Emergency budget 2010

So what are the main bits for the sector then?

Well, VAT is going up to 20% from January next year, which will add an estimated £14million to an irrecoverable VAT burden for charities of between £500million and £1.3billion depending who you  listen to. The Charity Tax Group will continue to lobby for a voluntary sector exemption from the rise between now and the implementation.

Employers National Insurance contributions will go up 1% from April 2011, but be mitigated to some extent by increasing the threshold at which employers start contributing by £21 per week.

Legislation around substantial donors will be tightened, but this will be aimed at the donor rather than the recipient of any donations.

There will be a consultation in the autumn to explore the possibility of VAT exemptions for charities sharing central costs, driven by a need to implement EU legislation on cost sharing exemption.

There’s going to be a single point of access for finding out about government contracts. This is such a good idea it’s been had three times now, and has featured in some shape or form in every spending review and budget since 2002. The main difference this time is that it appears that the latest plans are for a non-sector specific mechanism for sharing tendering opportunities, which would mean both more opportunities and more competition between voluntary and private sector bidders.

Government will continue to “explore”, possibly forever, potential improvements to Gift Aid.

You can read the full budget document here.

Any parts of the sector going to be affected more than others?

If you pay VAT, or have paid staff, the budget will affect you one way or another. Where you have budgets and fixed income that cross over the transition points you will need to carefully re-budget and/or re-forecast to take account of the changing costs.

There have also be substantial changes to the benefits system in terms of allowances, thresholds and criteria for benefits, so those organisations providing advocacy and advice to individuals in those areas will be faced with a raft of new criteria to interpret and start sharing with their beneficiaries.

Indirectly related to that the changes in thresholds for benefits should prompt questions for independent funders that provide support for individuals. Their beneficiary group will potentially change quite a lot around the edges with some maybe moving into or out of their scope for support. This is part of the much larger issue of how independent funders respond to the changing boundaries of state provision over the coming months.

That doesn’t sound so bad, where’s the catch?

Think of it like a trip to the dentist. You’ve just had the little injection to numb the area, it stung a little and feels a bit funny. In the other room the dentist is warming up his massive drill and pliers and preparing to wrench out half your teeth. That operation will come in the form of the Spending Review set for October this year.

Government has already made around £6.2billion of cuts, some of which have affected the sector directly. But this Budget outlines reductions in public spending of £30billion a year until 2014-15. For all but Health and Aid departments this will equate to cuts of around 25%.

Departments have also lost their End of Year Flexibility which could affect a range of sector focused projects. End of Year Flexibility is where departments commit to funding more work than they have money for, on the basis that there will be under-spend in other areas that can be used to finance them. Like when airlines oversell seats for a flight because they know a certain proportion of people won’t turn up. Or like borrowing against a better future, you know, like what destroyed the global economy.

The government will shortly be consulting with the civil service and the public on how and where further cuts and savings could be made, which may create an opportunity for voluntary sector organisations to influence, although there will be plenty of other interests fighting for attention too.

Is there any good news?

Actually there is a bit. Small charities stand to benefit from the changes to National Insurance, and changes to Capital Gains Tax could result in high earners giving more to charity.

Also, if you were thinking “what a load of rubbish” so far, you’ll love the news that landfill tax will be increasing by £8 a tonne. This could be a real boost for environmental organisations because the tax is channelled through the Landfill Tax Fund in grants to voluntary sector organisations via Entrust, and is worth around £53million a year. The tax increase could make an additional £5million a year available.

Is there anything I should be doing?

Re-budget for next year to account for changes in costs – especially where you have multi-year funding arrangements that cross over any of the transition points for VAT, NI etc.  It’s worth contacting any relevant funders as early as possible to discuss potential issues arising from new costs.

You may need to change elements of your work as a result, or adjust specific outcomes, but where you will be incurring additional costs you need to be clear on how those will be funded. You may be lucky and be able to negotiate further funds, but if that’s not an option it’s a good opportunity to demonstrate to your funders that you’re on the ball and are aware of what’s going on. If you have to take costs on the chin and absorb them however, the more notice you have to plan for that the better.

Other than that, it’s the bigger and wider changes that are going to have the real impact on most organisations. Once departmental cuts trickle down, and Local Authorities start implementing cuts to local services and spending, the direct effects will become all too apparent.

The more general advice is the same as it always should be.

• Know and understand your true costs so that you can respond quickly and effectively to any changes in your financial situation.
• Keep abreast of what’s going on with your funders, especially those distributing statutory money. The more notice you have of any changes the easier it will be to respond effectively. Try to meet them in person if possible.
• Understand your beneficiaries. Don’t get trapped into thinking about how the changes will affect your organisation, follow those impacts through to how they will affect your beneficiaries and keep them at the centre of your decision making and contingency planning.