10 March 2016, 10:24

What does CFG want to see from #Budget2016?

It’s that time of year again where we wait with bated breath for the Chancellor to reveal his tax proposals. 

It’s that time of year again where we wait with bated breath for the Chancellor to reveal his tax proposals. In this blog, I outline what we can expect from the budget and what policy solutions we would like to see included in the budget to provide much needed strategic support for the sector. Keep an eye on this site for our live blog starting the day before (Tuesday 15th March) for updates on announcements. We will also provide a more detailed analysis once the Chancellor has delivered his speech. Brace, Brace, Brace What do we expect to see?

• Conclusions from the Business Rates Review
• National Living Wage announcements
• More details on the Apprenticeship Levy
• Targeted giveaways
• Increased demand on front line services

Brace, brace, brace

[caption id="attachment_1639" align="alignnone" width="300"] Osborne's tweet on 19th February 2016[/caption] The Chancellor granted the sector a short reprieve in his joint Spending Review and Autumn Statement last November by reducing expected cuts by £19bn. We should not expect a similar showing next Wednesday. Mr Osborne has spoken publicly about the impact that global instability has had on the UK’s economic outlook and subsequently future tax receipts. This means that there is still a way to go until he can deliver the promised budget surplus. See Heather McLoughlin’s blog for a more detailed analysis of the challenges Osborne faces. The Chancellor had been looking to change pension tax relief which currently costs around £7bn. But under pressure from the pensions industry he has taken these changes off the table. Whilst charity finance directors can breathe a sigh of relief that this won’t mean another pensions reform to navigate, the Chancellor is going to have to find the savings from somewhere.

What do we expect to see?

Conclusions from the Business Rates Review

During his Party Conference speech last year, the Chancellor announced that he will be devolving business rates. Since then CFG, NCVO and other sector bodies have been pressing for reassurances that charitable business rate relief - the single largest relief for the sector, worth £1.5bn annually - will continue to be centrally-mandated and maintained at the existing 80% level. CFG, along with nine other sector partners, re-stated this proposal in our joint-submission to the chancellor. We are concerned that with the pressures on local government spending, localising reliefs would put councils in the impossible position of choosing to continue providing charitable reliefs to organisations that support local communities, or removing them to raise income for statutory services. This concern has redoubled today as the times reports that five of the largest industry lobby groups - British Retail Consortium, British Council of Shopping Centres, Association of Convenience Stores, Federation of Small Businesses, and British Property Federation - have called the government to radically reform Business Rates. We expect that the conclusions from "radical" review into Business Rates  will be announced on Wednesday, and with it a judgement on charitable business rates relief.

National Living Wage Announcements

From April 2016 the statutory minimum wage will increase to to £7.20/hr, growing to £9 by 2020. This is as a result of the introduction of the Government’s National Living Wage (NLW), not to be confused with the optional Living Wage as set by the Living Wage Foundation. With most industries voicing concern over how they will cover the costs of the National Living Wage (NLW) the Chancellor may take some time to address these concerns. He has already provided a package of support to the private sector – including cuts to corporation tax to the tune of £18.2bn since 2010, and an increase in National Insurance Contribution (NIC) pay back to £3,000. Charities will benefit from the increase in NIC allowance, but we are yet to see a comparable package of support to that afforded private business. The Third Sector Research Centre has estimated that the NLW will cost the charity sector around £500m by the end of the decade. But the increase in the NIC allowance will only cover around £200m of the cost, leaving charities to find £300m to make up the difference. In our joint-submission to the Chancellor,CFG and our partners called for an increase in NIC pay back. CFG estimates that the figure will need to be increased to around £7,000 to cover the £300m funding black hole.

More details on the Apprenticeship Levy

The next Finance Bill will outline new powers for HMRC to collect the Apprenticeship Levy from employers – including charities – with a pay bill of over £3m. It is expected that 1,200 charities will be subject to the levy, costing a collective £70m. The levy will be set at 0.5% of the employer’s pay bill, and every employer will receive up-to £15,000 allowance – which will be put into a digital account - with a view to offset the levy. Employers will only be able to spend the levy on training and will not be able to cover the cost of recruitment of apprentices or their salaries. Under existing Apprenticeship Levy proposals, employers will be given a ‘reasonable amount of time’ to spend the funds available in their digital accounts. Where employers do not spend these funds, they will be made available to other employers. This poses the very serious risk of charitable income allocated for public benefit leaving the sector to support private businesses. We hope that the Budget will shed more light on the proposals. Among the policy proposals CFG jointly submitted to the chancellor, we called for measures to ring fence charities’ unspent levy funds. We believe that the government should then consult with the sector how these funds should be used to help develop skills in the sector. For more details on the Levy and a more in-depth assessment of the impact it will have on charities, see my piece for CFG’s blog and for FE Week.

Targeted giveaways

[caption id="attachment_1638" align="alignnone" width="300"] George Osborne having "donated" £1m to Yorkshire Air Ambulance at Geoffrey Boycott's request[/caption] The Chancellor has a habit of allocating windfalls, such as Libor fines, to his favourite charities. In the last budget the government committed £70m of Libor fines to air ambulance services and veterans charities. I have written about this issue before, highlighting our concern that it risks creating hierarchy of charities. CFG wants the government to stop allocating windfalls such as Libor Fines to individual causes and instead invest this money more strategically in the sector to fund three initiatives to improve commissioning practices and support the voluntary sector to increase its impact across the board. See our joint-submission to the Chancellor to see details of what these initiatives should be.

Increased demand on front line services

As ever we need to be aware not only of the direct impact the budget will have on charity finances, but also how our beneficiaries might be affected. A host of surveys, including CFG and IoF's Managing in the New Normal, have shown that charities are experiencing increased demand on their services. With spending on public sector due to fall, charities will need to brace themselves for a further influx of beneficiaries needing their support.

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