Posted by:
Andrew O'Brien
Article read time:
3 minutes
Charity finance policy Environmental, social, governance (ESG) Governance, legal and compliance
24 June 2016, 09:43
EU Referendum: Keep watching this space…
The United Kingdom has voted to leave the European Union and the Prime Minister has resigned. What does this mean for charities? The decision to leave the European Union will have a significant impact on the future of our country and Sir Stuart Etherington, Chief Executive of NCVO, has written an excellent blog post outlining the importance of charities in this new situation.
Too early to say…
The truth is that it is just too early to say what this will mean for our sector and our beneficiaries. My colleague, Heather McLoughlin, wrote an excellent briefing last month which highlighted some of the potential impacts for charities that could come from Brexit. You can download it, for free, from our website. However, the theme that runs throughout the briefing is the same: uncertainty. Leaving the European Union gives the UK government (theoretically) much more power. What it chooses to do with this power remains to be seen and will depend on who is elected the next Prime Minister (and potentially, whether we can have a new general election following their appointment). It will also depend on what deal we have with Europe going forward (if any). For charities there are both opportunities and threats that emerge from the new found freedom that the UK government will have on various issues that previously were decided together with other nations in Brussels. Here are just a handful.
Opportunities
Starting with the positives, one of the biggest issues facing the sector is irrecoverable VAT. VAT rules have been set centrally within the European Union and this has created difficulties for the UK government in reforming the rules. Charities have suffered because although they receive many exemptions from VAT, so that they can provide services free to beneficiaries, they have still had to pay VAT on the goods and services that they bought for their organisation from outside parties. For many years, the government has cited the need for EU negotiation as a barrier to change. Although in recent years HM Treasury has produced a number of rebate mechanisms for certain parts of the sector, reform has been slow and piecemeal. Exiting the EU may open up the opportunity to change the system so it works better for charities and frees up the over £1bn lost every year through the VAT system. For charities working in public service markets, the end of EU membership could lead to the government putting rules in place to award more contracts on the basis of social value. One of the barriers in the past for commissioners has been concerns around EU rules and discriminating against other organisations. Although procurement rules will take years to reform, even if the government decides it wants to change the existing rules, there may be an opportunity to push for a strengthen of social value within public sector procurement that could benefit charities that bid for contracts.
Threats
No one knows what the future of EU funds will be. According to data from the Stronger IN campaign, the UK charity sector receives around £200m from the EU every year in contracts and grants. It is unclear whether these funding options will remain open or how they will be distributed in the future. The Institute for Fiscal Studies also warned during the campaign that leaving the EU could leave a £30bn black hole in the public finances that may need to be made up with further cuts or tax rises. This could put the sector under more pressure at a time when it has just begun to recover from the impact of the previous recession. Of course on the flip side when it comes to VAT, new found freedom could also lead to our exemption and reliefs being scrapped, leading to significant increases in costs for charities. The same is true for procurement, where the EU has been a big force for pushing for social value. A new government may decide to scale back these commitments.
We must make sure that our sector’s voice is heard
Regardless of what happens, the charity sector must make sure that its voice is heard. Far too often, charities have been an afterthought when it comes to policy change. We must make sure that any changes that are made have the needs of charities, as major employers and contributors to our society, taken into account. It is important that we keep watching the government closely and ensure that measures are not introduced which negatively impact on our sector and prevent us from serving our beneficiaries effectively. CFG will do what we can to make charities are not ignored and continue to update members so that they can make informed decisions on how they operate in the future.
This post was last reviewed on 27 February 2019 at 16:05
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