This Autumn Statement made very little direct mention of the charity sector, except for the planned changes to the Gift Aid Small Donations Schemes. However, there are plenty of measures outlined in the Treasury and Office of Budget Responsibility (OBR) reports to unpick and assess what impact they will have on charities.
Before I go on to assess the announcements in detail, I want to spend a couple of lines to highlight what the overall implications of this Autumn Statement.
- First, as our CEO Caron Bradshaw has argued, the chancellor’s announcements shows that there is money to spend where there is a political will. An example of this which is comparable to proposals for 100% business rate relief for charities, is the 100% business rate relief for new full-fibre infrastructure for a 5 year period from 1 April 2017.
- Second (and relatedly) the charity sector should be confident in stating its value to government and not shy away from stating clearly what the government can do to ensure that the sector continues to thrive.
Essentially, measures such as corporation tax cuts, funding for Local Enterprise Partnerships to boost regional productivity, and a £23bn investment in innovation and infrastructure over the next 5 years, shows that the government sees private enterprise as the sole drivers of innovation, productivity and growth. CFG will continue to advocate on behalf of the charity sector and put forward a positive agenda for the future.
Now to the analysis….
In this blog:
Ahead of the Autumn Statement we knew that the Government planned to reform the Gift Aid Small Donations Scheme (GASDS) to make it more accessible and flexible, and to ensure fairer treatment between charities that are structured in different ways.
As announced at Budget 2016, the government will also give intermediaries a greater role in administering Gift Aid, simplifying the Gift Aid process for donors making digital donations.
Charities are expected to receive £20m by 2020 through these reforms.
- The changes to GASDS outlined above are a positive step in the right direction. However, as my colleague Andrew O’Brien has previously argued, the government has missed opportunities to genuinely make GASDS work for all charities.
- Museums and galleries tax relief is a big win for the Association for Independent Museums. The government has extended the scope of the relief which was first announced in Budget 2016. The relief will take effect from 1st April 2017 and will include permanent exhibitions as well as touring exhibitions. This means that the relief is accessible to a wider range of institutions – especially smaller ones – across the country. The rates of relief which will be set at 25% for touring exhibitions and 20% for non-touring exhibitions, will be reviewed in 2020.
- Social Investment Tax Relief (SITR). From 6 April 2017, the amount of investment social enterprises aged up to 7 years old can raise through SITR will increase to £1.5 million. This is a significant increase in the amount that social enterprises can claim. However, the size of the organisations that can claim it has fallen to 250 employees. This will mean that the larger organisations which are arguably more likely to be able to make use of social investment are no longer eligible. Given that social investment has proven a challenging for smaller organisations we will have to see how positive this change proves to be.
It seems that the less charities are mentioned directly in the Autumn Statement, the more you have to go through the OBR and Treasury documents with a fine-tooth comb to identify which measures will impact the charity sector. The key announcements have been presented below.
Tax simplification – The government welcomes and has responded to the reviews the OTS has published this autumn, including on the alignment of income tax and NICs. The government has now asked the OTS to carry out reviews on aspects of the VAT system and on Stamp Duty on share transactions.
- Salary Sacrifice: National Insurance advantages of salary sacrifice schemes will be removed from April 2017, but will exclude arrangements relating to pensions (including advice), childcare, Cycle to Work and ultralow emission cars. For most charities, the exclusion of pensions, childcare, and cycle to work will mean that they will not be affected by this change. However, for those charities that use salary sacrifice beyond these, they will see their National Insurance Contributions rise. At a time when charities have to grapple with National Living Wage increases, falling government funding, and increased demand, charities will have to start planning now for any impact that this will have on both their finances, and their ability to attract and retain staff.
- Insurance premium tax (IPT): rising to £700m this is the third rise in insurance premium tax in two years. Charities cannot avoid buying Similar to the public sector, charities’ incomes are under pressure at the moment and an increase in IPT will further increase their costs. This is the third time in the last two years that IPT has been increased and has now doubled since October 2015. This further increase is a very hard thing for charities to take in a tough financial environment.
- Rural Rate Relief: In a bid to remove the inconsistency between rural rate relief and small business rate relief, the Chancellor announced that rural rate relief will be doubled to 100% from 1 April 2017. If this is applied in a similar way to the small business rate relief, rural charities that pay the discretionary 20% business rate will be eligible to apply. CFG will be checking this.
- The government stated their intention to review how benefits in kind are valued for tax purposes. A consultation on employer-provided living accommodation and a call for evidence on the valuation of all other benefits in kind will be launched at Budget 2017. This will clearly be something that charities providing accommodation to staff will need to keep a close eye on. CFG will certainly be responding to the consultation.
- The government will also consult on the use of income tax relief for employees’ business expenses, including those that are not reimbursed by their employer. Again, CFG wil review what impact any changes will have and will respond to the consultation.
It seems that Philip Hammond, like his predecessor, is content to effectively use the public purse as his own personal donation fund.
£102m of banking fines will go to support Armed Forces and Emergency Services charities over the next 4 years. This includes £20 million to support the defence related capital costs of the Defence and National Rehabilitation Centre at Stanford Hall in Nottinghamshire. As CFG and others have argued previously, this risks creating a hierachy of charities.
Comic Relief will be given £3m from the Tampon Tax to distribute to a range of women’s charities. The government will also invite applications from charities from 1 December 2016 for the next round of Tampon Tax funding to support women’s charities, including those running programmes that tackle violence against women and girls. Whilst women’s charities will welcome this income, it remains a bitter-sweet pot of funding for those charities that have been campaigning to end the unfair tax on women.
In our submission to the Chancellor ahead of the Autumn Statement CFG and other leading charity bodies called for a more strategic use of windfalls such as banking fines. All voluntary organisations and communities are operating in a challenging environment. To have the biggest possible impact on the economic participation and resilience of voluntary organisations, funding for the sector outside of normal departmental spending should focus on the strategic issues facing it as whole rather than individual sub-sectors. Establishing protocol for the strategic distribution of funding to the sector would also help address concerns expressed by the Public Administration and Constitutional Affairs Committee that Libor fines were not administered objectively and transparently
The Chancellor confirmed the government’s commitment to devolution. Swansea, Edinburgh and North Wales and Sterling are all in the process of negotiating city deals. Elected mayors will also have new borrowing powers to reflect their new responsibilities.
CFG will be keeping a close eye on how devolution is implemented – specifically to ensure that the voluntary sector plays a key role in shaping devolution.
Local government funding is a particularly important revenue stream for the charity sector. As such I was keen to see what devolution plans the government had in store. Firstly as Andrew O’brien has pointed out in his analysis of the economic outlook HMT and the OBR have not been able to agree proposals for 100% retention of business rate relief – the main mechanism of funding for local authorities. We urgently need to see more detail about this, and any potential top ups for local government. The government has said that they will be launching pilot schemes shortly, CFG will be watching these closely.
It is also worth pointing to the Shale Wealth Fund. Following a consultation to ensure local communities share in the benefits of shale production, the Shale Wealth Fund will provide up to £1 billion of additional resources to local communities, over and above industry schemes and other sources of government funding. CFG believes that charities and community groups should be involved in the decision making process.
The OBR has revised down its level of average earnings in all but the last year of its forecast period. As CFG’s Economic Outlook Briefings have shown, low inflation has meant that the pressure on household incomes has had some respite and meant that people had a bit more money in their pocket. However, with the collapse of sterling this trend looks like its coming to an end and household income is expected to fall by 1.8% in 2017 to 0.2% in 2019.
Charities need to prepare for the challenges this could pose including: increased pressure from staff to increase wages, fall in donations, increased demand on services as people struggle with living costs.
The government has made some effort to help working people. Namely increasing the National Living Wage (NLW) to £7.50. Whilst the effort to increase wages is welcome – it poses a very real challenge to charities. For a full-time employee working 37.5 hours a week, the increase for a charity employer will be around £666 including both salary costs and NICs and the overall cost of the policy is predicted to cost the sector at least £500m by 2020.
Given that government made no announcements to help charities adapt to this increase (e.g. through committing to up-rating existing public service contracts, or increasing national insurance contributions thresholds for charities) many charities will struggle to find room in their unrestricted funds to accommodate this rise.
With the increase in NLW and other announcements including the rise in the Insurance Premium Tax, charities will have to re-assess their financial plans.
The government has also committed to reducing the taper rate for Universal Credit from 65% to 63%. What this means is that once claimants in work earn above the work allowances in Universal credit their income from the benefit will be reduced by 63p for every extra £1 earned rather than 65p from April 2017. The government estimates that 3 million households will benefit from this change. More analysis is needed to see if this will meaningfully offset rising cost of living as a result of inflation.
This was an interesting find in the Treasury document – the government are introducing a £13m fund to support businesses looking to improve their management skills. This is on the back of Sir Charlie Mayfield’s review of business productivity which recognised that management skills are important in driving business productivity. As our CEO, Caron Bradshaw has stated, where there is a political will there is a way.
CFG will be looking to see whether charities can qualify for this fund. CFG has consistently argued for investment in skills in order to drive capacity in the charity sector. See for example, the voluntary sector masterclass proposal submitted to the chancellor ahead of the 2016 Budget.
The government introduced £700m to roll out full-fibre connections across the UK – this could be good news for charities operating or delivering services in rural areas.
What do you think?
If you have any comments or thoughts on the Chancellor’s announcements please do leave a comment below!