Tax and VAT Environmental, social, governance (ESG) Charity finance policy

What should charities expect from the Autumn Budget 2017?

It’s that time of the year again when the newspapers are full of gossip about potential giveaways or shocking tax changes which are going to cost eye-watering sums of money. ...

It’s that time of the year again when the newspapers are full of gossip about potential giveaways or shocking tax changes which are going to cost eye-watering sums of money. Over recent years, charities have got used to Budgets being “missed opportunities” and passing by without much of an impact. But we cannot be complacent as charities. Tax reliefs for charities are worth billions every year and over 1/3 of our income comes from government. Simply put, what the Chancellor says matters. So what we can expect from the Autumn Budget?

Tax increases likely

The Chancellor is under pressure to fund various initiatives. He has also committed himself to eliminating the deficit by 2025, and he doesn’t look likely to back track on that. The biggest story of the day will probably be the Office for Budget Responsibility’s forecast on how quickly the economy will grow in the years ahead. If poor productivity and Brexit are deemed to have damaged long term growth, the Chancellor may lose the headroom he had previously built into his previous Budgets. All this means that attention will turn on revenue raising. One area where the government has already showed an interest in increasing revenues is the Insurance Premium Tax. This has doubled in recent years and is now costing charities an extra £25m a year. The Chancellor has said that he wants to bring IPT in line with VAT rates which would mean increasing it from 12.5% to 20%. This would add an extra £20m to the bill. Overall, this would leave charities paying around £80m a year in IPT. This is going to particularly impact the smallest charities who generally pay a greater proportion of their income on insurance than the largest charities. It is also a cost that few can avoid because insurance is usually required by law or regulation. In recent days there has even been a story flying around that income tax may be increased in order to pay for public services. I find this hard to believe, but if it was to increase this could be good and bad for the sector. Good in one sense because the value of Gift Aid repayments would increase. Bad for charities, because it could put pressure on donors and increase wage demands from staff. Another charity specific measure that could be announced is changes to the Gift Aid Donor Benefit rules. The government ran a consultation some time ago on changes to help the charity sector, and so far there has been radio silence from government. Perhaps the Red Book will include some further information on this? All parties promised to review the business rates system (again) at the last General Election. A review into VAT reliefs has recently been proposed by the Office of Tax Simplification, but could we see another review into business rates announced? This would certainly appease the business lobby. For charities, it could be good or bad. Leaning to the positive side, as the case for protecting charity rate relief has only been recently accepted by government, could this be a chance to finally get 100% business rate relief for charities?

The end of austerity?

After the election, I wrote for the CFG blog that we may be seeing the end of austerity. All the political parties had to some extent committed to more public spending in the election campaigns. In the Conservative Party, the consensus appears to be that the public had enough of cuts and pay restraint. It seems inevitable that this Budget will see a loosening of purse strings for areas such as social care, housing and the NHS. For charities working in these sectors, this will be a welcome relief. However, the key issue for most charities is what happens to local authority spending. On housing, there appears to be a consensus that borrowing caps should be loosened for local authorities. But on day to day spending, the picture appears bleak. More funding for social care would certainly help local authorities, with the LGA estimating that there will be a £5.8bn overall funding gap for councils by 2019/20. Will government give councils the chance to raise council tax to close this gap and ease the cuts? Although not directly relevant for charities, changes to public sector pay will have an impact on the sector. Many charities are competing with the public sector for staff and awards to their staff will have an impact on pay settlements in the charity sector. One of the few areas of expenditure which haven’t risen significantly in recent years has been pay, so a return to “normal” levels of pay increases could add further pressure to charity budgets.

Keep informed

Whatever happens on the day, you can follow analysis of the Budget via Charity Finance Group’s Live Blog and the twitter hashtag #charitybudget. CFG will also be producing a free briefing for charities on the Budget, which will be available on Wednesday evening. « Back to all blog posts