The National Council for Voluntary Organisations (NCVO) has written to George Osborne ahead of next week’s Budget, urging the Chancellor to take steps to ensure that spending cuts do not disproportionately hit vulnerable people and scupper the chances of achieving the ‘Big Society’.

The letter calls on the government to issue guidance to local authorities to guard against making disproportionate cuts and to work closely with voluntary and community organisations to take long-term decisions on the services they provide.

It also asks for clearer timescales for communicating spending decisions, to enable the sector to plan properly, saying: "We simply cannot see the situation arise again where organisations are in the position of not knowing if their funding for vital services for vulnerable people is to continue in a month’s time."

Other recommendations for helping the sector to weather the financial storm include doubling the £100m Transition Fund and relaxing the criteria so that more organisations are eligible for support.

NCVO also asks the government to take action on the issue of irrecoverable VAT, which currently costs charities an estimated four per cent of total expenditure.

NCVO has also sent the Chancellor a discussion paper exploring the role of tax incentives in social investment.

In it, it reiterates calls to preserve Community Interest Tax Relief (CITR), but recommends reforming and simplifying it to ensure that as many organisations as possible can benefit.

Sir Stuart Etherington, chief executive of NCVO, said: "Putting these simple measures in place would inject some much-needed capital into the sector and help to provide a vital financial safety net to weather the impact of the cuts.

"We urge the government to act on these recommendations, so that voluntary and community organisations can play their full part in delivering the Big Society."

The letter in full:

Rt Hon George Osborne MP
Chancellor of the Exchequer
HM Treasury
1 Horse Guards Road
London
SW1A 2HQ


Dear Chancellor,

I thought I would take this opportunity to write to you ahead of your budget statement on March 23rd. The National Council for Voluntary Organisations (NCVO) is the largest general membership body for charities and voluntary organisations in England. Established in 1919, NCVO represents over 8,400 organisations with members in every local authority area, from large household names to small groups operating at the local level.

As you will be aware the voluntary and community sector makes an important contribution to the UK economy and our society. We are not complacent about the scale of the challenge facing the country over the next few years and we remain positive about the role that the voluntary and community sector can play. However the funding of the voluntary sector remains a key issue – particularly in this tight fiscal climate – and we are keen to work with you to ensure the continued financial stability of the sector.

The voluntary and community sector contributes £35.5 billion to the UK economy, employing two out of every hundred people and working with the 20.4 million people who formally volunteer each year. In addition, the services provided by voluntary and community sector organisations play a key role in ensuring that individuals and communities are well equipped to deal with the challenging financial climate – be that in the form of our well established advice sector, providing employment and training support to vulnerable client groups, or supporting communities to shape or takeover the services they currently receive from the state.

While it is difficult to put a precise figure on the totality of the cuts affecting the sector (both national and local) some estimates have suggested that we are looking at somewhere between £3.2 billion and £5.1 billion. This is a substantial proportion of the sector’s income from the state (a total of 12.8 billion, only 2% of overall Government spending).

In some areas, the voluntary and community sector has been protected from blanket cuts but in others the sector is suffering disproportionately from the 26% cut to local authority spending. The impact of the cuts is compounded by the fact that giving remains £700m below pre-recession levels; the end of transitional relief on Gift Aid in April 2011 will cost the sector at least £100m; and the increase in the main rate of VAT to 20% will cost the sector an estimated additional £150m per year.

Like many others, voluntary and community sector organisations and the people we support are facing incredibly tough times. We understand that we cannot be immune from spending cuts but are publically asking you to put in place a set of simple measures designed to enable the sector to weather the current financial storm so that we may continue to contribute to the UK economy and the Government’s ‘Big Society’ vision.

The Government must ensure that these cuts do not disproportionately hit the most vulnerable and scupper the chances of achieving the ‘Big Society’. In order to do this, the sector and the Government will have to work together to ensure that organisations receive the support they need in order to play their full part.

1) Double the transition fund and relax the criteria

The most significant problem facing voluntary and community sector organisations lies in how to fill the substantial gap left by government funding cuts in the short-term before longer-term opportunities provided by the localism agenda and public service reform come on-stream.

We are seeking a second round of applications to the transition fund with an additional £100 million and more flexible criteria. This would be relatively low-cost, would inject some much needed capital into the sector quickly and would signal the high level of political capital behind the ‘Big Society’ agenda.

Many voluntary and community organisations lack a financial safety net to weather the impact of the cuts. One in three charities have no reserves at all and some sub-sectors of the voluntary and community sector are particularly at risk – for example employment and training organisations typically hold only 4.5 months of expenditure and playgroups and nurseries less than 2 months.

2) Action on Irrecoverable VAT

We would ask HM Government to implement EU VAT directive on shared services quickly and in a meaningful way.

Irrecoverable VAT is a significant issue for the VCS – it threatens the existing work of VCOs at a challenging time and will act as a disincentive to developing the sector’s public service delivery role. When the VAT system was drawn up, it failed to recognise the position of charities, as many services provided by charities are either VAT exempt or fall outside the scope of VAT. This means that VAT can not be reclaimed on the money they spend on supporting their activities.

Irrecoverable VAT costs charities significant sums – an estimated 4% of total expenditure (much higher in some cases) which is clearly serious in light of the economic and financial climate.

3) Address the timing issue of the Local Government Financial Settlement

Government at all levels should adopt good funding practice, placing an emphasis on long term decisions, partnership working and early communications. In the current exceptional circumstances NCVO believes there is a case for the Government to issue guidance to local authorities not to make disproportionate cuts and to work closely with the sector to take long-term strategic decisions about the services they provide to local communities. We were pleased to hear the Secretary of State for Communities and Local Government speak clearly about his ‘reasonable’ expectations for local authorities not to inflict bigger reductions to their budgets than they take on themselves. We would urge him to consider introducing statutory guidance to ensure the voluntary and community sector is not being hit by disproportionate cuts.

We believe that this guidance should also be clear about the timescales by which local authorities communicate spending decisions in order to allow voluntary and community sector organisations to plan properly. We simply cannot see the situation arise again where organisations are in the position of not knowing if their funding for vital services for vulnerable people is to continue in a month's time. In order for local authorities to do this, these timescales will need to be factored into the timing of the central government settlement for local authority finance.

We urge HM Treasury to work with a range of partners (including the voluntary and community sector, the LGA, and Communities and Local Government) to address this issue as a matter of urgency. While it is too late to influence this year’s spending decisions (this is why the Transition Fund is so important) we are well aware that there will be more cuts to come in the future and we must act now to limit the impact on the most vulnerable.

There are a range of other measures that both the Government and the sector are working hard to address, not least progress on gift aid simplification and measures to support social investment. I attach a short paper covering some of these longer term reforms around social investment. Following initial proposals from the Office of Tax Simplification this week, we would urge you not to abandon CITR, but rather to reform and simplify it in order to boost take up and incentivise the growth of the social investment market.

Like many of our members, we remain positive about the opportunities that lie ahead and supportive of the ambitions underpinning the Big Society agenda. I look forward to working with your department as we take these forward.

Yours sincerely

Sir Stuart Etherington
Chief Executive
NCVO

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