ENICs has also contributed to recruitment freezes, redundancies, and an inability to offer competitive pay. 
• Increases in the National Minimum Wage may lead to increased costs for some voluntary organisations employing staff, though many voluntary sector organisations in Scotland already pay at least the Real Living Wage. 
• As living costs continue to rise, many voluntary organisations will want to reflect this in staff salaries.
• The 2025 Scottish Voluntary Sector Workforce Survey conducted by SCVO, Volunteer Scotland and Charity Leadership Scotland found that low pay is a pressure facing voluntary sector staff – with only two-fifths of staff feeling they are fairly paid. 
• Recruitment and retention of paid staff are key issues for the sector, with many organisations reporting difficulty in finding applicants with the skills they need for particular posts.  Given that this issue comes at least in part from the inability of voluntary organisations to keep pace with salary levels in other sectors, the economic situation in 26/27 is likely to see this problem remain and possibly get worse over the coming year. 
• Voluntary organisations wish to offer Fair Work to their employees, including paying the Real Living Wage. The Scottish Government is committed to Scotland becoming a Fair Work Nation. At time of writing, they are conducting an evaluation of Fair Work First. As part of Fair Work First, from the 1st of July 2023 those applying for public sector grants have been required to pay at least the real Living Wage and provide effective workers’ voice as a minimum standard. Employers are also expected to make progress towards other Fair Work principles. The Scottish Budget made provision for voluntary sector staff in early years and social care to be paid the Real Living Wage, but beyond this, annual uplifts to the real Living Wage rate, and uplifts for other staff are not resourced.

For discussion of non-financial issues impacting organisations that employ staff, see the Society section 

• After a consultation, Scottish Government retained the fee waiver for disclosure checks for volunteers.  
• The latest Scottish Third Sector Tracker (Wave 11) reports that volunteer recruitment and retention challenges remain acute, with 62% of organisations experiencing moderate–significant difficulty. The costs of recruiting and supporting volunteers are seldom recognised by funders or the public. SCVO supports Volunteer Scotland’s calls to change that, and to make sure the Volunteer Charter is embedded in the sector. 

• Strong financial management is always important, but arguably even more so in the current economic climate. 
• Financial pressures remain acute in the voluntary sector. Wave 11 of the Scottish Third Sector Tracker found that, when asked to identify their top three challenges, 40 per cent of organisations highlighted difficulty fundraising, 37 per cent cited rising costs and inflation, 32 per cent reported financial or cash‑flow constraints, and 28 per cent identified delays or reductions to funding. 
• During 2025, the Scottish Third Sector Tracker showed an increase in the number of organisations using their reserves. In Autumn 2025, six out of ten organisations that had done so said their use of reserves was unsustainable.  
• An increasing (although still small) number of voluntary organisations are finding themselves in conversation in their board meetings or with their auditors about whether or not they are a going concern. 
• CEIS and other partners have done work to support organisations in crisis, but it is important for trustees and senior staff to recognise the red flags before crisis hits.