What do charities need to know about the Spending Review?

November 25, 2015 at 17:06

This Spending Review was full of surprises. As you may have seen from our live blog, we did not expect that the chancellor would have the wiggle room to avoid front-loading cuts early on the in the Parliament.

Osborne made a number of positive announcements, and  many charities will be leaving the office today with a sense of relief. 

However, the overall theme to the announcements is that whilst certain sections of the sector will benefit, the government is yet to put forward a positive agenda for strategic investment in the sector as a whole. This is vital to ensure that charities can continue to deliver essential support for people and communities across the country.

CFG will continue to put forward a positive agenda for the charity sector, encouraging the Chancellor to provide strategic and comprehensive investment in the voluntary sector.

This blog provides an early analysis of the announcements. CFG are also releasing a more detailed briefing which will also include comments from our CEO, Caron Bradshaw, and a number of our corporate subscribers.

Wins for the sector
Where is the money coming from?
Investment in Social Impact Bonds is not what the sector needs?
Charities tax relief
Targeted Giveaways
What about Business Rates?


 

Wins for the sector

The Better Care Fund is a step in the right direction

The Chancellor announced that local councils will have access to £1.5 billion, which will be used to meet increased costs of social care as the statutory minimum wage increases with the introduction of the National Living Wage.

This is a positive step in the right direction, specifically for charities involved in delivering adult social care. However, the increased costs associated with the national living wage and the subsequent increases in national insurance and pension contributions will not just be limited to those organisations delivering adult social care.

In our joint submission to the chancellor ahead of the budget, we put forward the proposal that the government should provide ring-fenced investment to cover the difference in cost between existing budgets allocated in all public service contracts.

This would bring public service contracts in line with NAO guidelines which state that contracts should meet a fair share of a “provider’s central administrative costs because that will help to ensure that the provider can manage its activities and finances properly, and will to contribute to the organisation’s sustainability.” In specific regard to the voluntary sector, the NAO states that charities cannot be expected to subsidise the cost of the service from donations that it receives.

Even with the welcome Better Care Fund, without strategic investment in existing public service contracts, charities delivering services outside of the adult social care field, face the very real prospect of closure with vital services for the most vulnerable in society being lost.

Big Lottery Fund Protected

Ahead of the spending review there were real concerns that the Big Lottery Fund would face a cut of £320 million cut to cover savings in the Department for Culture Media and Sport.

After a successful campaign by the sector, the Chancellor announced that the government would protect the BLF, which will continue to “support the work of hundreds of small charities across Britain.”

This demonstrates that by the sector working together to put forward a positive case we can create change.

Investment in Social Impact Bonds is not what the sector needs

The Chancellor announced £80 million pounds for Social Impact Bonds. This will please the social investment sector, however, this is not an area of funding that many charities will see as a high priority. Social impact are quite niche and take a long time to set up so it could be years before this filters through into the sector.

Given that the sector is experiencing a capacity crunch and facing a £4.6 billion funding deficit, as my colleague Andrew O’Brien has stated, we need to focus on the bread and butter of the sector and build up financial capability.

Where is the money coming from?

So how is George going to pay for all this?

Perhaps the more important announcement, at least for charities, is the Apprenticeship Levy. Through this levy, Osborne will raise £11 billion of extra funding.

The levy will apply to those employers with a pay bill of over £3 million, more analysis is needed to identify exactly what impact the levy will have of charities  although early estimates from NCVO suggest it could be around £70m for around 1,000 of the biggest charities. However, this is a broadly positive move by the government to invest in the British workforce and boost skills.

The chancellor announced that BIS will be setting up a business-led institute to ensure the quality of apprenticeships that will be business led.

Given that charities too will be contributing to the levy and is a significant employer with over 820,000 people employed across England and Wales, it will be important that charities that are represented and have an equal voice in this institute. CFG will be following up on this with officials.

Good news for charity tax relief

GASDS

The Spending Review document announced that the long called for review into Gift Aid Small Donations Scheme (GASDS) will be launched in December 2015. HM Treasury officials have said that this is just the first stage of the consultation. Charities will have 3 months to respond to this first call for evidence.

This is great news for small charities: GASDS has significant potential for small charities to maximise income from charitable donations and we welcome the subsequent increase of the limit to £8,000. However, GASDS has significantly undershot original estimations.

The complexity of the scheme has deterred small charities and places unnecessary barriers in the way of charities that may not have a history of fundraising. Unless these issues are addressed, it is not clear that the charities will benefit from this increase.

Tougher tax measures will not be aimed at charity tax relief

During his speech, Osborne announced tougher measures on tax avoidance. Treasury officials have provided reassurance that this will not affect charitable tax relief.

What about Business Rates?

The Localisation of Business Rate Reliefs was confirmed in this budget. Councils will be able to keep 100% of the income from Business Rates.

However, details on whether business rate reliefs for charities will also be devolved will not be released now until Budget 2016. We will continue to engage with ministers to ensure that this important relief for charities, worth £1.5 billion, is protected.

This is also an opportunity for us to encourage government to move to 100% rate relief for charities. You can read more about our proposal here.

Targeted Giveaways

The chancellor has been at it again supporting charities that he has a personal interest in.

The government has committed £25 million of banking fines over the next 3 years to support military and heritage charities.

The Cabinet Office also received funding specifically for the expansion of the National Citizen Service to deliver up to 300,000 places by 2019-20.

As I have written before, by singling out individual charities, Osborne risks creating a hierarchy of charities. This money could be put to better use by providing support to voluntary sector infrastructure that would ultimately benefit the whole sector.

The Charity Commission’s funding has been frozen at £20 million a year. If the chancellor can find additional funding to support individual charities, why does he not invest it in the regulator which is so essential in building trust and confidence across the sector in its entirety?

As it is International Eliminate Violence Against Women Day, it was apt that the Chancellor decided to include women’s charities in his announcements. However, whilst this much needed influx of funding for the women’s sector, women are now effectively paying for their own protection through an unfair tax.