Analysis: "No nasty surprises, please..."

The sector hopes the Budget will not contain shocks such as year's proposal to cap tax relief on giving, according to Ralph Michell of Acevo

Ralph Michell
Ralph Michell

No matter what turns out to be the most important announcement for the voluntary sector in the Budget, past experience suggests it will come as a surprise to the sector.

The past two Budgets have been prime examples. Last year, the sector was expecting nothing of great relevance except a few improvements to social investment. Instead, the sector got a proposal for a cap on tax relief on charitable donations that could have cost it about £500m and recast major givers as tax dodgers. Two months later, after the intensive Give it Back, George campaign, the cap was abandoned.

The year before that, the speculation was about the cost to the sector of a VAT rise and of the end of transitional relief on Gift Aid donations. The sector was not spared those blows, but also got a package of reliefs, including the recently enacted Gift Aid Small Donations Scheme, worth more than £200m a year to charities in the long term.

So any predictions about next week's Budget must be made with caution. However, there is hope that the Treasury will want to make amends for last year's tax cap debacle by improving the lot of charities in some way.

The sector's wishlist includes changes to allow Gift Aid to be claimed more easily when people use various digital platforms to donate, and tax reliefs for social investment. Longer-term wishes include changes to VAT to reduce the sector's £1.3bn irrecoverable VAT bill, substantial improvements to the structure of Gift Aid generally and alterations to a pensions regime that threatens the long-term viability of many charities.

But Chris Lane, a policy officer at the Charity Tax Group, expects none of the main long-term issues to be addressed this year. "We always make the point that we think these should change," he says. "But this isn't really the time to expect large-scale changes. We need to be realistic in terms of the money there is."

He says the sector's priority is good practical implementation of schemes previously announced, such as the Gift Aid Small Donations Scheme and the online Gift Aid filing service from HM Revenue & Customs, Charities Online, due to begin next month.

But Lane is not entirely pessimistic. "There might be something for the sector," he says. "Given the pretty disastrous Budget last year, the Treasury might want to restore some trust. I wouldn't be surprised if there was a small, quick win that doesn't cost the government too much."

Nonetheless, the main hope of many sector umbrella bodies is simply that there will be no further bad news, given that recent Budgets have included unwelcome surprises such as the community infrastructure levy, anti-fraud measures such as the substantial donor rules and the introduction of the fit and proper person test for charity trustees and senior managers.

Ralph Michell, head of policy at the chief executives body Acevo, says: "The reality is that most charity leaders will not be watching the Budget hoping to see initiatives for the charity sector. Instead, most will simply be hoping that this Budget does not pile more pain on their beneficiaries through disproportionate cuts to services or welfare, and does not contain any nasty surprises like last year's charity tax."

Nasty or nice? Previous Budget surprises:

- 1990 Gift Aid introduced for gifts over £600.

- 2000 Gift Aid extended to gifts of any size.

- 2008 The rate of income tax falls, potentially costing the sector £100m a year in lost Gift Aid, but the blow is softened by a three-year period of 'transitional relief'.

- 2011 The VAT rate rises to 20 per cent, at an estimated cost of £150m a year to charities, and transitional relief ends. But there are new tax reliefs announced for small donations and major legacies.

- 2012 The government proposes the 'philanthropy tax', potentially threatening hundreds of millions of pounds of income and substantial reputational damage - but later drops it.

- Read our analysis about the sector's hopes for a digital declaration in Budget

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