Britain’s Hospices. Three Quarters Are in Deficit. Here’s What Charities Can Do About It.
Autumn Term, Lesson 7. Three quarters of England’s hospices are in deficit, and hospice funding is the clearest example of a squeeze many charities now face. Here are seven practical ways to close the gap when costs rise faster than income.
Autumn Term is a weekly series from WrightCFO, a UK fractional CFO practice, on what the numbers were saying in well-known businesses, the ones that went wrong and the ones that got it right.
The short version
- Charity budgets are being squeezed because staff costs have risen while contracts and grants have mostly stayed flat.
- Employer National Insurance rose from 13.8% to 15% in April 2025 and now starts at £5,000 of salary, adding about £870 a year to a £30,000 salary.
- Hospices show it most clearly: only around £0.5 billion of their £1.8 billion income in 2023 came from the state, and by March 2026 three quarters of hospices in England were running a deficit.
- The main levers: recover full cost at renewal, claim every relief (Employment Allowance, Gift Aid), consider pension salary sacrifice, grow unrestricted income, share back-office functions, budget in scenarios, and talk to funders early.
- Hospices that can show the full cost of each service will be best placed as the NHS sets its new framework for how it pays them.
If you run a charity, this year’s budget has probably come down to one awkward sum. Staff costs went up, and the contracts and grants that pay for the work mostly stayed where they were.
It’s a hard position, but it isn’t a hopeless one. There is usually more room to act than it feels like in the middle of budget season, and the charities that come through best are the ones that act early.
The squeeze, in brief
Most charities spend the bulk of their money on people. On top of pay rises, employer National Insurance went from 13.8% to 15% in April 2025, and now starts at £5,000 of salary instead of £9,100. On a £30,000 salary that adds about £870 a year.
Britain’s hospices show the effect most clearly. Only around £0.5 billion of their £1.8 billion income in 2023 came from the state, with the rest raised locally. By March this year, three quarters of hospices in England were running a deficit.
What can charities do about rising costs?
Recover the full cost at every renewal. Work out what each service really costs, including a fair share of premises, finance and management. A funder can only agree to pay closer to full cost if it’s shown the figure, and asked. (The same discipline applies in business: see client profitability at Babylon Health.)
Claim everything you’re entitled to. Check you’re using the full £10,500 Employment Allowance, remembering that connected charities share one allowance. Make sure Gift Aid is claimed on every eligible donation, including through the Retail Gift Aid scheme if you run shops.
Look at salary sacrifice for pensions. Pension contributions made through salary sacrifice save the employer’s 15% National Insurance. From April 2029 that saving will be capped at the first £2,000 a year per employee, which still covers most staff on modest pay. Take advice before setting it up, and make sure nobody’s pay drops below the minimum wage.
Grow income that isn’t tied to a project. Unrestricted income, from regular giving, legacies, trading and corporate partners, is what pays for rising core costs. Even a small shift in the mix gives the board more choice.
Share or buy in the back office. Finance, HR and IT don’t all need to be full-time posts. Sharing them with another charity, or buying in senior support for a few days a month, can protect money for frontline work.
Budget in scenarios, and count reserves in months. Model next year’s pay award and its National Insurance before the budget is set, not after. A reserves figure means far more to trustees when it’s expressed as months of running costs.
Talk to funders early, with numbers. A funder told in good time, with a clear cost breakdown, has options. One told at the last minute usually doesn’t.
What does this mean for hospice funding?
The NHS is working on a new framework for how it pays hospices, due to be completed this autumn. Hospices that can show the full cost of each service will be in the strongest position when those conversations happen.
The government has also provided £125 million of capital funding. It’s one-off money for buildings and systems rather than running costs, so it’s worth using where it brings running costs down, such as energy or IT.
None of this is about poor management. Hospices are doing what charities are meant to do, and the ones planning ahead now will have the most choices next year.
Five things to do this month
- Work out how many months your free reserves would cover. Compare that with your reserves policy, and with where you were a year ago.
- Pick your three biggest contracts or grants and cost them fully. Include overheads, and note when each one is next up for renewal.
- Check your Employment Allowance and Gift Aid claims. Both are easy to under-claim, and both are money you’re already owed.
- Ask your payroll provider about salary sacrifice. Find out what it would save on your current staff, before and after the 2029 cap.
- Put a one-page finance summary in front of trustees. Income, costs and reserves against budget, clear enough for every board member to follow in five minutes. (Why most board packs tell trustees nothing useful.)
How a fractional CFO from WrightCFO can help
WrightCFO has a social purpose team that works with charities and not-for-profit organisations. They can help you set a reserves policy the board can actually use, and work out the full cost of each service before your next contract or grant conversation.
Before the budget is set, they can model what pay, National Insurance and salary sacrifice will do to it, and turn the accounts into reports every trustee can follow. We supported one charity through a period without a treasurer. Its founder described the result as a thorough financial review, with the year-end accounts put into clear formats for all the trustees.
Thirty minutes, and nothing for you to send me beforehand. Book a slot directly with me here.
Sophie
Frequently asked questions
Why are so many hospices in deficit?
Most hospice costs are staff, and pay has to keep pace with the NHS, while employer National Insurance rose in April 2025. Yet only around £0.5 billion of hospices’ £1.8 billion income in 2023 came from the state, with the rest raised locally through fundraising, shops and legacies. Parliament’s Public Accounts Committee reported in March 2026 that three quarters of hospices in England were in deficit.
How is hospice funding changing?
The government has provided £125 million of capital funding for adult and children’s hospices in England, which can be spent on buildings and systems but not running costs. The NHS is also developing a new framework for how it commissions and pays for palliative and end-of-life care.
What is full cost recovery for charities?
Full cost recovery means pricing each service or grant application to cover not only its direct costs but a fair share of overheads such as premises, finance, HR and management. Without it, every new contract can deepen a charity’s deficit even as its activity grows.
Can charities claim the Employment Allowance?
Yes. Eligible charities can reduce their employer National Insurance bill by up to £10,500 a year. Connected charities must share a single allowance, so groups should check which entity claims it.
How many months of reserves should a charity hold?
There is no single figure; it depends on the charity’s risks, income mix and commitments. Expressing free reserves as months of running costs makes the position easier for trustees to judge, and the policy should be reviewed at least annually and whenever costs change significantly. (Kids Company is a stark example of what happens when reserves run out.)
Sophie Wright is the founder of WrightCFO, a fractional CFO practice of eleven Chartered Accountants founded in 2014. We work with founder-led and private equity-backed businesses across the UK, mostly between £1 million and £10 million in revenue, in technology, creative, media, professional services and not-for-profit, on reserves and cash planning, full-cost recovery, budgeting and forecasting, and trustee reporting.
Related reading: Financial sustainability for charities and not-for-profit organisations.
Sources: National Audit Office, via Parliament’s Public Accounts Committee (2025-26); Public Accounts Committee report on the financial sustainability of adult hospices (March 2026); Hospice UK (March 2026); Department of Health and Social Care; HMRC and the National Insurance Contributions (Secondary Class 1 Contributions) Act 2025; GOV.UK, changes to salary sacrifice for pensions from April 2029; ICAEW and the Institute for Fiscal Studies on salary sacrifice (2025-26).
Photo by Age Cymru on Unsplash.
