Charity finance policy

What the EU’s Brexit Strategy means for charities

The European Council has published its ‘draft’ negotiation position for its future relationship with the UK. The BBC has a good article which gives an overview of the document. But ...

The European Council has published its ‘draft’ negotiation position for its future relationship with the UK. The BBC has a good article which gives an overview of the document. But what the BBC won’t give you, is what this means for charities. Given the importance of Brexit for the future of the sector, here is a quick breakdown for what charities need to consider.

1. No quick settlement on Right to Remain/EU Nationals…

The EU position is that:
Negotiations under Article 50 TEU will be conducted as a single package. In accordance with the principle that nothing is agreed until everything is agreed, individual items cannot be settled separately.”
However, it does also say:
“Agreeing reciprocal guarantees to settle the status and situations at the date of withdrawal of EU and UK citizens, and their families, affected by the United Kingdom's withdrawal from the Union will be a matter of priority for the negotiations. Such guarantees must be enforceable and non-discriminatory.”
On the one hand, it is positive news that the EU believes that settling the future of EU/UK nationals is a ‘priority’ but it is also clear that the EU’s approach will be settle everything as one package. As a consequence, we cannot know for definitive until the end of the negotiation what the future of EU nationals will be. Given that according to the NCVO an estimated 5% of the voluntary sector’s workforce is EU nationals, this will lead to more uncertainty for charities. Of course, given that this is a political negotiation, there may be ways around this and perhaps both sides will be able to publish an understanding that can be considered binding before the end. However, making an exception for EU citizenship would likely undermine the EU’s negotiating position if they do it in one area, as it would pressure on them to do so on other ‘priority’ issues for the UK such as financial services. Charities are likely going to have to wait till the end before we know what the status of EU nationals (and UK nationals overseas) will be definitively going forward.

2. Transitional arrangements appear more likely…

The EU is willing to accept transitional arrangements and given that it has clearly stated there will be no free trade deal until departure terms are agreed with the UK, this now seems very likely. These transitional arrangements appear to be very close to current membership, as they would need to include the “four freedoms” of goods, capital, services and people. There would also need to be continued oversight by the EU Courts – so charities will need to keep an eye on this part of the EU. Another part of the strategy also states that the EU will seek to continue the EU Courts power over cases currently before it, and even for cases related to actions that have taken place during the UK’s membership long after the event. On the one hand, this may be positive for UK charities if it keeps the doors to EU nationals open for employment. On the other hand, if it puts on ice changes around tax (VAT especially) this could mean that charities have to wait even longer before changes to the rules. We will wait and see.

3. Pro-charity reforms could be at risk if UK wants free-trade agreement

Understandably, the EU has taken a rather tough line to comments from the UK government that it could turn itself into a low-tax, light regulation regime in order to ‘out-compete’ the EU should a deal not be forthcoming. It says in its strategy that any deal with the EU must ensure:
“a level playing field in terms of competition and state aid”.
What does this mean? Well it could mean that the UK has to agree to some form of harmonisation or joint-resolution of tax and state aid rules, so that the UK cannot be deemed to have undertaken “anti-competitive” measures. It is hard to say what these will include, but given that charities are not ‘competing’ with their counterparts in the EU, it is important that it doesn’t include charitable activities, welfare or other measures. Brexit is an opportunity to reform tax and state aid rules so that they do not prevent the government from supporting the work of the charity sector. It is important that the UK does not agree to any sweeping arrangements that include social issues or prevents tax reform or state aid reform which can enable the government from supporting beneficiaries. That being said, if the UK wants to have a free-trade agreement, some form of assurance will need to be given that the UK will not use its new found flexibility to change the rules to the disadvantage of EU members.

We need to make our voice heard

As CFG has written for Civil Society and Sir Stuart Etherington has written for the Guardian Voluntary Sector Network – charities have to make their voices heard during these negotiations. The EU position is going to create some challenges for charities, and we need to make sure that the government is aware of the risks and takes them into account. CFG will be working with our partners to achieve this, but if you would like to give your support or views, please contact « Back to all blog posts