A new guest author shares their thoughts as part of Policy@Manchester’s Budget Hack event:

There is something of a tradition in the voluntary, community and social enterprise sector for our national umbrella bodies to write a collective letter to the Chancellor ahead of the Budget.

That in itself will surprise nobody. As you can imagine, plenty of representations are made about the social policy priorities (poverty, social care, housing etc.) by numerous organisations from small local groups to large national charities.

What tends to be unique about this particular bit of lobbying is that it is instead focused on more technical aspects of our sector. It seeks to address the operating environment for the thousands of community organisations, registered charities, community benefit companies and social enterprises in the country. In the city of Manchester alone we know there are over 3,000 such organisations. Many of them are effectively local SMEs with a workforce made up of 12,440 FTE staff working alongside over 100,000 volunteers.

The letter this year includes signatories such as the Charity Finance Group, NAVCA, Children England and Social Enterprise UK. Since we’re in touch with many of those bodies, Macc has had some influence on the conversation which led to this letter. I should say before going on that obviously we too have views on the social priorities as well – it would be hard not to having seen at first hand the impact of, for example, the massive cuts to Local Authority budgets and the impact of welfare benefit changes. Many take the view that the austerity agenda is the reason why foodbanks are the biggest growth area in our sector.  All that being said, some of the operational matters are important too, as these touch on matters which can hinder or unleash the potential impact of our organisations.

One example I’m particularly keen on is the issue of VAT. The letter’s first call is for steps to be taken to reduce irrecoverable VAT for charities. The current VAT system costs the charity sector £1.5 billion per year. The general public, I’ve found, assumes that charities don’t have to pay VAT. Sadly, that’s wrong – and it’s even more unfortunate that sometime we also have to charge VAT. Overall this creates a level of complexity which isn’t necessary to the efficient running of an organisation designed to meet a social rather than financial purpose. Because most charities are delivering human services and spend the overwhelming majority of their income on staff costs, many end up registered for VAT but not actually spending that much on VATable goods, so not deriving the benefits of VAT registration in being able to reclaim VAT paid on purchases.

The letter puts across the view that resources meant for public benefit should not be wasted due to complexities within a system that was designed without the unique position of charities in mind. I fully agree with this but I would also cite that it further disrupts the efficiency of the sector.

Again, I doubt many people will realise that secondments between organisations are subject to VAT. A secondment is deemed to be a service from one organisation to another with the salary being a ‘consideration’ (i.e. payment) in return. To my mind, given all the calls for reduced duplication and greater collaboration between charities, this is actually a disincentive. I have seen examples where the VAT issue has been the tripwire which put an end to all the potential of otherwise positive and fruitful collaboration between organisations.

I would strongly encourage the Chancellor to consider changing this as I think it’s an increasing risk. With reducing resources organisations often manage this by reducing staff hours. This leads to a gradual erosion of our paid workforce. There is also the knock on effect on volunteers: known in our sector that when you lose staff you also tend to lose volunteers since people often stop volunteering when those they enjoy working alongside move on – so the impact is far more than the loss of directly employed posts and so steps which can assist staff retention are to be welcomed. Removing the VAT barriers to secondments would be a revolution in our sector’s ability to share staff. For relatively little cost to HMRC, it would be a positive move to help the sector be more sustainable in challenging times.

Other proposals outlined in the letter include

• Increasing the mandatory charitable non-domestic business rate relief to 100%. The proposed cuts to ate relief for businesses could mean charities are paying more in business rates than businesses. We feel this move would put civil society on an equal footing.
• Increase the pay back of National Insurance Contributions for charities. This would address the additional cost of the National Living Wage incurred by charities.

• Lower the Insurance Premium Tax for charities to 6%. This is estimated to cost the sector £87 million per year. By introducing a lower rate charities could save millions of pounds every year that could be spent on delivering public benefit.

The letter also makes two spending proposals that we’d like to see considered in the budget.

• Adopt a strategic approach to voluntary sector funding. We’d like to see the government ensure future funding for voluntary organisations outside of normal departmental spending. It may be that the recently revived position of “Crown Representative” for “civil society” is an indication of support for such an approach. This role has a roving cross-Government brief to explore how the Government works with the sector.

• Increase funding for the Charity Commission – we’d like to see increased funding to the Commission to fully cover the cost of delivering their support and regulatory functions. This is of particular importance as there is a need to have a well-resourced regulator which can uphold and maintain the generally positive public attitude to charities. This is just as true at a local level as it is for large high-profile national charities. (How many other sectors are asking for a stronger regulator?)

Recent budgets have seen some interesting innovations with regard to funding – for example the use of income from LIBOR fines to fund military charities or using proceeds from the “tampon tax” to fund domestic violence support. These are creative moves. I think they could be cleverer both in terms of how they’re designed and what leverage they create, but the fact that these came out as solutions at all should be broadly welcomed as a good start.

The current Government has said on many occasions that it wants to strengthen the economy and build a shared society. My view is that those are not separate activities. The Prime Minister told the Charity Commission that she wants a Britain that works for everyone and not just the privileged few. There is starting to be some recognition that the power of the “not for profit” sector is part of this agenda, whether it’s called “inclusive growth” or simply old fashioned philanthropy. My hope is that the Chancellor will see that taking steps to invest in and liberate our sector is a positive action well within his means.

Mike Wild

Mike Wild is Chief Executive at Macc the support organisation for the voluntary, community and social enterprise (VCSE) sector in the city of Manchester. He’s also trustee for the National Association for Voluntary and Community Action (NAVCA).