Charities with revenue under £1m could be exempted from the Government’s rise in national insurance contributions following a lively debate in the House of Lords on 25 February.
The National Insurance Contributions (Secondary Class 1 Contributions) Bill entered the report stage on 25 February, passing to the House of Lords where peers debated amendments.
The Lords voted in favour of Amendment 4 which will exempt charities with annual revenue less than £1 million from the employer NICs increase.
CFG welcomed the amendment and we were pleased to see that significant time and attention was given to the debate. Peers shared detailed insights and experiences, leading to the vote passing with 235 in favour and 149 against.
This represents a significant victory for smaller charities that constitute approximately 95% of the UK's 170,000 registered charities.
However, CFG remains concerned that those who will be hardest hit are those employers with revenues greater than £1 million.
Heart and soul
Baroness Sater warned that without an exemption, charities “will greatly diminish, and the majority will need, at best, to shrink the number of people they employ and the services they provide.”
She went on to name-check ACEVO and CFG: “Together with the Association of Chief Executives of Voluntary Organisations and the Charity Finance Group, they perfectly summed up this situation when they wrote that ‘the knock-on impact it will have on individuals, communities and local economies who rely on us will be devastating’. Those are voices from the sector, who represent so many charities across the country.”
Baroness Stedman-Scott quoted NCVO’s and CFG’s data, noting “the increase proposed will impose on charities about £1.4 billion in additional annual costs, and 87% of charities are worried about absorbing these and other costs.”
She emphasised that charities are “emotionally driven and business-led organisations” that give “heart and soul to the people they get up in the morning to serve.”
Lord Macpherson of Earl's Court argued against the amendment saying that it was “an important principle that Budgets should be determined by the House of Commons”.
This procedural argument was countered by Lord Leigh of Hurley who stated that “the idea that we should not be changing this because we should not change the Budget is absurd”.
Utterly demotivating
Lord Leigh of Hurley then reiterated the £1.4 billion figure and cited two charities – Thames Hospice and Jewish Care –that will be deeply affected by the Government's decision.
He described the impact as “utterly demotivating for the very many people... who go out fundraising for such charities, doing our best to help those in need, only now to see the Government snatch it away in such a heartless manner.”
Baroness Fraser of Craigmaddie, who is the CEO of Cerebral Palsy Scotland, explained her charity would not be able to recoup costs, stating: “Our raison d’être is to make our services available to the most vulnerable who cannot pay for them, and so we cannot put up our prices.”
She concluded that the only option would be to “cut our cloth and employ fewer people’, telling long-serving staff that “their roles are under threat of redundancy.”
She added that “people will lose their jobs and organisations will lose skill. Those are very difficult things to build up again.”
Baroness Bennett of Manor Castle proposed delaying the implementation for charities by one year to “attempt to protect charities and all the essential services”. She quoted a charity CEO who told her: “If I just had one year to sort this out, I would have half a chance.”
She made the point that if “charities go under or are forced to slash their services” that the cost to Government in plugging the gap could be far more than the estimated figure of £1.4 billion it expects to receive in revenue from the sector.
'Society will pay the price'
Lord Eatwell argued against all exemptions – including those for charities – stating they would “add damaging complexity to the Bill” and create “a charter for avoidance.”
He cited Adam Smith's ‘The Wealth of Nations’, arguing for the principle of “simplicity of taxation”, concluding that “exemptions would make compliance harder and open opportunities for tax avoidance.”
Lord Livermore, the Financial Secretary to the Treasury, unsurprisingly argued against the amendment, stating that exemptions would reduce revenue, which in turn would “reduce the Government's ability to achieve these objectives” of repairing public finances and rebuilding public services.
He emphasised that the Bill was necessary to fund public services and that exemptions would lead to “either higher borrowing, lower spending or alternative revenue-raising measures.”
He pointed to the Government’s support of charities via the tax regime and the Government's doubling of the employment allowance to £10,500.
Baroness Neville-Rolfe, who tabled the Amendment, concluded:
“Noble Lords across the House have been contacted by many charities which are facing tough financial decisions. We have had many worrying examples throughout the stages of this Bill. My noble friends Lady Sater and Lady Fraser made the case for action strongly.
“My latest example was L’Arche in the UK, which brings together people with and without learning disabilities in life-sharing communities. Again, they are facing hugely steep rises in employment costs. The most vulnerable people in our society will pay the price for Ministers’ misguided Budget decisions.”
The next stage of the Bill will be the Third Reading in the House of Lords, sitting on 4 March. Normally, this stage is used for tidying up the Bill, rather than making any major changes.
As the exemptions for small charities has been voted on, it will not be changed at the Third Reading. Since the Bill has been amended in the House of Lords, it will return to the Commons for consideration of the changes.
For more policy updates, read Ida's Intel, a new column where CFG's Policy Officer brings you news and updates from the policy sphere.