Continued council budget squeeze will hurt charities

One result is likely to be an even wider gap between rich and poor areas of the UK, reports Liam Kay

Manchester Town Hall
Manchester Town Hall

Tax credits and tampon taxes were among the big stories in November's spending review, and continued cuts to local government budgets crept under the radar. But the impact on charities could be profound.

Between 2009/10 and 2012/13, funding of the voluntary sector by local government fell by £800m, according to the National Council for Voluntary Organisations' UK Civil Society Almanac 2015. Services in employment and training, culture, recreation and community development have been hit hardest.

In 2012/13, the most recent year covered by the almanac, local government provided £6.8bn of the £13.3bn the voluntary sector received from government bodies. Grants made up just 17 per cent of government funding for charities, falling from £6bn in 2003/04 to £2.2bn in 2012/13.

The government says funding for local government, some of it coming from asset sales, will be maintained between 2015 and 2020. But the Local Government Association says declining central government funding, even when set against increased local tax-raising powers, means council budgets will fall by 6.7 per cent in real terms over the parliament.

It estimates there will be £10bn more demand-led cost pressures on councils by 2020. In its pre-spending review submission on social care, it said the adult social care funding gap was growing at £700m a year.

Neil Cleeveley, chief executive of local infrastructure body Navca, says smaller charities could suffer most. Some councils, he fears, will cut funding for charities instead of working with them to transform services.

Social care is a statutory function, and local authorities will have to ensure these services continue, even if they have a low tax base. For charities outside the social care sector, there will be less money to go round.

Council tax increases and the retention of all income from business rates might mitigate some of the pressure. But existing inequality between rich and poor areas could increase, especially between those with "metro mayors" and those without. Mayors in places such as Greater Manchester have been given powers over such areas as housing, transport and planning, and have freedom to innovate and collaborate.

This growing inequality is also being driven by differentiations in tax bases. Smaller tax bases and reductions in central government funding could have a huge impact on local services in some areas. The north west and the east midlands are the most heavily reliant on government funding - it accounted respectively for 43 per cent and 47 per cent of their total income in 2012/13, when government funding was 27.9 per cent of London charities' total income. London and the north west also experienced the greatest percentage falls in government funding, respectively losing 7.6 per cent and 7.2 per cent between 2011/12 and 2012/13. The south east and south west had 2 per cent and 3.1 per cent increases at the time.

Andrew O'Brien, head of policy and public affairs at the Charity Finance Group, says retaining business rates could boost council income, but might exacerbate funding dilemmas for charities. Deprived areas could struggle to attract businesses and, if all councils cut business rates, the effect of the tactic might be negated. The Office for Budget Responsibility has downgraded its predictions for income from business rates, and the tax could become less profitable over the years.

There remain some opportunities for charities, such as the government's desire to encourage councils to spend the £21bn they have in reserve. But it is unlikely that the squeeze on charity finance will abate any time soon.

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