2014 Budget: the sector verdict

Written by Andrew Holt
20/03/14

The 2014 Budget drew mixed responses from the sector: ACEVO said there was little good news in it, CFG noted there was some bad but also good in the Chancellor's statement, CAF noted it was pleased and positive on a number of initiatives, NCVO noted there was still much to do in civil society after the Budget, DSC criticised the dearth of initiatives to support the sector, NAVCA warned of the lack of money and CTG welcomed a number of positive measures.

The Chancellor announced a number of initiatives that will impact on the sector: social investment tax relief covered here; a welfare cap set at £119.5bn for 2015-2016; radical changes to pensions in which pensioners will no longer have to use their pension pot to buy annuities; changes to digital Gift Aid, introducing legislation to increase the role of non-charity intermediaries; the provision of early intervention funding for under 5s; tax avoidance, introducing anti-avoidance legislation relating to transfer of corporate profits; fines on banks that will see the money channelled to military charities, and extended to support scouts, guides, and emergency services charities at a later date; as well as VAT waived on fuel for air ambulances and inshore rescue boat charities.

ACEVO: rehashed announcements
Commenting on the Budget, ACEVO CEO Sir Stephen Bubb, said: “The big story of what was billed as a ‘Good News Budget’ is that there was little good news for charities and social enterprises.

"The Treasury appears determined to treat the voluntary sector on a case by case basis. It continues to apply little strategic thought or planning to our future and the future of the beneficiaries we serve.

“There was little for the sector to welcome that we did not already know about. The setting of the social investment tax relief is welcome and will provide E345,000 of tax advantaged investment over three years to participating organisations, but that – alongside a bundle of rehashed announcements – cannot be the Government’s offer to a sector that employs 750,000 people and for whom 20m people volunteer each year.

“Recent ACEVO research showed that more than two thirds of charities surveyed provide entry level jobs and 93 per cent provide paid employment to non graduates.

"The sector spends £37bn each year and our research showed that 70 per cent was spent in the local community.

"Any political party with a credible story on the economy needs to understand that voluntary organisations and social enterprises are repositories of growth – as well as good - at the grass roots.

"We trust that the Chancellor is keeping his powder dry for a more substantial announcement in the coming weeks.

"ACEVO has called for a Community Recovery and Sustainability fund to help organisations at risk from repeated local government cuts.

"The Government must move quickly on this and demonstrate that it is focused, not on pet projects, but on the bigger picture.”

Commenting on the welfare cap and changes to pensions, Sir Stephen Bubb said: “The welfare cap of £119bn increasing in line with inflation risks creating a system that is too inflexible to meet the needs of those in poverty.

"The Chancellor’s focus on elderly people within our community with pension and savings reforms is welcome and understandable, but it must not come at the expense of other vulnerable groups.”

Commenting on the provision of early intervention funding for under 5s, Sir Stephen said: “We welcome the provision of early intervention funding for under 5s. As ACEVO has argued, a shift towards intelligent early intervention across our public services is long overdue.

"The Treasury must now consider how it can fund similar initiatives in other public service areas that could benefit from more preventative approaches, including health and social care.”

CFG: bad and good
Caron Bradshaw, CEO of Charity Finance Group, said: “The Chancellor spoke confidently about an improving economy but he was clear that we can expect no let-up in spending cuts.

"Tough controls on welfare and public sector expenditure are here to stay. This is very worrying for those charities that rely on public funding or who work with welfare recipients.

"Anyone in the sector who thought the age of doing more with less was over, or who was hoping for a break for vulnerable beneficiaries, should think again.

But Bradshaw noted some support for part of the charity sector: and therefore, not all bad news across civil society in the Budget.

"There were some giveaways for parts of our sector. Air ambulance and inland safety boat charities will have been thrilled at the waiving of VAT on fuel, much improving their running costs.

"It was great to hear positive announcements for culture and measures which might assist charities who are custodians of our historic buildings, Scout and Guide groups and military and emergency charities. We will be looking at the detail very closely."

On Gift Aid, Bradshaw added: "Whilst the speech made no reference to Gift Aid or measures to improve the functioning of this much-loved scheme, the background papers did.

"We welcome commitment to improve digital giving, the use of intermediaries and an announcement of an out-reach programme to drive up small charity use of the Gift Aid Small Donations Scheme."

On tax avoidance, Bradshaw added: "The budget documents allude to the current consultation on measures to deter the use of charities established for the purpose of tax avoidance.

"Whilst we fully support the Government’s objective to reduce tax avoidance and prevent charities being exploited for such purposes, we have concerns about the proposals set out and are unsure whether the legislative route is the right way forward. We have put these views to HMRC already and will be engaging in the consultation.

“This was clearly a budget written with next year’s election in mind: measures to woo older potential voters, tempting titbits for savers and a radical shake-up of Defined Contribution Pensions which will resonate across the charity sector which employs 750,000 people.”

CAF: pleased and positive
Charities Aid Foundation's chief executive John Low was more positive. He said: "We are pleased the Government is committed to promoting and modernising Gift Aid, but we urgently need to see the detail.

"Changes must be far-sighted and ambitious, so that Gift Aid is truly fit for the digital age and charities can benefit from this generous tax relief on millions of text, online and mobile donations.

"It is good that the Treasury wants to simplfy benefits for donors. We need to make it as easy as possible for people to use the generous tax breaks for giving so that their donations make the maximum difference to the causes we care about.

"It is also positive that the Government is focusing on donor behaviour in order to address barriers to Gift Aid take-up.

"They should build on the work of CAF and the Cabinet Office's Behavioural Insights Team to identify the most effective ways of 'nudging' donors to use Gift Aid, so that charities can promote the system as effectively as possible."

NVCO: much to do
Karl Wilding, director of public policy at the National Council for Voluntary Organisations, said: "Our members will be pleased to see that they can look forward to further growth in the economy. For many of them, the public spending environment will continue to be tough for the foreseeable future, with inevitable consequences for the communities they support.

"For charities to play their part in creating jobs and growth, they need the opportunity to take a greater role in public service delivery. The government still has much more to do to improve commissioning of public services."

On the Welfare cap, Wilding said: "While social security spending must be carefully managed, the cap in itself does nothing to stop the need for welfare support arising.

"Many charities are concerned the cap will drive short term decision-making about benefit levels, whereas what will really reduce the welfare bill over the long term is investing in prevention and early action."

DSC: the forgotten sector
The Directory of Social Change (DSC) criticised the dearth of initiatives to support charities and the voluntary sector.

As the much trailed ‘Transition Fund’ to help struggling charities failed to materialise.

In his statement Chancellor George Osborne did announce that fines on the banks for the LIBOR scandal would be used to continue to support military charities, and that this would be extended to support scouts, guides, and emergency services charities.

The Red Book did not offer much in the way of further details, referring only to grants for air ambulance and inland safety boat charities.

Osborne also said that he was taking measures to relieve VAT on fuel for air ambulances.

Reacting to the news, Debra Allcock Tyler, chief executive of DSC, said: "These are of course all very worthy and important causes, but it has to be said they are popular with many politicians.

"They seem hand-picked to deliver positive headlines for the Government. What about the multitude of other equally important and vital causes? Like helping victims of human trafficking, looking after isolated and neglected older people, counselling those who have experienced sexual violence, reaching out to get troubled youth and offenders on the right track, to name just a few?"

She continued: "Those causes aren’t necessarily as popular or comfortable with politicians. They don’t usually yield the ‘right’ kind of headlines. It’s great this money is coming into the sector, but it’s ridiculous that the Chancellor gets to decide what causes it goes to.

"And despite these announcements, I think overall the charity sector is turning into the forgotten sector under this Government.

"Most of the other measures that relate to charities in this Budget are just empty phrases we’ve heard a hundred times or things that are already happening.

"Too many Ministers just don’t seem to understand charity or the voluntary sector at all. If they do, it’s in a very limited sense – as either playing a ‘traditional’ role, or as a utilitarian instrument to be used to help break down the welfare state and outsource public services, or as an irritating opponent – a sector that needs to be muzzled because we campaign on issues or criticise Government policies.

"The Government seems obsessed with supporting for-profit business and economic growth above all else.

"Mending the economy and dealing with public debt are clearly crucial, but ignoring the social sector and the millions of people it serves risks storing up other, very damaging debts for the future."

NAVCA: lack of money
Reinforcing this view, Joe Irvin, chief executive of NAVCA, said: “Rather than new pound coins, the bigger issue is the lack of current pound coins in people’s pocket - cuts are hurting communities.

"And local voluntary organisations are picking up the pieces, helping communities to keep local services like libraries and youth clubs running and providing food banks. In this sense the Big Society is being delivered by stealth.

“I wanted to hear how they will help charities to support the hardest hit communities. I wanted to hear plans to support charities at a very local level to build resilience in communities.”

On the welfare cap, Irvin said: “I’m disappointed that plans for a welfare cap are being pursued. It will have perverse effects leading to people in most need being left without support.

"We will continue to support NCVO’s campaign against a welfare cap.”

CTG: welcome positive measures
John Hemming, chairman of the Charity Tax Group (CTG), was more positive.

He said: “CTG welcomes a number of positive measures announced in today’s Budget that will help charities, in particular the work being done to improve and simplify the Gift Aid scheme.

"CTG has been working closely with the UK Search and Rescue charities to improve their VAT position and welcomes the announcement of that the Government will introduce a 5-year grant of £65,000 per year to help air ambulances with the cost of VAT on fuel and also, following consultation, the proposed 5-year grant of £1 million per year for inland safety boat charities across the UK.

"We also look forward to more detail about the use of the LIBOR fines to support injured personnel involved with search and rescue and lifeboat services.

"CTG is pleased to note that when introducing anti-avoidance legislation relating to transfer of corporate profits, HMRC has recognised that charities who have a subsidiary that Gift Aid profits is not considered to be tax avoidance since the subsidiary and the charity are both taking advantage of tax reliefs which are intended to be used this way.

"CTG looks forward to receiving more detail on each of these measures and working with the Treasury and HMRC to see their successful implementation for charities.”

MHA MacIntyre Hudson: creative alternatives
Sudhir Singh, partner at MHA MacIntyre Hudson, added: "In the budget the Chancellor developed his theme of reducing tax avoidance and, again, identified the abuse of charity status as part of the problem.

"Whilst we expect the sector will be relaxed about plans to make tax schemers, such as those involved with the Cup Trust, pay over the planned tax saving up front until HMRC has agreed that their scheme is valid – HMRC’s ideas to tackle extreme tax abuse are potentially more problematic.

"In particular we need to be aware of what was not announced in the Budget. In a discussion paper released by HMRC immediately before the Budget, it seeks to strength the “purpose” test to help identify those using charities for tax abuse.

"Mooted legislation would focus attention on those that gain a tax advantage when establishing a charity. Of course many do this legitimately, so separating the saints from the sinners could be difficult.

"It appears that early drafts of proposals including provisions which if implemented could have had serious unintended consequences on the sector. HMRC have only allowed until 11 April 2014 for comments to be made on the paper.

"Whilst we would all agree that a robust and effective counter to aggressive tax abuse is hard to establish, we all want an approach that is proportionate and does not harm the precious charity brand it seeks to protect. One impact measure on which we can all agree.

"We suggest as many as possible respond to the discussion document which can be found at: http://www.hmrc.gov.uk/drafts/avoid-tax-charities.pdf, and that the sector’s innovative reputation is applied.

"There certainly needs to be serious consideration of more creative alternatives.

"For example to strength the arm of both the Charity Commission and those that scrutinise charity accounts, such as auditors, to blow the whistle to HMRC more readily than at present."

Sarah Case, head of the NfP group at MHA, added: “Overall the budget has introduced some welcome changes for the voluntary sector such as making it easier for donations to be made by Gift Aid. These measures coupled with a general uplift in the economy will hopefully help ease the burden faced by so many charities and help to start to rebuild a stronger voluntary sector.”

Spektrix: welcome news
Michael Nabarro, managing director of Spektrix, a marketing and fundraising software company, added: “The announcement from the Chancellor of a 20% tax break for theatre and other performing arts productions is welcome news.

"However the overall funding landscape is essentially unchanged. State support can no longer be taken for granted and our industry must re-think the traditional revenue mix and ways of sustaining it.”

“Fundraising that targets high-net-worth individuals has to be part of that new way of working. Some will find that statement uncomfortable, but with other sources of funding drying up, communicating with potential major donors in the audience will be essential to the future success of the Arts.

“Identifying individuals who are both dedicated and high-net-worth hands fundraisers a list of prospective donors who may be willing to make major gifts."




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