As the not-for-profit sector faces unprecedented challenges and opportunities, innovation is no longer optional; it’s essential. While The National Council for Voluntary Organisations called 2025 the year of the “big squeeze”, we believe 2026 will be the year of innovation.

Successful innovation requires organisations to have the confidence and knowledge to navigate ongoing economic pressures. The 2026 economic outlook is likely to see inflation rates remain sticky across the new year, staying above 3% throughout the first quarter, and with only one further cut to interest rates in 2026 not-for-profit organisations will continue to feel the pressure on debt. Real wage growth is also predicted to be low, creating the perfect storm for a drop in charitable donations as consumers look to conserve spending. This, paired with stagnation-like conditions and living and minimum wage rises from 1 April 2026, means the not-for-profit sector will need to do more with less. But what will that look like in practice?

Collaboration to support local impact in the not-for-profit sector

Greater collaboration between different organisations and across sectors is an innovative way to co-create solutions and share resources in order to amplify impact. This could be through social housing organisations working closely with social service and the police around anti-social behaviour, hate crime and domestic abuse; or through the sharing of back-office solutions, such as finance, HR and IT, and creating of centres of excellence. However, budget cuts of 18,000 back-office staff will (for some parts of the sector) impact progress here.

The new year will continue as 2025 left off: with a focus on ways of working to help triangulate data, target resources and get to root causes of specific community concerns quicker while having a greater local impact on individuals.

Income diversification strategies for not-for-profits

As we move into 2026, organisations need to think innovatively to diversify their income. This might be tapping into different grants that are available, identifying new income streams or by maximising the existing organisational assets. For example, we have recently seen universities come together to bid collaboratively on grants provided by Innovate UK and UKRI, in order to improve their chances of success. However, some of these opportunities for identifying additional income need the resources, investment and time to convert into hard cash, which reverts back to the importance of understanding value and the impact staff members have on organisational sustainability. Income diversification is not just to help grow the top line, but also to try and maintain it.

How changing consumer behaviour is impacting charities

This past year, platforms like Vinted and Depop have reshaped the second-hand markets, reducing donation quality and footfall for charity shops. Charities are having to dynamically respond by selling online and collaborating with resale platforms. This shift emphasises the need for digital capability, commercial thinking and collaboration. Similarly, we have seen the innovative rise of microdonations, where you are asked whether you’d like to ‘round up’ your purchases for this to be given to a charity partner. Such collaborations, and digital solutions, have made this a scalable innovation for fundraising for the sector, and such income diversification ideas are critical as we move into 2026.

AI adoption in the sector: a catalyst for change in 2026

Not-for-profit organisations have been relatively slow to adopt AI, with the main focus to date centred on automating tasks and systems rather than leveraging AI strategically. Pre-pandemic, many organisations relied heavily on physical documentation; however, lockdowns forced organisations to rapidly digitise operations. Since then, the focus has shifted towards automating processes between systems to generate more meaningful and insightful data. This is where AI can come into its own; however, to increase productivity, the sector must overcome several key barriers.

Firstly, there is a misunderstanding of both the risks and the value of AI, which is further fuelled by the pace of technological change. The coming year is likely to see more organisations embrace AI, developing clear strategies and defined governance frameworks to ensure the technology is used ethically, effectively and appropriately. Whether AI is applied to automating administrative tasks or enhancing service delivery, strong governance and a clear strategy are critical to successful adoption.

Why the not-for-profit workforce needs a voice

In an increasingly dynamic employment landscape, organisations must continue to actively engage with their workforce to capture new ideas that help shape processes and strategy, while also identifying skills gaps to ensure colleagues are equipped to deliver change effectively.

The advent of hybrid working has expanded access to talent regardless of location, bringing diverse perspectives and innovation to the not-for-profit sector. However, this must be managed carefully to ensure it does not dilute understanding of local needs or undermine organisational effectiveness.

In short, 2026 has the potential to be a transformational year for not-for-profit organisations, with innovation, collaboration and responsible use of technology playing a central role in driving sustainable growth and preventing organisational stagnation.

For more information, please contact Hannah Catchpool.

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