Tax and VAT Charity finance policy

Delayed reaction: what difference do Budget measures make to charities?

As we toured the country last week, meeting over 200 charities to discuss Budget 2013, we were met by experts and charities that were, on the whole, underwhelmed by the contents of the red box.

Top-line concerns stemmed from the macro-economic outlook, with the overarching narrative continuing to be one of austerity and restrained growth.  Fiscal neutrality, government cuts, erosion of real wages, low interest rates, variable inflation, and a shift to unconventional monetary policy tools – unfamiliar concepts five years ago - are now increasingly embedded as part of the ‘new normal’ as the country pushes forward with Plan A.

As our 2013 installment of the  Managing in a Downturn surveys showed, this outlook is increasingly shaping the day-to-day decisions of charities. Excitement over the sector-specific budget measures, such as announcements on niche aspects of Gift Aid and social investment, was hard to come by. Even the much lauded Employment Allowance –  an extra £2k to all employers offset against their National Insurance bill from April 2014 (worth £45m to 35,000 charities as HMT were quick to tell us) – was met with little enthusiasm. Our members are struggling to see how measures of this sort make a tangible difference to the challenges they and their beneficiaries are facing.  Will they really improve things in the short, medium or even long term, they ask.   I can see their point. 

Promises of consultations don’t necessarily amount to meaningful commitments to action.  Measures to be introduced well down the line do little to change the financial challenges faced by organisations looking to balance the books now. But that's not to suggest that the sector specific measures are trivial or meaningless. It's just that their immediate relevance is not always apparant.  

To gauge their potential  importance, it helps to look back to Budget 2011 and 2012 – for it’s the upshot of these budgets that are currently exercising charity finance teams.  2011 was the ‘freak’ budget where the Chancellor mentioned ‘charity’ in its various forms an unprecedented 11 times in his speech. It was then that Charities Online, the Gift Aid Small Donation Scheme (GASDS), Gifts of Art and incentives for legacy giving first entered the budget lexicon. In 2012,  the single utterance of ‘charitable’ in the speech was far less favourable and created outcry from the sector; but as well as the unfortunate tax relief cap (since reversed), the budget book included a few welcome boosts for charities. 

There was an increase in ‘small donations’ under GASDS from £10 to £20, simplified administration for charity shops and the promise of a HMT led review of tax breaks for social investment. Many of these measures are finally reaching their implementation date.  The Government’s Tax policy making, a new approach, published in 2010, is partly responsible for this new, more protracted means of developing tax policy. Previously, the perception  was that policy was devised behind closed doors, with little scope to consider concerns and unintended consequences. The intention therefore was to achieve greater transparency, stability and simplicity in the system and for stakeholders.

Now, rather than announcing policy changes that are introduced with almost immediate effect, pre consultation informs actual consultations; budget announcements are frequently about consultations rather than measures; and draft bills are consulted on before they enter parliament. Basically, there’s a lot of consultation! While this doesn’t mean that there aren’t mishaps along the way (see Budget 2012 where this thinking clearly went out the window), these new processes should allow for better policy development and an opportunity for Government officials to fully understand the measures and perspectives of different stakeholders.

We know that poor policy decisions are often caused by jumping straight to the ‘solution’ and this, it must be confessed, is something that some of us feared when we first got wind of HMTs interest in looking at digital giving with a view to making a budget announcement in three short months. Instead however, Government is taking the long road, seeking to understand the challenges and opportunities, and working with stakeholders, charities and umbrella bodies to get the best outcome for the sector.  This 'co-production' in policy development is  something to be welcomed and should hopefully help us to avoid reruns of the situations like the substantial donors legislation saga.  It does also, however, mean that we need to be wary of getting too excited about announcements before we have been through this process and know the parameters – the GASDS is the classic example.

So while the short term benefits of Budget 2013 to charities are limited in value now – in the longer term improving gift aid processes for digital giving and considering the benefits and risks of tax relief for private investors in social enterprises are worthy investment of time and effort. With both resources (money and people) and legislative time in short supply, progressive budget mentions aren’t easy to come by these days, and when they do, we need to make the most of them. Meanwhile, we also urge charities looking for some immediate support to peer back to Budgets 2011 and 2012 and make sure they are fully availing of the measures announced then, that are being introduced now: Are you ready for Charities Online? Have you considered whether your charity can avail of the Gift Aid Small Donation Scheme?   Are your high-net-worth donors, indeed all donors, aware of the incentives available for charitable legacies?  

These might not represent the gold rush that tends to be insinuated in the Budget speech – but they are opportunities to maximize your potential income – and that’s nothing to flout. Edited August 2018

This post was last reviewed on 6 August 2018 at 14:32
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