Implications of the budget

First, apologies for the dry title: it feels like the puns have been taken a little too far, for example in the constant references to ‘axes’ across the front pages of all the major newspapers today. 

These give a pretty clear sense of the overall tone of the budget.  But how does that affect voluntary and community organisations, and more important, how can we anticipate and plan for the changes that may come as a result in the way we work, who we help, and who funds us?

Some major implications are below; you can also find a full summary of the major aspects of the budget that relate to the voluntary and community on NCVO’s front page.  There is more information on further reading and actions at the bottom of this post.

What are the implications?

While Peter Kyle of ACEVO pointed out that the text of the budget contains no references to civil or big society, it of course has large implications for the sector.

Beneficiaries: increased need

Due to limits on and changes to benefit structures, there’s likely to be increased need, particularly for those charities whose beneficiaries are those with disabilities, the homeless, young families or those on limited incomes.

Funders: a mixed picture

As Civil Society Finance has described, the rise in Capital Gains Tax may encourage an increase in donations from richer donors, but it’s worth bearing mind that the Gift Aid tax rebate system for higher rate payers is due to be examined this year.  However, it’s worth bearing in mind that less well-off individuals and families may be worse off (and therefore have less to give) due to the increased cost of living with higher VAT rates and less support in the form of Child Benefit for middle-income families.  On the other hand, the recognition that there is more need may encourage more giving.  Overall though, we may see a shift towards people giving time rather than money.

Operating environment: more difficult

The rise in VAT will greatly impact on the sector from January unless the autumn consultation on exemption for the sector produces positive results.  Government has committed to work with sector bodies to assess the feasibility of implementing the EU cost-sharing exemption in VAT.  A formal consultation on this will be launched in the autumn.  The incentives to new businesses to start up in particular regions may create more competition if businesses are formed as social enterprises.

Revenue generation: move from donated to earned income

Reduced government income – an important source of income for many in the sector – and reduced ability of donors to pay may mean a necessary shift to earned income.  A number of organisations are considering membership schemes alongside other revenue generating functions to plug the hole (you can read about our event covering the latest thinking in this area here).  But it is important to bear in mind that potential members may be precisely those heavily affected financially by the budget cuts and their consequent effects on income and unemployment levels.

Moving forward

  • With a changing landscape, it’s more important than ever to plan ahead.  Consider the broader economic environment by looking at our economic drivers.  A political decision such as the budget has knock-on effects socially as well as economically, so think about social drivers, particularly those which deal with attitudes or behaviours amongst your beneficiaries, users or donors.  For example, attitudes towards poverty in the UK may start to change considerably as income inequality and benefit levels change.

Want to know more?

  • Karl Wilding has written a full account of the implications of funding cuts in his blog post ‘the axeman cometh’ and an analysis of cuts at the local and regional level here.
  • NCVO has also pulled together links to the most relevant articles (including plenty of practical advice guides) in the new Coping with Cuts section of the NCVO website.
  • If you want fuller details, HM Treasury has a comprehensive set of documents.

Want to do more?

  • Bear in mind that the budget is only the beginning of a longer process: the Comprehensive Spending Review (CSR) will be presented on Wednesday 20th October. NCVO will be inputting during the consultation phase over the summer; you can read NCVO’s initial Spending Review briefing and if you are a NCVO member who wants to feed in to the process, you can contact James Allen.
  • Share in NCVO’s crowdsourced cuts project: if you've been told that your statutory funding will be cut, head to the survey form and enter your details before taking a look at the spreadsheet of results to date.
Last updated at 13:20 Thu 27/Jan/11.
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