Post-Brexit: What next for civil society?

Brexit has been billed as the start of a new era, not the end of one. So what are the opportunities for civil society and CFG members?

CFG has been clear that there are many costs to our departure from the EU, most notably the long-term economic impact of leaving the largest free trade area in the world, and the impact this will have on GDP.

Civil society will not be immune and should we see a reduction in living standards, this will likely lead to an increase in demand for charitable services.

But there are also potential benefits too. This includes freedom to change VAT rules and reforming state aid. Below are three key areas CFG will work to provide insights into and help shape.

VAT

This is relevant if your organisation imports goods and/or you are a UK VAT-registered business and account for import VAT on your return. You’ll need to make changes to how you complete your VAT Return.

The government have produced helpful guidance on when to account for import VAT on your VAT return and guidance on how to complete you VAT return to account for import VAT if this is required.

But alongside this more practical guidance, an ongoing concern for the charity sector which CFG has long campaigned on is irrecoverable VAT.

Previous estimates had determined that it cost the sector around £1.5bn annually, but recent analysis by London Economics puts this figure as high as £1.8bn. 

The standard line taken by government is that membership of the EU has prohibited us from removing this obstacle, so our departure gives us an opportunity to restart the discussions of how we might reduce the £1.8bn figure, allowing more money to go to beneficiaries.

To help reduce the amount of irrecoverable VAT CFG, alongside the Charity Tax Group, is calling on the Government to introduce a new special charity VAT rate on purchases, to complement existing reduced and zero rates and the social exemptions.

This is the first step of a longer push to reduce the amount of irrecoverable VAT for the sector to zero.

UKSPF

It has long been a policy priority of CFG to ensure the effective and efficient distribution of the Shared Prosperity Fund. Scheduled to be launched this year, the UKSPF will act as a replacement for the funding the UK has received from EU Structural Funds for decades.

Communities across the country have benefited greatly from this money, particularly via the European Social Fund and European Regional Development Funding which focus on skills, employability, regional inequality and the low-carbon economy.

The funds’ equality and non-discrimination objectives ensured women, disabled, BAME and LGBT people and others facing disadvantage were included. This is a requirement that must be retained within UKSPF.

There is now an opportunity to design a better initiative that will replace the investment in a more efficient and effective way. By helping to create a fairer and more inclusive society where all communities have an opportunity to contribute to economic growth, an effectively designed UKSPF will help the UK fulfil its post-Brexit and post-Covid-19 potential.

The UKSPF is also an opportunity to improve on past regeneration programmes which have invested in physical infrastructure but failed to support the social infrastructure to ensure it connects with the people who really need it.

The UKSPF should invest in services that support people and communities experiencing disadvantage and discrimination neglected by mainstream state provision. Local communities and civil society organisations, including equality organisations that work with groups who experience discrimination and inequality, must be involved in the design and delivery. This will help tackle the UK’s current skills gaps and productivity challenges and deliver a thriving labour market in line with the government’s ‘levelling up’ agenda.

Importantly, communities will also be better positioned to generate local opportunities for themselves and withstand the impact of economic shocks by becoming more economically resilient.

To ensure the UKSPF delivers its potential, it is vital that charities play a meaningful role in the pilot schemes scheduled to begin this year. The charity sector’s knowledge and expertise will be particularly important given the lack of consultation on the UKSPF’s design.

Longer-term, local boards consisting of key stakeholders - including charities - should be responsible for distributing funding and identifying need. This will help ensure that marginalised communities receive adequate support and avoid the UKSPF being used to subsidise existing state provision.

State Aid

This forms one of our six key requirements of any Brexit outcome that we set prior to the outcome of the referendum.

The UK is no longer subject to State Aid requirements. The Trade and Cooperation agreement contains information to ensure that both the UE and UK have in place their own independent system of subsidy control, but importantly, that neither Party is bound to follow the rules of the other.

However, there are some broad principles which shape the design of both partners’ systems. These aim to ensure that the granting of subsidy does not have detrimental effects on trade between both sides.

CFG will look to influence the new rules on subsidy control which will replace the EU’s State Aid regime. We want to see a reduction in red tape for charities in understanding whether resources are state aid and then calculating their relative costs, and also ultimately can help to provide additional funds to the sector, and more importantly their beneficiaries.