The government should carry out the biggest shake-up of the charity tax system since Victorian times as part of an ambitious civil society strategy, the Charity Finance Group has said.
In its submission to the civil society strategy consultation, which closed today, the CFG also warned the government against implementing a new strategy "on the cheap" and said the strategy should include new investment in the sector so that charities are "not just left with warm words".
The CFG’s submission says the government should focus on overhauling four areas: the tax environment; the regulatory environment; the commissioning/procurement system; and the skills and capacity of charities.
It also calls on the government to demonstrate that it trusts charities to support people, engage communities, build better places and create strong partnerships by encouraging growth in the sector.
"Without a strong civil society, the government will not be able to meet the substantial social and economic challenges that Britain faces in the years ahead," the submission says.
"In the same way that government is embracing digital, it should embrace civil society as key to our economic future."
Among the proposals are an overhaul of the tax system, which the submission says costs the charity sector £2bn a year, which the CFG says would free up funds for front-line work.
This includes a 10-year plan to eliminate direct and indirect taxes on the charity sector, excluding employment taxes.
The Charity Commission should also be given increased funding to allow it to properly regulate the charity sector, the submission says.
The social value act should be strengthened, the submission says, and state aid should be reformed after the UK’s exit from the European Union.
Support for local and national infrastructure is also needed to support the sector, the submission says, and charities should get full cost recovery from contracts with national and local government.
Andrew O’Brien, director of policy and engagement at the CFG, said: "Many of the structures that support charities, particularly around tax, date back to the Victorian period.
"This civil society strategy is an opportunity to update these structures and principles for the 21st century so that we can create a growing charity sector that can meet the social and economic challenges our country faces."
O’Brien said the charity sector should not settle for a civil society strategy that came without necessary government investment.
He said: "This has to be backed up with government investment, just like the industrial strategy has been. Business would not accept a strategy without investment, so why should civil society?
"If the government is prepared to use this civil society strategy to comprehensively reform the support for charities, it could leave a positive legacy for decades to come – just like our Victorian predecessors."
In its submission, the National Council for Voluntary Organisations says the new strategy could best help to increase the impact of civil society by creating an environment in which individuals and communities could make a bigger difference to the causes they believe in.
The submission calls on the government to adopt principles that include making it easier for people to get involved in their communities and ensuring policymakers have meaningful engagement with civil society organisations.
It also says the government should create a legal and tax framework that enhances the sustainability of voluntary organisations.
The Institute of Fundraising has also submitted its proposals for the civil society strategy, and has called for greater partnership working between government and charities, support for charities to become more digital and reforms to finance and fundraising for the sector.