A budget full of implications for the voluntary sector

Today’s Budget will have far reaching implications for charities and their beneficiaries, despite few new measures directed specifically at the voluntary sector.

The rate of spending reductions will be the same as in the last parliament (and not steeper, as the chancellor had previously proposed). This is because he explicitly slowed the previously announced speed of cuts, to meet his targets for fiscal surplus a year later in 2019/20, despite increasing the savings he would have to find this Parliament from £30bn to £37bn to fund various giveaways and tax breaks. While the profile of the cuts is expected to be ‘smoother’, this doesn’t mean there aren’t significant implications for charities.

The £12bn answer

As expected, the chancellor announced a slew of welfare changes to reach his £12bn target, many of which had been anticipated or announced in advance. Analysis of their cumulative effect and distribution among different demographic groups will be more important for this Budget than many preceding it, and will take some time to emerge.

The key announcements were:

  • As trailed, the welfare cap will be lowered from £26,000 to £23,000 in London and £20,000 outside. The housing association Moat did some analysis (PDF, 507KB) ahead of the Budget on what this would mean for the affordability of the accommodation they provide for their tenants.
  • The Employment and Support Allowance (ESA) work-related activity group (WRAG) rate will be ‘aligned’ with the Job Seekers Allowance rate. The BBC previously reported this could represent a cut of about £30 a week. The WRAG element is paid to ESA claimants that the DWP considers will be capable of work at some time in the future and who are capable of taking steps towards moving into work.
  • Working-age benefits, including tax credits and Local Housing Allowance, will be frozen for four years from next April (not including maternity or sick pay).
  • Child tax credits will be limited to two children for those born from April 2017.
  • 18-21 year olds on Universal Credit will be required to apply for apprenticeships or work placements after six months and will no longer received housing benefit.
  • Households living in social housing on ‘higher incomes’ of £40,000 in London and £30,000 outside will be required to pay market or near-market rate rents.

For those of you interested in the detail of these proposals, you won’t find much (save details of the welfare cap) in the budget document (PDF, 5.6MB) – instead, many of the welfare changes will be in the new Welfare Bill, published tomorrow.

The National Living Wage

The rabbit pulled out the hat on this occasion was the chancellor’s announcement of a mandatory ‘national living wage’, starting from next April at £7.20, rising to £9 by 2020. This is lower than where the living wage is currently set (£7.85) and no mention was made of a different rate for London as the existing living wage uses.

This will have a particular impact on lower-wage industries, including social care, which will face higher wage costs as a result. We’ve previously expressed our support for the introduction of the living wage and will be looking at the impact carefully. Office of Budget Responsibility analysis (PDF, 2.6MB) published alongside the Budget suggests that the higher wage costs will lead to a loss of profits by businesses, which they may seek to offset by reducing staffing levels, composition, or working hours.

The chancellor is seeking to soften the blow of higher wage costs by increasing Employment Allowance from £2,000 to £3,000, which will mean smaller businesses, including charities, will face a lower national insurance contributions bill.

Alongside these changes, the personal tax allowance will increase to £11,000 by 2017-18, with similar rises in the higher rate tax threshold. This will result in 29m people paying less tax – charities should be conscious that this may mean fewer people will be earning enough tax to make eligible Gift Aid claims. They will also want to be aware that the announced rise in the inheritance tax threshold to £1m could have implications for the number of people leaving legacies to charities.

What next

All in all, this is a complex package of reforms and it will take time for the sector to understand the cumulative effect of welfare spending reductions, higher tax thresholds and the introduction of the living wage on their beneficiaries, and as employers.

It’s worth remembering that the chancellor only announced half of the savings he needs to make today; we’re likely to see the next £18bn of spending reductions – primarily departmental cuts – announced alongside his autumn statement.

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Michael Birtwistle Michael is our senior policy officer, covering issues around charity tax and finance (including social investment) and the impact of the economy on the sector.

10 Responses to A budget full of implications for the voluntary sector

  1. Carol Jennings says:

    I am on the board of a very small housing association run largely by volunteers. There does not appear to be anything in the budget about ‘right to buy’ although this has been heavily publicised pre-budget. We are very concerned as this would defeat the whole purpose of the work we have been doing. Also, we are very unclear about where we stand on the charging of market rates for tenants with an income of over £30000. Any advice would be most welcome.

  2. Steve Grey says:

    Charities that rely on mega donations are against my idea of a charity. More like businesses. Tiny charities that do great work have been hammered by the big boys and girls. If you employ CEos on mega bucks you ain’t a charity.These wages are not expenses.

    And the tiny ones pay VAT on everything. The whole charity sector needs a review. We will end up with 1 greedy charity and nothing else. Capitalism in a different form.

    • Liz Sullivan says:

      Couldn’t agree more. I run a CIC with support from fantastic passionate
      skilled volunteers (a lot of what I do is Voluntary) who want to help to make a difference to their lives and in their community. We want to build our food and education CIC and I’m progressing towards earning approx £25K and we are aiming to turn the volunteer positions in to paid work jobs. I totally don’t buy that any CEO is worth more that 100,00 k a year ITS NOT CHARITY

  3. For the past two and a half years running a community organisation to help single women and families, due to benefits cut, some of whom we had to sent back to college to save being homeless on jobless they are able to get student grants plus other subsuits to manage for 2 or 3 years.

    the Rabbit was not pulled out of a hat by Camron, as it was exposed during the campaign he was going to do so. Who really listened. It doesn’t matter anyway as the whole world will crash soon. People play politic with life and the universal laws.

  4. Simon George says:

    It will also be interesting to see what impact the budget will have on legacy giving. For a minority of people, saving tax is a reason for leaving a legacy to charity. The increase in a couple’s combined IHT allowance to £1 million from April 2017 will take a great many people out of paying death duties altogether, so for some, the motivation for leaving a legacy will have gone. Fortunately, this is only a minority, but time will tell what impact it will have on legacy volumes and values.

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  7. Paul Sellers says:

    Hi – the extension of right to buy was announced in the Queen’s speech and market rates in the budget yesterday.

    Both need new legislation – which the TUC will oppose, but may not be able to stop. The bill has not been published in draft form, so we do not have all the detail yet.

    The legislation process is expected in the autumn session of parliament.

    As parliament does not sit all the time, we know that the first reading will be at some point either between 7-16 Sept, 12 oct-10 Nov or between 17 nov and early dec.

    The passage of the bill through parliament will be likely to take at least 6 months, so we might perhaps expect it to take effect in spring or summer 2016.

  8. My main concern about this budget is how much the proposed rise in the living wage will effect pay differentials of staff on lower scales, while on our current scales we would expect everyone to be just above £9.00 an hour by 2020 -the majority are currently substantially above minimum wage level now and for the work they do I would want and expect them to be but it will take a miracle in our funding provision to be able to sustain that without cutting back on staffing levels.

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