Charities must not let Brexit negotiations get away from them

June 19, 2017 at 15:01

The government has formally begun its Brexit negotiations with the EU – so expect lots of awkward looking photographs of UK and European politicians sitting across from each other.

It’s very early on, and already the government’s position is starting to adapt due to the election result, but the early moves in the negotiation could have big long term consequences both for the UK and for the charity sector.

What do we want to see?

It goes without saying that the UK charity sector wants to see a strong UK economy. Whatever deal the UK gets need to be one that is good for economic growth, which will boost the financial environment for charities and also help beneficiaries.

However, beyond that the UK government has a number of hard choices to make.

For the UK charity sector, the ideal negotiating outcome would be one which delivered a strong economic growth for the UK, but with flexibility on tax policy (particularly VAT), State Aid, public procurement and the ability to access pan-EU funds in areas such as international development and research.

A quick settlement on the right of EU nationals is also important – although it looks like the EU and UK are on the same page with this point.

Is that something that the EU is prepared to agree? And what are the costs?

What are the risks?

As I have referenced in a previous blog post, the EU negotiating strategy wants to see a “level playing field on competition and state aid”. What does that mean?

We would not argue that allowing new zero rates or rebates for charities on VAT would be anti-competitive. But the EU could view any changes or flexibility to VAT rules as a way for the UK to try and artificially reduce costs.

In a similar way, reforming State Aid so that it is less about red tape and more focus on competition in real functioning markets (like energy or retail) rather than in broken or non-functioning markets (such as the areas that charities work in) doesn’t sound anti-competitive to charities. But the EU may want to the comfort of a blanket approach to prevent any unforeseen changes in UK policy which undermine the EU’s competition.

On a spectrum – the freer the trade, the more restrictions likely. The more restrictions, the less flexibility there will be to deal with the issues of tax, state aid and procurement that have been highlighted above. This is a crude analysis, but appears to be borne out by the literature around Brexit so far.

Similarly, a transitional arrangement may significantly impact on the ability of the UK to act on the issues above. This could see the charity sector “locked in” to the current sub-optimal status quo for several years, without the UK government having the ability to enact meaningful changes.

Charities and business interests are not necessarily the same

As we heard at CFG’s Annual Conference, UK politicians do not feel that they are hearing enough from charities about what they need.

It is important that we raise the needs of our beneficiaries, but it is also critical that we raise the operational issues that impact charities. Already today we have seen the CBI push its demands for a soft Brexit so that trade access is maintained.

For charities, we need to remember that our interests are not the same as business, or other stakeholder groups.

On some issues, such as right to remain for EU nationals, we may be united. On others such as tax policy, we are significantly more impacted in terms of costs (such as VAT) than we gain through trade access. Our trade-offs would be different.

The UK will be focused on economic outcomes, but the public also wants to see a Brexit which doesn’t disadvantage the most vulnerable in society. The outcome of the election is that there are significant concerns about austerity and the need for better social outcomes. We need to push this point repeatedly with stakeholders.

Charity finance teams should make sure that their policy teams are aware of these issues when they are meeting with stakeholders in government and Parliament.

Concerned about Brexit?

If you have any concerns about Brexit, please do let the CFG Policy Team know (policy@cfg.org.uk).

We regularly engage with government on these issues and we will be pushing forward the charity sector’s interests to the government and Parliament over the coming two years.