Charities are bracing for a challenging year ahead, as they face rising costs, recruitment pressures, and cuts to key funding streams – with some local organisations warning they are operating at or over capacity.

The latest annual State of the Sector report from 3SG (B&NES Third Sector Group) paints a sobering picture – highlighting escalating costs and policy changes.

This includes increased National Insurance Contributions, which are expected to add more than £1.2 million to the cost base of local charities since the start of April 2025.

This year’s report – based on both survey responses and in-depth interviews – reveals that 76 per cent of respondents cited funding as their top concern, with 61 per cent struggling with capacity, and more than 40 per cent now operating at or beyond service limits.

Worryingly, more than 75 per cent of organisations are concerned about their financial viability in the coming year.

The survey also shows an increasing reliance on reserves to cover core costs, a trend that has nearly doubled since 2020. Meanwhile, income from grants and trusts – traditionally the lifeblood of many charities – continues to decline, down from 34 per cent in 2022/23 to just 27 per cent in 2024/25.

Yet, despite these headwinds, there are signs of resilience and optimism. Over half of the charities surveyed are actively pursuing collaboration, and more than 36 per cent have already worked with other organisations to strengthen delivery, reduce duplication, and share expertise.

Speaking on the findings, Tim Lerwill, Partner and Head of Charity at Milsted Langdon, said: “This is a very difficult time for charities, and 3SG’s latest survey reflects the scale of the challenge. But it also highlights where opportunity lies – in collaboration, innovation, and shared learning.

“That’s why Milsted Langdon continues to host events for local charities to come together, share best practice and support one another.

“We’re also proud to be part of the South West Charity Conference again this year, taking place on Thursday 5 June at Bath Racecourse – a key date for anyone committed to strengthening the Third Sector across our region.”

Other notable trends in the report include the growing use of AI to support capacity (with 30 per cent of charities now using platforms to support their operations), and a modest improvement in staff wellbeing – with concerns falling from 70 per cent last year to 56 per cent.

The sector’s role in community delivery remains as vital as ever, with over 4,400 residents volunteering for charities across the district and 21 per cent of charities reporting that volunteers now deliver over 80 per cent of their services.

Looking ahead, the survey calls for better engagement from commissioners, greater involvement of the Third Sector in co-designing services, and more sustainable, long-term funding models.

At Milsted Langdon, we recognise the enormous contribution that charities and not-for-profits make to the local economy, public health, and community resilience.

We will continue to work alongside Third Sector organisations, supporting them with the financial insight and strategic planning needed to weather these challenges – and emerge stronger through collaboration.

If you would like to explore how we can support your charity, please don’t hesitate to get in touch.