Charity finance policy Environmental, social, governance (ESG)

Government no longer has the luxury of ignoring charities

Charity Finance Group has made two submissions to the Chancellor’s Autumn Budget. One alongside a coalition of other representative bodies. The other, on our own, regarding charity tax reform. ...

Charity Finance Group has made two submissions to the Chancellor’s Autumn Budget. One alongside a coalition of other representative bodies. The other, on our own, regarding charity tax reform. Both have at their heart the same theme. Whichever way you slice it; the government has a lot of work to do if it is going to get the country ready for Brexit. The Prime Minister has said in her latest speech that she is an optimist on Brexit.  She spoke in Florence of the ‘indomitable spirit’ of the British people that will see them through Brexit. You can decide for yourself what you make of the speech, but we would argue that one of the things that makes up the ‘indomitable spirit’ of Britain is the charitable instinct. The desire to help others than ourselves, whether that is through giving time, money or just raising awareness. If Britain is going to stand any chance of making a success of Brexit, in the way that the Prime Minister would like, then it needs to nurture and grow that charitable instinct and support the institutions that are agents for it, charities.

Let’s plan for Brexit now

On the back of her Florence speech, the Prime Minister is aiming for a two-year transition deal. Two years isn’t a very long time, and although we may not face a cliff-edge in 2019, it will still take the country a while to prepare for Brexit in 2021. Charities are facing increasing demand for services and any economic volatility that will come from Brexit will make that harder. Even if Brexit does deliver economic success, the root causes of the referendum result – the inequality and discontent with the current state of society – will still need to be tackled. The government has bought itself time, but this doesn’t mean that inaction is an option. Investing in charities and working with them now, will mean that the country is in a much stronger position regardless of the outcome of Brexit.

Tax reform is one of the best ways to support communities

Spending with the sector through grants is incredibly important, but spending isn’t the only way that the government can help the sector. As we have outlined previously, billions are being lost for good causes because of tax rules which do not reflect the modern charity sector. As we have highlighted in our response, there are a number of ways that the government can make changes, but we have highlighted three areas in particular where the sector can be supported:
  • Beginning work on how we can remove the burden of irrecoverable VAT
  • Exempting charities from Insurance Premium Tax
  • Increasing business rate relief to 100% by the end of the decade
The first proposal doesn’t cost the government anything, but it is important that as we negotiate our future relationship with the EU, we think about what we want to do post-Brexit. When we polled the public, 63% of respondents said that they wanted the government to use its new powers to scrap the burden of irrecoverable VAT. The government needs to show that it is focused on the future, and that it is using any new powers to support those that need help most. We have put together proposals for government on how to do this, but it is important that the government owns this issue, not just the sector. The second proposal is a cheap one in government terms, but it is part of a wider problem where tax rises take place without any thought for how they can impact charities and the people that they serve. The most recent rise in the Insurance Premium Tax didn’t even consider the impact on charities, yet for many charities, this tax is a significant portion of their spending. Insurance is required for everything, from maintaining community centres to supporting volunteering. Charities have an obligation to protect their assets, which leads to charities ‘gold plating’ their insurance needs more than in the private sector. Scrapping IPT for charities would also be in line with the government’s desire to bring IPT in line with VAT. The VAT system recognises that charities are different and there are various exemptions for different services that the sector delivers. Although this creates problems in the VAT system, an exemption from IPT would not create any negative side effects. It is also likely to help the smallest organisations the most, where insurance costs are proportionally a higher level of their spending than larger charities. Our final proposal is expensive, but it is an issue which the government cannot ignore. Charities often need physical spaces to deliver their objectives, whether that is surgeries, community centres, offices or anything else. The business rates system doesn’t make any sense as it currently stands. It is the only tax relief for charities where you can be better off in one area, than in another. Local councils are also cutting back on the 20% discretionary rate relief, meaning that in some areas millions of pounds is being lost to charities and services are suffering as a consequence.

What do you think?

There is more that the government can do, and we’d be interested in your thoughts. But the important thing is that it must do something. Charities are too big to ignore and the government doesn’t have the luxury of ignoring charities anymore, if it wants to deliver a successful Brexit. We will continue to make the case for change, but it is something that we must all do together.   « Back to all blog posts