Tomorrow the Chancellor has the unenviable task of delivering the budget. It’s not just the contents of the infamous red box that will be revealed at 12.30, we’ll also hear the Office for Budget Responsibility’s (OBR) prognosis for the economy and the public finances – and their judgement about whether the Government is on course to meet its medium-term fiscal objective.
The OBR is expected to further downgrade growth forecasts and a triple-dip recession is a high possibility. With the Chancellor’s justification for his economic programme so far – that it would enable us to keep our stellar AAA credit rating and thus keep borrowing costs down – taking a knock when Moody’s downgraded the UK back in February, the current direction is in question. However with an election in sight, keeping up appearances and staying the course must be on ministers’ minds.
While this budget was pitched as a closely guarded secret, there have been inevitable leaks, and with them variable leaps of logic. Today we heard that most departments will cut 2% of their budgets in the next 2 years – health, schools and HMRC aside. MoD and Home Office will also face less severe cuts. But there was worrying silence when it came to the welfare budget. Savings will go to large-scale infrastructure projects designed to boost economic growth – a concession to those advocating a Plan B perhaps?
Commentators across the country have been sharing their views on the state of the UK and what needs to be done to revive the country’s flagging economy and support their sector or industry. Using the results of our recent Managing in ‘the new normal’ – adapting to uncertainty survey of charities’ experiences and responses to the economic downturn, we’d like to do the same.
How has the charity sector been faring?
- Of the 400+ responses we received, it’s clear that things are still tough for charities: unsurprisingly, 93% say the fundraising climate has got tougher, 67% had experienced an increase in demand for services and 58% said that Government policies had a negative impact on levels of funding during 2012. Respondents also reported feeling the effects of cuts and the slashed welfare bill, with “more people asking for help” and stretched resources impacting on the service delivery and ability to deliver successful outcomes.
- Yet there were some promising signs: Most income sources were showing signs of recovery and more charities were optimistic for the future (61%, up from 47% last year).
- Charities are taking bold actions in response: 21% were exploring merger or had merged, 67% were planning or considering drawing on reserves and 50% had taken steps to reduce the labour bill, including redundancies or restructure. All moves that would have seemed unthinkable to many in better times.
What can Government do tomorrow to improve the operating environment for charities?
Departmental cuts and changes to welfare and benefits will have by far the biggest impact on charities overall, particularly those in receipt of public services or working with people in need of social support and care. Budgets for DCLG, DWP, DoH and DoE and Cabinet Office will be watched with interest. Changes to personal allowances might put more in people’s pockets, but the benefit of this could be eroded by other cuts, rising costs or measures that drive up inflation.
But there are a number of targetted steps Government can take to improve the tax, regulatory and operating environment for charitable entities and ease the burden on them as employers. It is clear from our survey that charities have been doing a lot to gear themselves up for current challenges. In our budget submission we asked Government to meet the charity sector half way by offering specific support on:
- Gift Aid: Gift Aid is hughly valuable to charities – accounting for over £1bn in 2012. Government’s progress in improving Gift Aid is admirable – however there is some way to go. A transitional period for Charities Online and relaxing the accessibility rules GASDS would benefit many charities. Gift Aid (or the lack of) for digital giving has been on HM Treasury’s radar for a while and with giving through new technologies likely to increase, measures in this area will be particularly welcome.
- Social investment: The results of our survey showed a very low appetite for social investment and other repayable forms of finance. 73% of charities hadn’t even considered social investment and even fewer had looked into regular loans. This is still new ground but Government should support the market’s development – we’d like a review of the tax landscape for social investment and for Government to facilitate better access to repayable finance for charities.
- Trading: For us, one of the most interesting results of the survey was the popularity of trading. 39% planned to increase trading activity during 2013 and 55% had increased trading or enterprise activity since the start of the downturn. Government should be supporting innovative ways of providing much-needed additional funds and we’d like to see the unecessary restrictions around charity trading removed. Raising the current £50,000 limit for non-primary purpose trading through a charitable entity would be a helpful start.
- Pensions: Pensions have been described as a ‘ticking time bomb’ for charities, presenting a plethora of problems. Just today it was announced that the Spirit of Enniskillen Trust, a Northern Ireland peace charity, had to close as its pension deficits became unmanageable. Pension liabilities can also prevent charities merging – the collapse of Community Matters and NAVCA merger talks are a recent example. From the results we can see that 16% of charities are exploring merger, and 21% were exploring merger last year. However in both surveys, only 5% of charities had actually merged in the previous year. Not all proposed mergers will be feasible; however pensions shouldn’t be a barrier to otherwise sensible plans. Read our asks in our Pensions and Growth consultation response.
- Irrecoverable VAT and business rates: Both of these are old chestnuts for us. While we expect little movement on VAT, we’ll continue to raise it as long as it remains a problem. More realistic at this point in time is ensuring that we protect existing zero and reduced rates available to charities. Additionally, we’d like Government to explore alternatives to the cost-sharing exemption, which unfortunately is simply too restrictive for most charities to make use of. VAT poses a barrier to effective collaboration and indeed the results showed that relatively few charities were sharing staff (14% of those that had collaborated) and back office services (19%). Preserving business rate relief will be important to many charities too.
This is only a very quick run through of some of our wish-list, and in fact it wouldn’t be surprising if the sector doesn’t get mentioned in the budget at all. But after last year’s charity tax cap announcement, it’s probably would be fair to say that wouldn’t be the worst outcome. As Caron Bradshaw, our CEO, said at the Managing.. survey launch, ‘the one thing we don’t want is a nasty rabbit coming out the red budget box-shaped hat’.
Managing in ‘the new normal’ – adapting to uncertainty is the sixth in our Managing in a Dowturn survey series produced with PwC and the Institute of Fundraising.