It seems like only yesterday that we were getting ready for the last Budget, but this Wednesday the Chancellor will deliver the first Conservative Government Budget for nearly 20 years and charities will be watching with interest. If the spending pattern follows that of the previous Parliament, we may well see a frontloading of cuts into this Budget as Osborne seeks to make significant changes early on. Whilst charities will not directly be a focus, there is still plenty to look out for in terms of impact on people that rely on charity services and the sector’s funding environment. You can follow CFG’s analysis of the Budget on twitter via #volsecbudget as well as following our twitter accounts, @CFG_Obrien, @AnjelicaSeason, @caronlb and @CFGtweets from 12pm Wednesday. Also look out for the Funding Review to be published in the coming weeks, which addresses some of the issues covered here in more detail. This blog covers the following key topics:
One of the key focuses in this budget will be the (predominately) working-age welfare bill which will be slimmed down by £12bn by 2017-18. We have had some insight into where the axe might fall: over the weekend Osborne announced that the total amount a family can claim in benefits per year will be cut to £23,000 in London with reports suggesting that it will be £3,000 lower outside of the capital and the South East. With the caveat that not all charities are welfare-related organisations, cuts to the benefits system will likely result in increased demand on a significant portion of the sector – whether this is an increase in the number of people accessing welfare-related services or that each client requires more time because of complex needs. In terms of welfare-related support, charities typically provide advice and support around benefits, deliver a wide range of practical and emotional support services for vulnerable groups and people on low incomes, and act as a voice for welfare recipients and other people in the process of statutory bodies mapping user needs and designing services. Indeed, the most recent edition of Managing the New Normal reported that 70% of respondents have said that their charity has experienced an increase in demand for their services in the last 12 months. The same number said that they expected an increase in demand for the next 12 months. Whilst we cannot say that this is the sole responsibility of the previous government’s welfare reform programme, we might assume that as more state welfare support is cut, more people will turn to the voluntary sector for support.
Keep an eye on the business rates review
A significant issue for charity finance is the ‘major review’ into business rates. Whilst there has been no indication that the government is looking to remove business rate relief for charities, there are concerns across the sector that the review could lead to charities losing out on what is currently the single biggest tax relief for the sector, worth over £1.5 billion per year. Business rate relief provides significant support for charities to deliver services that would otherwise be unaffordable. Around half of charities have an income of less than £10,000 and 83% have an income of under £100,000. It is these organisations that stand to benefit the most from the relief. CFG will certainly be looking for any indication of what conclusions have been drawn from the consultation and any subsequent policy changes. CFG, alongside other sector bodies, have called for the government to raise the mandatory business rate relief for charities to 100% and to abolish discretionary rate relief. We argue that the discretionary nature of business rate relief means that not all charities are treated equally. Charities in disadvantaged areas for example, are less likely to receive discretionary rate relief as their local authorities struggle with reduced budgetary constraints alongside increasing demand on local public services.
Last year the government announced that it would be consulting on the Gift Aid donor benefits system and how it could be improved for charities. We believe that the budget will formally announce the consultation. We are currently collecting charities' views on the current system of donor benefits and potential alternatives which will feed into our policy work. If you would like to contribute here is a link to our survey. CFG, along with other sector leaders, has made a number of recommendations to the Chancellor that we believe will ensure the efficacy of Gift Aid. This includes bringing forward the review of the Gift Aid Small Donations Scheme. You can read about this in more detail here.
Payment by Results
The Conservative manifesto committed to scaling up PbR ‘especially for youth unemployment, mental health and homelessness’. Charities play a key role in supporting people and communities, but, as I highlighted in a previous post, PbR contracts often fail to accommodate the complex nature of the service being provided. Charities are therefore at risk of being penalised for circumstances outside of their control. As government funding to charities continues to shift away from grants in favour of contracts, charities will need to be aware of any announced increases in PbR contracts and plan on how, if possible, they can move into a position where they can bid for contracts. An interesting case study comes from Peterborough Plus, a consortium of charities that are working together and sharing resources to deliver large scale contracts.
Raising the minimum wage
The conservatives committed themselves to raising the minimum wage to £8 by 2020 in their manifesto. It is therefore likely that the Budget will include initial steps to meeting this target. If this is implemented, charities will need to start planning ahead. A third of voluntary sector workers are employed in social work. As in 2012, these 298,900 people represent 31% of the overall UK workforce employed in social work. Residential care is the second most common form of voluntary sector work, with one in five people (20%) employed in this area, the equivalent of 124,500 employees. This is traditionally low paid work and so any significant increase in the minimum wage will put additional strain on charity finances given the experience of stagnating government income.
Can we expect any giveaways?
I have talked about potential squeezes on income and pressures on beneficiaries, but what about giveaways? In the last budget the Chancellor made the welcome announcement that air ambulances, military charities and blood bikes would receive VAT rebates. Irrecoverable VAT is estimated to cost charities £1.5 billion, money that could be better spent on delivering public benefit. In our letter to the Chancellor, CFG urged the government to being discussions with charities now on finding a suitable refund mechanism to reduce the loss of sector income through irrecoverable tax. We hope that we see something on this on Wednesday. What about volunteering? Andrew Pierce doubts that the three-day’s leave to volunteer announced in the Conservative election manifesto will be implemented, but let’s see what tomorrow brings!
Â« Back to all blog posts