Charities rightly put the needs of their service users first, but they rely on government support to meet the challenges of the cost-of-living crisis. As Richard Bray, Chair of the Charity Tax Group (CTG), explains: “It’s worrying that there was no recognition in the chancellor’s statement of the role played by charities and yet demands on their services continue to rise at a time when donors have less disposable income.”
Chartered accountant Louisa Burton, a member of the ICAEW Charity Community’s advisory group, is concerned about the impact of the cost-of-living crisis on charities’ workforce, warning that it may become increasingly difficult for them to recruit and retain volunteers when more people need to supplement their income by working overtime to balance their budgets.
These recruitment challenges are compounded by charities’ rising wage bill. Kevin Russell, Technical and Advocacy Director at Stewardship, says: “While no one would want to decry next April’s increase in the National Living Wage, the increases will add significant cost to some charities’ wage bills.”
Russell also warns that the stealth taxes on income will draw more people into paying higher rate tax as wages try to keep pace with inflation. “This, together with measures targeted at high earners, investors and savers, has the potential for a dampening effect on charitable giving,” he says.
Bray agrees that donations from the public will be put under strain by drastically falling living standards but points out that tax-effective giving may have considerably more impact as the tax burden soars. “The hope is that the charity sector will take this opportunity to generate what is essentially ‘free money’.”
- The freezing of the VAT threshold, however, will not only add to the administrative burden of some charities but also reduce funds available for charitable spending. Russell explains: “Charities that have business activities may find themselves drawn into VAT registration as the VAT registration threshold is being frozen until April 2026. Unless the resultant (normally 20%) price increase can be absorbed by customers, this will result in a decrease in the charity’s net revenue.”
Rising poverty levels expected
Prior to the Autumn Statement, a coalition of charity infrastructure organisations wrote an open letter to the chancellor with four key demands: increasing benefits in line with inflation, longer-term support with energy costs for charities, greater investment in public services and protecting the UK aid budget from further cuts.
Increased benefits were welcomed across the sector, but Sophie Corlett, Interim CEO of mental health charity Mind, pointed out that people on the lowest incomes should never have to worry about being supported through an economic crisis. “Uprating benefits in line with inflation will, frankly, allow people to continue to survive,” Corlett said. “But this needs to be brought forward to help the most vulnerable through the winter.”
This is echoed in a statement from Trussell Trust Chief Executive, Emma Revie. “We know many people are already in financial crisis now and, for them, April will feel very far away. With food banks already pushed to breaking point, the UK government must urgently consider how to bridge the gap between the November cost-of-living payment and the uprating of benefits in April.”
Amanda Tincknell CBE, Cranfield Trust’s CEO, is concerned about increasing levels of poverty. “The welcome news of the chancellor’s commitment to link benefits and state pensions to the inflation rate was overshadowed by the OBR forecasts that real household income is set to fall by more than 7% over the next two years.”
Tincknell warns that, with rising costs, more people will fall into poverty, despite the extension of the energy price guarantee and the cap on social rents. She adds that it is a big ask for charity staff, already exhausted after the pandemic, to step up to support more people in need of charities’ services as public services come under yet more strain.
Most of the sector’s primary demands were at least partly addressed by measures announced in the Autumn Statement, but there is little cause for celebration when the Office for Budget Responsibility forecast predicts the largest decline in living standards since records began, and rising unemployment and economic stagnation threaten economic recovery in the longer term.
According to Corlett, the UK government is currently providing the bare minimum of what is needed to support those on the lowest incomes. “If the goal is an economically prosperous Britain, those on the lowest incomes need adequate financial support so that they can financially thrive.”
Corlett is also concerned about a deterioration of the nation’s mental health; there are currently 1.8 million people on the waiting list for mental health services and another eight million who could benefit from support but can't access it. Despite budget increases, the NHS faces a real-term drop in funding because of inflation, Corlett warns: “It is no exaggeration to say our mental health system is on the brink of collapse, and the cost-of-living crisis has the potential to tip it over the edge.”
The somewhat subdued reaction to the Autumn Statement demonstrates just how low the public’s expectations were set by the turmoil following the previous government’s mini-Budget. However, charity leaders are imploring the government to do more than just keep people alive – it is now critical that it starts to address the root causes of poverty.
Sarah Vibert, Chief Executive of the National Council for Voluntary Organisations, called on the government to address the impact of previous austerity measures and tackle the root causes of food and fuel poverty. Without investment into public services, the measures announced in the Autumn Statement will lead to poorer outcomes and widening inequalities, which will have a devastating impact on people, communities and the voluntary sector.
- Read ICAEW’s analysis of the Chancellor’s Autumn Statement.
- ICAEW’s Charity Community supports finance professionals in their paid and voluntary roles in or with the charity and voluntary sector. Membership is free and open to everyone, including non-ICAEW members.
- ICAEW's annual Charity Conference is a two-day virtual event – 19-20 January – covering vital accounting, governance and taxation updates affecting the charity sector plus essential keynote sessions.
Discover more from ICAEW Insights
Insights showcases news, opinion, analysis, interviews and features on the profession with a focus on the key issues affecting accountancy and the world of business.
Hear a panel of guests dissect the latest headlines and provide expert analysis on the top stories from across the world of business, finance and accountancy.Find out more
News in brief
Read ICAEW's daily summary of accountancy news from across the mainstream media and broader financing sector.See more
Stay up to date
You can receive email update from ICAEW insights either daily, weekly or monthly, subscribe to whichever works for you.Sign up