Risks Facing Charities in 2025 - What You Need to Know
- Sally Gridley
- Sep 30
- 5 min read
Charities in England and Wales are operating in an increasingly challenging landscape. The Charity Commission has published its 2025 Risk Assessment which highlights the major threats all charities should watch and act on to stay resilient.
Below is a summary of the key findings of the assessment and my Top 5 Tips for managing them.
Key Risks in Focus
Financial resilience
What it means:
At its simplest, many charities (across all sectors) are being squeezed financially. Their costs are rising faster than their income, reserves are being tapped into and some are running shortfalls.
For us, staff wages, food, rent and utilities are climbing fast while funding isn't keeping up. More than 4 in 10 charities are already running deficits.
What the evidence shows:
The gap between total sector income and expenditure shrank by roughly 77% in a year.
In 2023, 42.6% of charities reported spending more than they earned, up from 38.3% on 2022.
Charities with larger operations (income over £500,000) saw their service costs rise steeply. In 2023 they spent 23% more delivering their mission than in 2019.
Smaller charities (income under £25,000) faced declining contract values, on average down 6% compared to a 1% drop in the broader sector.
The number of cases involving charities in insolvency or financial distress nearly doubled from 98 to 184 in 2023-24.
Why it matters:
Without enough financial buffer or well diversified income a charity can be forced to cut services, delay programs, or even shut down. And as we know, once you dip into reserves, it's hard to rebuild them.
Risks to Public Benefit and Misuse
What it means:
Charities must deliver genuine public benefit but some are exploited, for example used as fronts for private gain, misdirected payments or improper claims (like false Gift Aid). The scale of misuse is small, but even a few bad cases can erode public trust.
What the evidence shows:
The Commission has observed attempts to set up charities primarily for private benefit, or misusing assets/payments.
Misuse might include unauthorised payments, misappropriation of property, or fraudulent tax claims.
Why it matters:
Trust is a charity's currency. If the public or donors believe funds are being misused, support for even the most honest organisations, can disappear. Also, regulators can intervene and trustees can face personal liability.
Other Important Risks to Watch
Beyond finance and public benefit, the report identifies several other risks that need attention:
Governance and leadership: weak decision making, lack of oversight, poor trustee engagement.
Safeguarding: risks of harm to service users or staff, especially in vulnerable contexts
Fraud and cyber threats: increasing digital risks for all organisations.
Reputational risks and social tensions: charities sometimes operate in politically or socially sensitive areas.
Geopolitical and external risks: e.g. hostile interference, sanctions, global instability
These are not always headline risks but they can escalate if ignored.
What Charities and Trustees Can Do
The Charity Commission doesn't expect every charity to manage all risks perfectly, scale and context matter, but it does suggest the following proactive steps:
Review your risk register
Use the identified risks above as a checklist. Do they appear in your own charity's risk planning?
Financial monitoring and forecasting
Watch early warning signs such as sustained deficits, falling donations. Model "what if" scenarios.
Diversify income sources
Don't lean too heavily on single funding streams. Look at grants, earned income, collaborations and reserves.
Strengthen governance and controls
Make sure trustees are informed, active and supported. Ensure clear policies and oversight, particularly around risky areas (finance, safeguarding, procurement)
Stay alert to misuse and conflicts
Regularly audit and review payments, gifts, affiliation arrangements and benefits to ensure alignment with public benefit.
Be transparent and communicate
Good reporting and transparency help maintain trust with the public, beneficiaries and donors.
A Note of Perspective
This assessment paints a challenging picture for all charities but it shouldn't be read as doom and gloom. The report acknowledges that:
The charity sector has shown resilience through crises such as the pandemic and cost of living pressures.
The risks vary widely - a small. local charity has a very different risk profile than a national charity with multiple programs.
The greatest threats often arise from a failure to respond to "known risks" rather than from unforeseeable events.
As Mark Simms, the interim chair of the Commission says in the report, charities must be clear-eyed about the challenges, but also adaptive and resilient.
So what can we do as early years charities? Read on for my tips.
Financial Pressures (Rising costs vs. squeezed income)
Staff wages, food, rent, and utilities are climbing fast, while funding isn't keeping up. More than 4 in 10 charities are already running deficits.
What to do:
Review fees, grants, and funding contracts—make sure costs are covered.
Build a realistic budget that includes contingency planning. Get my three year financial plan here to help you create a budget.
Keep a close eye on reserves. As a general rule you should have 3 to 6 months of your core operating costs.
Explore new income options—small grants, community fundraising, or partnerships.
Safeguarding Children
Your charity exists to provide safe supportive spaces for children. Any safeguarding failure can be catastrophic for children, families and your reputation.
What to do:
Regularly refresh staff and trustee safeguarding training.
Make sure safeguarding policies are clear, visible and regularly updated.
Carry out DBS checks consistently and keep records secure
Report concerns promptly following local safeguarding protocols.
Governance and Trustee Oversight
Many early years charities are run by parent trustees. If trustees aren’t actively engaged, risks around money, staffing, and safety can go unchecked.
What to do:
Schedule regular trustee meetings with clear, useful financial and safeguarding updates.
Make sure all trustees understand their legal duties (especially around public benefit and finance). Why not register for the next Trustee Roles and Responsibilities Workshop here
Recruit trustees with a mix of skills if possible (finance, HR, early years expertise, community links).
Fraud and Misuse of Funds
Even small charities can be targeted—fraud, cyber scams, or misuse of funds can drain resources and damage trust with families and funders.
What to do:
Put in simple financial controls (e.g. two signatories on bank accounts, no blank cheques, dual approval for online payments). My Financial Control's Policy provides essential safeguards and details how the finances of your charity are managed including the records kept, agreeing expenditure, reporting to the Charity Commission and how expenses are paid.
Be alert to phishing emails or fake invoices—train staff to spot red flags.
Audit Gift Aid claims and contracts to ensure accuracy.
Keep clear records of every payment and decision.
Reputation and Community Trust
Parents, carers, and funders must feel confident in your service. A single safeguarding incident, financial issue, or governance failure can quickly erode trust. It takes a second to break trust and a lifetime to rebuild it.
What to do:
Communicate openly with families—about finances, safeguarding, or changes to provision.
Use newsletters, noticeboards, or social media to celebrate successes and to thank you trustees.
Be transparent in your annual report—show how funds support children’s learning and wellbeing.
Take complaints seriously and respond constructively.
Final Thought
The risks may feel daunting, but the message is clear: strong finances, safeguarding, governance, and transparency are your best defence.
Your work with children and families is vital and by tackling risks early, you protect not just your charity but the children and families who depend on you.
Need ongoing support for your charity and trustees? See how The Leadership Collective is guiding settings like yours through the challenges of charity management.
Read the full Charity Commission 2025 Risk Assessment here.
Comments