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 was our senior policy officer until January 2019, covering issues around charity tax and finance (including social investment) and the impact of the economy on the sector.