Richard Sagar, CFG's Head of Policy, takes a look at the new Chancellor's mini-budget statement and what it means for charities.
Few of the measures announced in today's [23 September 2022] mini-budget came as a surprise.
Nevertheless, the Chancellor's Growth Plan represents the most significant tax cutting budget for more than 30 years. There was nothing mini about this fiscal statement.
The primary focus of the announcement was growth, and the accompanying Treasury documents are entitled ‘The Growth Plan 2022’.
At this point, it's unclear if the proposals will deliver the Chancellor’s 2.5% target for growth. What is clear to many is that this was an enormous missed opportunity to provide adequate support for those on low incomes. It was “a hammer-blow to low income families”, said Save the Children.
With no accompanying OBR forecast, it is difficult to determine the exact cost of the measures announced. But, suffice to say, they will not be cheap.
A full OBR forecast is expected before the end of the year when we will have a better understanding of how the measures have impacted public finances.
As things stand now, gilt yields are surging, which means the cost of future borrowing will be far greater.
Given the scale and breadth of the announcements made today, it is surprising there wasn't more of direct relevance to the charity sector.
The big announcements on investment zones, cuts to stamp duty, corporation tax and removing caps to bankers' bonuses with have little direct impact on charities and their day-to-day operations.
However, there are a few things charity leaders will want to know:
Cut to the basic rate of income tax and transitionary relief for Gift Aid
- The Basic Rate of Income Tax will be cut from 20% to 19% from April 2023, rather than from April 2024.
- There will be a four-year transition period for Gift Aid relief to maintain the Income Tax basic rate relief at 20% until April 2027. This will support almost 70,000 charities and is worth more than £300m.
- There will be one-year transitional period for Relief at Source (RAS) pension schemes to permit them to continue to claim tax relief at 20%.
It is positive that the plans for transitionary relief announced at a previous budget will apply from April 2023 until 2027. But there will be concerns from many charities about what happens after that.
Gift Aid makes a sizeable contribution to charity sector income so any fall will be of concern. We will work with sector partners to determine what our next steps should be to maintain this support.
Cancellation of National Insurance rise and Health and Social Care Levy
- The government will reduce Class 1 and Class 4 National Insurance rates by 1.25 percentage points from 6 November 2022, in effect removing the temporary 1.25 percentage point increase for the remainder of the 2022-23 tax year.
- The 1.25% Health and Social Care Levy will not come into force as a separate tax from 6 April 2023, as previously planned.
- The Employment Allowance will remain at £5,000.
This change will lead to a reduction in tax for larger charities with NICs liabilities. The government calculates that it will save the average business £9,600 in 2023-24. And although the amount will be lower for the average charity, it will nonetheless be welcomed.
Those charities affected will need to ensure this change is factored into their payroll software systems to make the relevant deductions.
More information from HMRC on the relevant changes to payslips can be found here.
IR35
'The 2017 and 2021 reforms to the offpayroll working rules (also known as IR35) will be repealed from 6 April 2023. From this date, workers across the UK providing their services via an intermediary, such as a personal service company, will once again be responsible for determining their employment status and paying the appropriate amount of tax and NICs.'
This is an unexpected move that will have significant implications for contractors and employment agencies. The upshot for charities will be a reduction in administration and time saved as contractors themselves will be responsible for determining their own employment status.
Regulations to reform the pensions regulatory charge cap
Partners at Quantum Advisory have helpfully clarified that this means:
'For DC pension schemes the charge cap preventing DC schemes from applying annual charges of more than 0.75% p.a. currently limits investment strategies from using funds with a performance-related fee because it could exceed the cap if performance is strong. Today the Government announced that performance fees will be removed from the charge cap applied to DC pension schemes, in a bid to encourage pension schemes to make investments in infrastructure and high growth sectors such as science and technology.'
Changes to Universal Credit
Increase to Administrative Earnings Threshold (AET)
'The government is increasing support and incentives for those on Universal Credit (UC) across Great Britain by increasing the Administrative Earnings Threshold to 15 hours a week at National Living Wage for an individual claimant (and 24 hours a week for couples) from January 2023.
'This builds on the increase due to come into effect from 26 September 2022 which will raise the threshold from nine hours a week to 12 hours a week for an individual (and 19 hours a week for couples).
'This latest change means that around 120,000 more UC claimants who are in work on low earnings will be moved from the Light Touch labour market regime to the Intensive Work Search labour market regime.'
Strengthening the Universal Credit (UC) sanctions regime
'Alongside these changes to the AET, the government will be strengthening the sanctions regime to set clear work expectations – including applying for jobs, attending interviews or increasing the hours – in return for receiving UC. Claimants who do not fulfil their job-search commitment without good reason could have their benefits reduced.'
Perhaps the biggest disappointment was the failure to increase Universal Credit payments and other related benefits for those people on the lowest incomes.
Not only did the government fail to offer additional support to those on Universal Credit, it has imposed additional sanctions for those that currently use it.
Suffice to say that this announcement will not provide any reassurance to those on low incomes, and it will almost inevitably lead to an increase in the number of people turning to charities and other community support. One wonders how much longer the voluntary sector can help mitigate the worst effects of the cost of living crisis.
As the Joseph Roundtree Foundation pointed out:
'The government says it is on the side of the British people but it has clearly chosen to turn its back on millions who are on the lowest incomes. The government should have combined its decision to put money into the pockets of high earners with a decision to uprate benefits early. As it is, those on the lowest incomes will have run out of options this winter – forced to cut back on food and energy, go into debt and into arrears.'
Abolishing the Office for Tax Simplification
'Government has announced that instead of having a separate arms-length body oversee simplification, it will embed tax simplification into the institutions of government. It will therefore abolish the Office of Tax Simplification and set a mandate to the Treasury and HMRC to focus on simplifying the tax code.'
We agree with comments from the Charity Tax Group that 'the tax system is complex for charities and we hope that the work of the Office of Tax Simplification (OTS) is continued under the direct control of HMRC and HM Treasury.'
Comment from Caron Bradshaw OBE, CEO, Charity Finance Group:
Today’s fiscal event has marked a real shift in tone, one that is rather worrying and can be summed up as the good, the bad and the ugly.
Although there were very few policies directly relevant to the operation of charities and social change organisations in today’s announcements, one piece of good news for the sector is confirmation that the four-year Gift Aid transitional relief will still apply from April 2023.
And with nearly one million people employed in the charity sector a reduction in employers’ national insurance will be welcomed by many.
The bad news is that government’s announcements on tax will make little difference to ordinary people’s take-home income and will reduce government revenue. And the ugly was the decision to scrap the bankers’ bonus cap and the top rate of income tax, whilst simultaneously signalling that those on benefits will be penalised if they cannot secure better jobs.
Many more workers, and those doing all they can to seek employment, are edging ever closer to the poverty line. Placing faith in trickle-down economics, when for many it is clear this approach simple widens disparities and inequality, is a risky strategy.
We will remain focused on what we can do to influence and work with civil servants to ensure the rising inequality in society as a result of the pandemic and the cost of living crisis, does not leave the most vulnerable in society without a safety net. The charity sector and social change organisations remain braced for an increase in demand for their services this winter.
If you have any questions about today's mini-budget or recent policy announcements, email the team.