Andrew O'Brien: Hammond buying time on Wednesday, and charities might pick up the tab

Social care, business rates and taxation are likely to be big issues in Wednesday's Budget, says the head of policy and engagement at the Charity Finance Group

Andrew O'Brien
Andrew O'Brien

It’s the Monday before the Budget. In the old days, this would be the day when papers would be raining announcements likely to come out on Wednesday. However, it has been the long-term trend – started by George Osborne – for the government to withhold as much information on spending or tax rises as possible in order to "manage expectations". The Chancellor of the Exchequer, Philip Hammond, is sticking with this approach, and this makes predicting what is going to happen on Wednesday challenging.

That being said, there are a few things that are already becoming clear and will have an impact on charities.

The deficit

The positive data on tax returns in January indicates that the Chancellor’s budget deficit is going to be a lot lower than he expected. Estimates say that the Chancellor could have an extra £12bn of "wiggle room" in this Budget compared with where he was in November last year.

This sounds very positive, and it is good news. Any of the decisions made about tax and spending on Wednesday will therefore not be due to economic necessity – although the deficit still stands at about £56bn – but because the Chancellor is feeling the political pressure to act. It is also clear that, despite the positive economic news, the Treasury still views Brexit as something that is likely to weaken the economy. This indicates that a number of long-standing issues could be deferred for future years, with the concern about Brexit used as political cover for inaction.

It also means that if he wants to spend money in the short term, he is going to need to raise some through taxation or efficiency savings. Departments are already being asked to find £3bn in additional savings to be implemented by the end of the decade. This could be trailed on Wednesday and could mean further pressures for charities.

Social care and business rates

Two areas where it appears that the government is being forced into action, however, are social care and business rates revaluation.

The social care system is generally recognised to be near breaking point, a combination of cuts to council budgets and rising costs, such as the national living wage. This is an area of particular concern for the thousands of charities delivering social care across the country, many of which are grappling with severe financial challenges, as well as those whose beneficiaries are dependent on these services.

It seems that we can expect two things on social care in the Budget. First, it is likely that there will be some short-term investment – perhaps through another increase in the social care precept of council tax – to take the political heat out of the issue. The second initiative is a long-term commission into the social care system to try to produce a financially sustainable system. Of course, we have been here before with the Dilnot Commission, so the Chancellor might surprise everyone by simply implementing his suggested reforms in full. But it is likely that the Chancellor and the Prime Minister will want to put their own stamp on this issue, leaning towards another review. Charities will need to respond quickly if this does happen.

The other big issue is business rates revaluation, which is estimated will cost businesses billions over the coming years. Some charities will be affected by this, particularly those in London, which are seeing some of the steepest rises. The CFG has already written to the Chancellor ahead of the Budget, urging it not to forget charities in the midst of all the headlines about retailers. However, given the political pressure from his backbenchers, some kind of temporary relief appears a certainty for business, although the overall revaluation still looks likely to go ahead. But he wouldn’t be the first Chancellor to kick the revaluation down the road a few years, so don’t rule out a U-turn.

Could charities be in line for some relief as well? We hope so. Reform to reduce the charity sector’s business rates bill would certainly have public support, as polling commissioned by the CFG and the Institute of Fundraising indicates indicates.

Expect stealth taxes

The government has passed a law that means it can’t raise VAT or income tax over this parliament. It could repeal it, but that is highly unlikely. So that leaves the Chancellor lacking options for increasing tax.

So Hammond is likely to rely on indirect or "stealth" taxes such as alcohol duty or the insurance premium tax. The CFG has been working with charity insurance experts and the wider industry to oppose further increases, which have already seen the tax bill for charities on insurance double over the past couple of years. That being said, with so many spending pressures and many other taxes ruled out, the Chancellor will have to find the money somewhere.

The cumulative cost pressures on charities through tax rises, on which the CFG has campaigned in recent years, might be increased further. Charities will need to scrutinise announcements closely and plan ahead. All the noises out of Whitehall so far give the distinct impression that the government is buying time so it can wait to assess the impact of Brexit and hope that other crises will melt away. The big question is: will charities be made to pay?

On Wednesday, the CFG will be running a live blog and immediate post-Budget analysis of the impact of changes on charities on Twitter: #volsecbudget

Andrew O'Brien is head of policy and engagement at the Charity Finance Group

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