On Wednesday 30 October 2024, the Chancellor of the Exchequer, Rachel Reeves, set out the first Budget of the new Labour Government, following this July’s General Election. This included a range of measures that will impact the work of voluntary organisations working with people in contact with the criminal justice system, as well as details on the departmental budgets for 2025-26.

Ministry of Justice Departmental Budgets

The Chancellor announced that the Ministry of Justice (MoJ) will see its budget for day-to-day spending (its resource budget) increase by 4.3% in 2025-26, compared to 2023-24. In addition, its capital budget will rise 14.9% from 2023-24 to 2025-26. Whilst the Resolution Foundation notes the MoJ will see a real-terms increase in its budget in the next financial year, it also highlights that the Department will still be 19% smaller per person than it was in 2009-10.

The Government outlined that these increased budgets would be used to fund its justice policies. This includes £2.3 billion being spent on prison expansion, £200 million for prison and probation service maintenance, £300 million for keeping prisons ‘safe and secure’, and £500 million to invest across the prisons and probation system, to recruit ‘thousands’ of new staff and deliver ‘thousands’ of new electronic tags.

Employers National Insurance Contributions (NICs)

To raise the Government’s income, Ms Reeves announced a large increase in employers NICs, a tax that employers pay on their staff’s salaries. This change is likely to raise staffing costs for voluntary organisations with employees earning over £5,000.

The measures announced by the Chancellor will see the rate at which employers NICs are paid rise 1.2 percentage points to 15%. At the same time, the threshold at which employers start paying the tax on each employee’s income will be lowered from about £9,100 a year, to £5,000 a year. The Office for Budget Responsibility (OBR), the official independent fiscal watchdog, estimates that this will be an average annual tax increase in excess of £800 per employee.

The Employment Allowance, a relief that employers can claim against their total NICs liability, will be increased to £10,500, from the current £5,000. The employment allowance threshold will also be removed, meaning that all eligible employers will be able to claim the allowance, rather than just those with a total NIC liability of below £100,000. This change is likely to help support small organisations with the increased costs of this change.

Minimum Wage

The minimum wage for employees will also be increased from April 2025. For employees 21 and over, the minimum wage, officially called the ‘National Living Wage’, will rise from £11.44 an hour to £12.21. For employees aged 18 to 20, the minimum wage will rise to £10 an hour, from the current £8.60, and for apprentices, it will rise to £7.55 an hour, from £6.40.

These changes will mean people in contact with the criminal justice system who are in work and paid the minimum wage, will see increases in their income. This could be particularly beneficial for people leaving prison who are able to secure employment after their release. However, for voluntary organisations that employ staff on the minimum wage, this will mean they see further increases in their staffing costs.

Working-age Benefits and Universal Credit

The Chancellor confirmed that working age benefits would be increased by 1.7% from April 2025, in line with the level of inflation in September 2024. For instance, this will mean that a single person aged under 25 will see their UC allowance increase by about £5.30 a month, or a couple aged over 25 will see their standard allowance rise by about £10.

Further changes were announced around UC, regarding the rate at which people repay debts out of their monthly payments. This change will mean that only 15% of a household's standard allowance can be deducted to make these repayments, such as to pay back a first payment advance, rather than the current 25% of the allowance. This was a core recommendation from the second report published by the RR3 Special Interest Group on Accommodation. The Government estimate that households affected by this change will be, on average, £420 better off a year. However, it is important to note that this makes no further changes to UC dept repayment: debts will still have to be repaid in full, but now over a longer period of time.

Both these changes are likely to help support people in contact with the criminal justice system who are in receipt of working age benefits. This is particularly the case for people being released from prison, who will see a small increase to their total UC payments, as well as having less of their payment deducted each month, to repay a first payment advance.

What’s Next?

Following the Budget, Clinks will continue to work with officials in the MoJ and HM Prison and Probation service, particularly as further decisions about allocating the overall departmental budget are made. We will continue to champion the work of the voluntary sector, highlighting the benefits of the services the sector delivers and the importance of funding them sustainably.

You can read more about the likely overall impacts of the Budget from the Institute for Government and the Resolution Foundation.

Update - 07/11/24

In response to the budget announcement the National Council for Voluntary Organisations (NCVO) has drafted an open letter to the Chancellor of the Exchequer on the impact of increased employer National Insurance Contributions for charities. Clinks has co-signed the open letter calling on The Treasury to take urgent action to safeguard the sector. You can also sign the open letter here.   

We continue to advocate for the voluntary sector and raise concerns received from our members, highlighting the impact this increase will have directly with MoJ and HMPPS. If an exemption is not created for charities, we will work with voluntary sector funders to advocate for the support needs of our sector and influence future sustainability.