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Charity sector responds to mini Budget

Author: ICAEW Insights

Published: 05 Oct 2022

As the third sector braces itself for an increase in demand for services this winter, the recent fiscal event offers limited help to organisations but little for individuals in need.
17 October update

On 17 October, the new Chancellor of The Exchequer, Jeremy Hunt, brought forward a number of measures from the late October Medium-Term Fiscal Plan. These reversed most of the changes that had been announced by his predecessor, Kwasi Kwarteng, on 23 September.

The charity sector has given a mixed response to last week’s mini Budget, welcoming measures to support Gift Aid but warning that some changes will put further pressure on the sector still reeling from the pandemic and facing rising demand due to the escalating cost-of-living crisis.

Although there were very few policies directly relevant to the operation of charities and social change organisations, there was a positive reception to confirmation by Chancellor Kwasi Kwarteng that a four-year Gift Aid transitional relief will apply from April 2023.

A four-year transition period will keep Gift Aid relief at its current level for eligible donations until 2027, extending the previous three-year transitional period announced at the Spring Statement 2022. This will allow charities to continue to claim back additional funding on eligible donations at 25% of the value of the net donation.

Meanwhile, a reversal in the 1.25 percentage point national insurance rise that will from 6 November see NI contributions return to their 2021/22 levels was welcomed as an opportunity to relieve cost pressures facing charities.

Kristina Kopic, ICAEW’s Head of Charity and Voluntary Sector, said: “With nearly one million people employed in the charity sector, a reduction in employers’ national insurance will be welcomed by many.”

Kwarteng also used the fiscal event to repeat commitments made in the government’s Energy Bill Relief Scheme, which aims to cut energy prices for businesses, charities and public sector organisations. The scheme will run for six months and cover energy used from 1 October 2022 to 31 March 2023, at an estimated cost to government of £60bn. 

Kopic said the energy support scheme would offer much-needed respite to the third sector at a time of rising costs and growing pressure on services.

However, the Charity Finance Group (CFG) warned that the fiscal event marked a real and rather worrying shift in tone, and said announcements on tax would make little difference to ordinary people’s take-home income and would reduce government revenue. 

“Many more workers, and those doing all they can to seek employment, are edging ever closer to the poverty line. Placing faith in trickle-down economics, when for many it is clear this approach simply widens disparities and inequality, is a risky strategy,” CFG said in a statement.

ICAEW’s Kopic said the charity sector’s response to the mini Budget highlighted concern for those most reliant on the sector. Rising interest rates and cost inflation are expected to outweigh marginal tax savings for those with low and moderate earnings, and charities are bracing themselves for increasing demand on their services, Kopic said. 

“In a sector where rising demand does not go hand in hand with increased funding, charities will find it more difficult than ever to meet the needs of the communities they serve. Charities that are already squeezed financially by the effects of the pandemic and the cost-of-living crisis will have increasingly difficult choices to make when they can’t meet the rising demands of their beneficiaries.

According to analysis by the Resolution Foundation, the richest five per cent of households still stand to gain £3,500 on average next year from the tax cuts announced in the Chancellor’s recent Fiscal Statement – almost 40 times as much as the average £90 cash gain for the poorest fifth of households – despite the decision to scrap the abolition of the 45p tax rate.

Kopic also warned that the tax measures do little to support the government’s Levelling Up strategy, with reductions in tax favouring areas where wealth is already concentrated, namely London and the South East. 

“This mini Budget is bold, and it is risky, relying on increased borrowing to stimulate growth while it appears that long-term aims of sustainability and levelling up have been neglected. Now that the government has seen the reaction and financial impact of the mini Budget announcement, there is opportunity to reflect and prevent unintended consequences,” Kopic added.

While one U-turn on the mini Budget announcements has already been made – notably the plan to scrap the 45p tax rate for the UK’s highest earners – the question remains whether the growing cost-of-living crisis will force further changes in policy. 

“In her first speech as Prime Minister, Liz Truss pledged to transform Britain into a nation ‘where everyone everywhere has the opportunities they deserve’. To achieve this, the government needs to do much more to protect people on low incomes from rising costs,” Kopic said.

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