Welfare and employment dominate the Budget: What does this mean for charities?

July 8, 2015 at 14:59

So we didn’t do that well with our bingo card – only ‘long term economic plan’, ‘£9 minimum wage target’, ‘fixing the roof whilst the sun is shining’ and the name dropping of a charity came up.

Whilst the budget report does not have a section dedicated to the charity sector, there are a number of measures announced that will have an impact on charity finance which I will outline here.

Keep an eye out for our briefing which will be posted on our website in due course.

Profile of the cuts

£17 billion of cuts were announced in today’s budget with £20 billion more to be announced in the Autumn Statement.

Chancellor taken advice from OBR, IFS and others to smooth out the cuts – as the chart on day-to-day government spending (below) shows. This is important for charities because quicker cuts now would make it harder for them to adapt. This doesn’t mean there are fewer cuts but that we have more time as a sector to prepare for them.

Graph to show day-to-day government spending

Graph to show day-to-day government spending

Welfare cuts

As expected £12bn of welfare cuts was announced, albeit the full scale of the cuts will not be realised until 2019/20, 3 years later than the tory manifesto outlined.

As expected it is the working-age welfare bill that has been the focus of this budget, with confirmation that pensions will be protected. It was also confirmed that disability benefits will not be taxed.

Cuts include freezing working-age benefits and Local Housing Allowances for 4 years, reducing rents in social housing by 1% a year for 4 years, reducing the benefit cap, limiting child tax credits to two children per family and reforming tax credits and Universal Credit with support focussed on those with lower incomes.

Children’s and young people’s charities in particular will be concerned about the significant cuts to benefits for young people. From April 2017 18-21 year olds will not be automatically entitled to Housing Benefits. The Budget report confirmed that there will be exemptions to this rule (eg for young people who cannot return home to their parents), but this will presumably come with requirements to provide evidence which will likely increase the work load of (youth) advice charities.

Charities that support people in receipt of welfare benefits will need to examine how this will impact their beneficiaries and plan for any change in demand on their services.

National Living Wage (NLW) announced

We were expecting an increase in the minimum wage, but the introduction of the NLW for people over 25 was somewhat unexpected. The government has requested that the Low Pay Commission to set out how it will reach 60% of median earnings by 2020. According to OBR forecasts this will mean that the government will reach its target of over £9/hour for the NLW by 2020.

The rise in costs will pose significant challenges to charities. There is some good news in that the Employment Allowance will be raised by £1,000 to £3,000 from April 2016 to support small businesses and charities to create jobs. Although this means that 90,000 employers will no longer need to pay National Insurance Contributions it is not clear that this will offset the cost of increasing the minimum wage. Furthermore, it is unlikely that government will take into account this increase into account in grants and contracts.

As I have written about previously, a third of people employed in the voluntary sector are in social care roles which are typically low paid. Therefore, a significant chunk of the sector will need to commit significant funds to increase wages. Of course this will also have an impact on beneficiaries as charities look to increase income which, given the downward trajectory of government funding may include charging beneficiaries for charitable services.

Levy on large employers to create 3 million apprenticeships

So this was one rabbit that Osborne pulled out of his hat. The levy will fund post-16 apprenticeships in England. The funding will be directly controlled by employers via a digital apprenticeships voucher. Employers that are “committed to training” will be able to get back more than they put in.

This measure will require funding from large employers. CFG will look into whether charities will be included in this. If so we will certainly submit a response to the formal consultation.

Social impact bonds

The government intends to expand its support for social impact bonds in the Spending Review. The Conservatives committed this to their manifesto, but this is a very niche form of financing. We will contribute to any consultation on this.

Business rates

Although it wasn’t in the Budget speech, the government has today launched a summary of the responses to the Business Rates Anti Avoidance Review. CFG, alongside NCVO, Institute of Fundraising and the Charity Retail Association submitted a joint response to this which can be read here.

CFG have been made aware that the government will be announcing new Business Rates anti-avoidance rules. We will keep you updated.

Targeted giveaways: a worrying trend

The government has committed nearly £70 million of banking fines over the next 5 years to support military charities and other selected causes, including the Defence Medical Welfare Services, Victims of Terrorism Memorial, Children’s Air Ambulance and the Ludlow Museum. A full summary can be found on p81 of the Budget Report.

Targeted giveaways to charities, while welcome for those that receive them, is becoming a bit of a worrying trend. We are concerned that by targeting individual charities risks categorising the sector into worthy and less worthy organisations.

Missed opportunities

We wrote to the chancellor ahead of the budget. We are disappointed that the Chancellor didn’t take the opportunity to introduce a 100% mandatory rate relief for all registered charities, or look to initiate discussions on a sector-wide rebate to reduce irrecoverable VAT.