“Invest, invest, invest.” That was the Chancellor’s mantra as she delivered the first Labour Budget in 14 years. But for the impact investing sector, organisations committed to generating social and environmental good alongside financial return, the details of Budget 2025 tell a more complex story.
A new machinery for impact
First, the structural breakthroughs. As announced earlier in the month, the government has listened to the sector’s call for a ‘front door’ to Whitehall. The confirmation of the Office for the Impact Economy (OIE) within the Cabinet Office is a significant milestone. By placing this unit under the stewardship of the Chief Secretary to the Prime Minister, the government is signalling that the impact economy is viewed as a strategic partner in national growth.
Coupled with this is the (also previously announced) £500 million Better Futures Fund. While we must be realistic about the scale (£50 million a year is modest compared to the £12 billion annual cost of children’s social care) the fund represents a significant step up in policy ambition. Building on the evidence base of the Life Chances Fund, it stands as the largest commitment to social outcomes contracting globally. By ring-fencing capital over a 10-year horizon, the Treasury is moving outcomes-based commissioning from ‘pilot’ status to a central tool for public service reform. It validates the “prevention” thesis and offers investors the long-term certainty needed to deploy capital into early intervention at a meaningful scale.
The return of partnership
The budget also confirmed the return of Public-Private Partnerships (PPPs) to deliver social infrastructure including 250 new NHS Neighbourhood Health Centres.
This presents a critical opportunity for our sector. If the government is seeking private capital to rebuild social infrastructure, impact investors should be at the front of the queue. Unlike traditional private finance, impact capital focuses on the utility of the asset, improving health outcomes, rather than just the yield on the brickwork. There is a window now to shape these new PPP models, ensuring they embed social value and community benefit at their core.
Enabling local growth
The Chancellor announced the continued devolution of powers to regional government, including extending Integrated Settlements to seven of the most advanced Mayoral Strategic Authorities, totalling £13bn to prioritise investments that will drive growth in their regions. Targeted funding for economic development was confirmed for the eleven Mayoral Strategic Authorities in the North and Midlands, and for devolved nations, who will receive a share of £1.69bn through Local Growth Funds (£900m for selected English regions, £783m for devolved nations) to invest in programmes which drive productivity.
The six Mayoral authorities in the North and Midlands with an integrated Settlement will also receive a Mayoral Revolving Growth Fund, deploying a further £500 million to empower mayors to act as portfolio managers, blending public and private capital to de-risk deals in order to accelerate investment, unlock development and boost growth across their region.
Sector leaders have noted that the Local Growth Fund is significantly smaller and more selective than the UK Shared Prosperity Fund which it replaces, with some regions not due to receive any allocation. For those regions with access to them, new powers and facilities like integrated settlements and revolving funds will create new opportunities to close this gap. In areas without mayoral strategic authorities, place leaders will need to find new sources of capital to continue economic development programmes.
In both instances, place-based impact investing provides the mechanism necessary to amplify public funds with private capital and expertise and accelerate local ambitions. Successful engagements with impact capital depend on the ability of place leaders to build investable propositions and trusted relationships with the private sector. Our new guide, published tomorrow, is designed to catalyse these partnerships by providing practical knowledge and tools. It outlines the steps that place leaders and place-curious investors need to take to lay the essential foundations, irrespective of a region’s devolution status.
The fiscal headwinds
For the private investor, the Budget offers somewhat mixed signals. The reduction of the Cash ISA limit to £12,000 (for under 65s) is a clear policy signal designed to move capital from savings into productive assets. Similarly, the inclusion of pension pots in Inheritance Tax estates from 2027 may catalyse a behavioural shift towards ‘lifetime impact’, encouraging wealth holders to deploy capital into social and environmental causes now, rather than holding onto it for tax-efficient succession. However, the incentive to invest is dampened by the 2% rise in dividend tax rates from April 2026, which lowers the net return on equity.
At the operational end of the impact economy, the budget brings some challenges. The rise in Employer National Insurance to 15% places a heavy burden on the labour-intensive charities and social enterprises that make up the frontline of the impact economy. For many recipients of impact capital, this change will make it harder to deliver services.
Finally, the restriction of Capital Gains Tax relief on Employee Ownership Trusts (EOTs) from 100% to 50% risks unintended consequences. Most prospective transfers to employee ownership rely on deferred capital gain payments, funded by future profits rather than a large upfront sum. Under the new rules, these organisations face an immediate tax bill that may exceed their initial cash proceeds. With demographics driving a major succession wave (more than 600,000 UK business owners are aged over 55), this policy may inadvertently tilt the playing field back towards trade sales and private equity, undermining the potential for a boom in mutualisation.
Green shoots in a fiscal frost
With this budget, the government has built the machinery for partnership – the Office for the Impact Economy, the National Infrastructure and Service Transformation Authority, and a devolved funding landscape – but it has squeezed the fuel required to deliver impact.
Our forthcoming Place-based Impact Investing Guide is intended to empower local leaders to rise to the moment of opportunity and mobilise purpose-driven partners to deliver local priorities. We will continue to work closely with officials across government to identify additional ways to realise the full potential of impact investment, in line with the recommendations laid out by the Social Impact Investment Advisory Group. Because, we know that from neighbourhood health to new housing, early years interventions to finance for small businesses, when government and impact capital share the risk, impact investors and place leaders can deliver the renewal we all want to see for our country.