Victories, giveaways and deferrals: how the spending review affects the sector

The Chancellor pulled lots of rabbits out of his hat, writes Andrew O'Brien, but there is still a hard road ahead for charities

Andrew O'Brien
Andrew O'Brien

The Chancellor must have a sore arm this morning. He has pulled rabbits out of the hat on a scale that we haven’t seen in a long time. We all expected more cuts, given the leaks over the weeks before the spending review, but he actually managed to give away nearly £19bn, relative to what he said he was going to do in July. He also smoothed out the profile of the cuts, which should give charities more time to adapt to them.

But we shouldn’t let this colour the fact that it is still going to be a very tough time for the charity sector. The government is still cutting £21.5bn from unprotected departments over the course of the next five years, although some of this will be reinvested in priority areas. Charities that have seen £1.7bn lost in government income since the recession are not out of the woods yet. But here are some of the things that charities should take away from today’s announcements.

The story of the day for many in the sector will be the decision by the Prime Minister and Chancellor not to raid the Big Lottery Fund. The issue had been highlighted in Third Sector and there were significant lobbying efforts by Directory of Social Change, NCVO, and Acevo to protect this source of funding. The Big Lottery Fund is vital for supporting charities, particularly small organisations, so this decision is very welcome.

The Spending Review also confirmed that the Gift Aid Small Donations Scheme review would begin earlier than expected, in December 2015 rather than 2016 – something that Charity Finance Group, Institute of Fundraising and NCVO have repeatedly asked for. This call for evidence is likely to last till mid-March 2016 and will give charities the chance to feed in their views on the performance of the scheme so far. This will just be the first stage in the review process and is a positive development for small charities.

All readers are likely to be supportive of a potential new tax relief for museums and galleries, more funding for women’s charities and armed forces charities.

However, the targeted giveaways of the Chancellor are in danger of creating a hierarchy of causes. Government shouldn’t be picking and choosing between the ‘good’ or ‘popular’ charities and the rest. Policies should be aimed at supporting the whole sector, which is diverse and does a wide range of fantastic work.

Aside from the Big Lottery Fund, the other big issue keeping charities up at night was the review of business rates. There were concerns that charitable rate relief could be completely devolved to local councils, which at a time when they are making significant cuts in their budgets would have meant reductions in this critical relief.

However, the government has decided to postpone decisions on the future of the relief till Budget 2016. We need clarity on the future of charitable rate relief, and CFG will be working with other sector bodies to elicit that over the coming months.

The decision to make it possible for sixth form colleges to convert to academies so that they can claim VAT back on their non-business costs also highlights another unresolved issue for charities – irrecoverable VAT. Rebates in previous budgets, and this announcement, show that where there is a political will, there is a way. Irrecoverable VAT costs charities hundreds of millions of pounds every year, and the government needs to engage with the sector on this issue.

One big tax-raising announcement was the apprenticeships levy which is set to bring in around £11bn over the course of the Parliament. Large charity employers (those with pay bills of over £3m) will be asked to pay a levy of 0.5% on their pay bill. This could turn into a significant cost and we need to make sure that there are appropriate pathways for charities to invest in if they are asked to pay this money. The new Institute of Apprenticeships, which will monitor the quality and standards of apprenticeships, needs to have charity representation. Watch this space.

The government has frozen the Charity Commission’s budget at £20.3m for the rest of the parliament, but this will be eroded over time by inflation. Despite giving away billions, the Chancellor could not find a few million pounds to invest in the regulation of the sector, and it is likely that a consultation on how to fund the commission will be launched shortly.

CFG, NAVCA, Directory of Social Change and Small Charities Coalition have all made the case for public investment in the commission and why we shouldn’t go down the route of a ‘charity tax’. It looks like we’ll need to keep banging the drum on this into the early months of 2016.

Finally, chancellors can be clear when they want to be. But they are often quite cryptic. Mr Osborne said that the government would "encourage" local councils to use their reserves in order to make up for cuts in funding. What exactly "encourage" means in this context, no one knows. But if this money is going to be used, it should be invested in preventative services that reduce long-term demand for services. Charities are ideal partners in this work, and organisations should reach out to their local councils to see how this money can be best used.

This spending review hasn’t changed the fundamentals for most charities, and in key areas hasn’t given us more clarity. But the feeling many have been left with is that it could have been a lot worse.

Andrew O'Brien is Head of Policy & Public Affairs at the Charity Finance Group

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