The Autumn Budget: What it means for charities

Video transcript

Speakers

• Andrew Maxwell – Senior Investment Director, Charities, Rathbones
• Leigh Brimicombe – Chief Influencing Officer, NCVO
• Richard Sagar – Head of Policy, Charity Finance Group

Transcript

Welcome and Budget overview

Andrew: Good afternoon and welcome to the Rathbones Charity Expert Series webinar. I’m Andrew Maxwell, Senior Investment Director at Rathbones and your host today.

A few housekeeping points. Attendees are muted, unlike the House of Commons yesterday. Please submit questions through the Q&A function at any time, anonymously if you prefer. We’ll cover as many as we can in the second half.

At the end, we’ll share a recording should you wish to listen again on the way home, along with a short feedback form. We’d be very grateful for your feedback.

A typical disclaimer for webinars and podcasts these days: today’s discussion is general information, not financial, tax or legal advice. Please seek specialist advice for your charity’s circumstances.

With that out of the way, let’s have a quick whistle-stop tour of yesterday’s Budget announcements before I welcome our guest speakers.

This Autumn Budget comes as charities face rising costs and high demand. Rathbones research this month found that 88% of charity leaders were worried about the financial impact of possible tax rises or benefit cuts. Before the Budget, more than 80 civil society organisations called for full-cost funding, simpler Gift Aid and protection for donation and legacy tax incentives.

Today, we’ll explore what was announced, where the Budget falls short of the sector’s asks, and what it means for your charity’s finances, people and plans.

Let’s look at the headlines. While UK economic growth and productivity have surprised to the upside recently, the head of the OBR warned that the country’s economic outlook is, and I quote, “a pretty grim picture” over the long term.

Broadly speaking, the Chancellor appears to have achieved his immediate fiscal objectives. While taxes rise on a net basis further out, the government opted to cut taxes, increase spending and borrow more in the immediate future, in part to limit the impact of rising energy costs.

Measures included the now-traditional extension of the freeze on fuel duty, an extension of the cut to VAT on energy bills, reductions in business rates and a £100 council tax rebate for certain properties.

The market reaction offered little to see. Bond yields barely moved, sterling remained in a fairly tight range against the dollar and euro, and UK equities were largely unchanged.

So, with that summary, let’s hear what it really means for charities.

I’m delighted to welcome Richard Sagar and Leigh Brimicombe. Richard is Head of Policy at Charity Finance Group, leading its work on tax, banking and the economy. He has been closely involved in shaping the sector’s Budget asks. Leigh is Chief Influencing Officer at NCVO.

Richard, I’ll start with you. CFG and the Civil Society Group went into this Budget with a clear set of asks. Now the dust has settled, what’s your headline reaction? Is this a Budget the charity sector can work with?

What the Budget means for charities

Richard: I think I’m going to have to give a qualified yes to that one.

The Budget offers some stability. There were no major changes to the core charity tax reliefs and certainly no repeat of the increase in employer National Insurance we saw previously, which was so detrimental to the sector.

Beyond welcoming funding for a few particular subsectors, however, it does little to fundamentally address the underlying financial pressures charities face.

It’s a Budget we can work with, but our central asks on sustainable funding, properly funded public contracts and modernising Gift Aid remain largely unanswered. We’ll be looking for more answers in the forthcoming ten-year plan and next year’s Spending Review.

Andrew: Leigh, the government called this a Budget offering breathing space. From NCVO’s perspective, do you believe it demonstrates a government the sector can work with?

Leigh: While the Budget didn’t have any big lightning moments of support for the sector, what it did demonstrate quite clearly is that this is a government we can work with.

There were some really welcome announcements within the detail that demonstrate this is a government that understands civil society and the pressures we face.

While it might not be in the big headlines, it’s there in the detail. We can see smaller announcements, for example funding to support youth reading, commitments towards halving violence against women and girls, and money pledged to support homelessness and rough sleeping.

There are examples here of a government committed to working with civil society. I hope that over the coming months and years we can build on that and really recognise civil society’s role in growing communities at a local level, providing economic growth and playing an active role in the success of the UK.

Public contracts and sustainable funding

Andrew: Richard, the sector’s top ask was for government grants and contracts to cover the full cost of delivery, ideally with multi-year funding and inflationary uplifts. Does the Budget help, and what does it mean for charities delivering public services?

Richard: It didn’t directly address that ask, unfortunately, but the government committed to a new National Procurement Policy Statement to be laid before Parliament, and it has also produced new guidance on applying social value.

The greater emphasis on that is potentially welcome, particularly for charities supporting employment and skills development, but it’s so early that it remains unclear whether these changes will translate into greater opportunities for charities to secure public contracts.

The changes also do little to address the sector’s longstanding concerns about inadequate contract funding.

Alongside NCVO and other sector partners, we’ll continue to push for a procurement process that recognises the full cost of delivering services, including inflationary uplifts and multi-year contracts.

Staffing costs and the National Living Wage

Andrew: Leigh, I’d like to ask you about staffing, given that it is usually a charity’s biggest cost. The Budget confirmed a rise in the National Living Wage at the same time as charities are still absorbing earlier increases to employer National Insurance.

NCVO has campaigned strongly on employer NICs. Are you concerned about the cumulative effect these policies are having on jobs and services?

Leigh: Raising the minimum wage is a difficult one for the charity sector because every charity would advocate for those earning the least to earn as much as possible. We want as many people as possible to have enough money to meet the cost of living.

The difficulty comes when the charity sector has to balance that with the significant additional costs it presents for organisations already under pressure.

That is especially true in public services. The government is increasing the cost of delivering many of the services that we deliver on its behalf, but it is very unlikely that all of those contracts will be uplifted to meet the real cost of delivery as staffing bills go up.

Some organisations may consequently need to look at reducing headcount to stay within tight staffing budgets.

There is another knock-on impact we don’t often talk about. As salaries for people at the lower end increase, that puts pressure on the next salary bands to increase too, so that differences in skills and responsibility remain represented. That can put pressure on charities to increase salaries at every level.

Budgeting, cash flow and financial resilience

Andrew: Richard, in a similar vein, what should finance teams and trustees now be building into their budgets and cash-flow forecasts?

Richard: Build in those increases to the National Minimum Wage and National Living Wage if you employ people at those levels, and think about corresponding increases in other wages.

Can you keep salaries in line with inflation? Is that possible given your finances? If not, what might you offer employees instead, such as benefits in kind?

Given the OBR’s outlook for weak growth and pressure on household finances, I would really stress-test cash flow for potentially higher demand for services, if that affects your charity, and for income failing to keep pace with costs.

Trustees and finance teams should consider how they might respond to those scenarios. It’s a really important consideration as we go forward.

Modernising Gift Aid

Andrew: Richard, CFG has been campaigning for the future of Gift Aid and advocating for a simpler digital system. Has the Chancellor done anything to move the dial?

Richard: With most of my answers I’ve tried to be quite balanced, but on this one I can be direct and say essentially no.

It’s worth noting why this is such an important ask. The proposal would allow donors to manage their giving through their HMRC tax accounts and reduce repeated form-filling.

The current system just hasn’t kept pace with modern giving or technology. It creates unnecessary administration and leaves eligible donations unclaimed.

Reform would help charities claim more money and free up staff time and resources for their charitable work. The broader direction of the tax system is towards digitisation, so I think it’s a matter of time. We think it should happen sooner rather than later.

Alongside reforming Gift Aid as a whole, charities should make sure they get the basics right. Fundraising and finance teams should ensure they have valid declarations, accurate records and are taking advantage of all eligible donations.

They should also use the Gift Aid Small Donations Scheme where applicable and remind higher-rate donors that they can claim additional tax relief.

Andrew: Leigh, are NCVO members reporting a similar situation around giving?

Leigh: I would echo everything Richard has said about the need for change to Gift Aid.

For us, it forms part of a broader conversation that we’re encouraging the Treasury to engage in, including the role business can play in unlocking the full potential of the UK’s giving culture.

The UK has a very good culture of giving, but more can be done to encourage giving and make it easier. Gift Aid is one of those ways.

There are also underutilised opportunities within the private sector to bring more money into civil society, especially when government spending and public donations are under pressure.

Inheritance tax and charitable giving

Andrew: Staying with giving, inheritance tax is often in the spotlight at Budget time. We know that leaving at least 10% of an estate to charity can reduce the inheritance tax rate from 40% to 36%.

Richard, did anything announced change the picture?

Richard: The relief didn’t fundamentally change and remains in place, which is a good thing. It’s an example where no change is sometimes good news.

There was a small technical adjustment concerning pension assets and how inheritance tax operates, but fundamentally things have remained in place and the core relief is still there for the benefit of the sector.

Devolution and local charity funding

Andrew: Leigh, devolution has been a key government policy and was reflected in the Budget with more fiscal devolution. Is this a genuine opportunity to put charities at the heart of local decision-making, or does it risk creating a more fragmented funding landscape?

Leigh: Anything where more money, finance and investment can go into communities, so that communities can have a proper and fair say in how money is invested for better outcomes, is something we’re supportive of.

What needs to happen, though, is that as money is devolved, the established principles of partnership with civil society need to go with it.

Local government and other bodies receiving devolved funding should work within those principles, engaging civil society in discussions about where and how money is invested.

The risk is that devolution creates fragmentation and inadvertent inequality in how money is spent.

Local government administrations therefore need to work closely with local infrastructure organisations. Those organisations can provide a gateway to civil society in their areas and help ensure better co-ordination and collaboration.

Andrew: Richard, similarly, is there a risk that greater local control could lead to a postcode lottery for charity funding?

Richard: There’s definitely a risk. We already see some geographical variation in discretionary business rates relief.

But local control can also improve decision-making. If charities have meaningful engagement in setting local priorities, that should help mitigate some of those concerns.

Energy support and household pressures

Andrew: We’ve also seen energy support policies announced. Leigh, do you think these policies will materially move the dial?

Leigh: To a degree. It remains to be seen, but I don’t think it will materially shift the dial overall.

We would still expect to see increasing demand within the sector. But £100 in the bank account of somebody who is struggling is not immaterial. It may not go far enough, but it shouldn’t be dismissed.

Richard: I’d echo that. It’s obviously a positive step, but energy costs could offset that support.

I’d also point towards the distribution mechanism. Using council tax bands to determine eligibility may leave out people who need support.

It’s a start, but we’d hope to see additional support if it’s needed.

Practical steps for trustees and charity leaders

Andrew: Before we move to Q&A, if a trustee or charity professional watching today could do just one practical thing in response to this Budget, what would it be?

Leigh: Many organisations will be preparing for their next financial year. I’d encourage them to really interrogate their budgeting process and make sure they’re comfortable and confident that the budget they’re setting is clear and, where possible, achievable.

Be really clear on costs and the risks associated with funding. Things are likely to remain challenging.

I’d also encourage boards to understand their risk appetite, especially when it comes to finances. They should have good governance and clear paper trails around those conversations and understand how, throughout the year, they are going to measure performance against the budget.

Richard: I agree with much of that, but I’d add that now is a good time to look again at your reserves policy.

That links closely to the risk conversation Leigh has already touched on. Rather than looking just at individual Budget measures, consider the wider economic forecasts, what they say about demand for your services and how that matches your existing financial plans.

Andrew: From an investment manager’s perspective, I’d add that charities should ensure their investment policies are up to date, reflect their time horizons and risk appetite, and are aligned with their missions.

Artificial intelligence and cyber security

We’ll now turn to the Q&A. Artificial intelligence was mentioned in the Budget. Richard, any comments on the AI spending commitments announced?

Richard: There was a range of measures announced. One I’d draw attention to is funding for local AI partnerships and place-based approaches to AI adoption.

One thing I’d love to see is greater engagement with civil society and charities. In many instances, charities have the local intelligence needed to understand who is being left behind by these developments and what the impacts are.

There’s also additional funding around cyber security, which is going to be an increasingly important issue. It’s vital that charities are engaged in that process and receive the support needed to prepare.

Leigh: If the government is going to invest in areas such as AI to drive growth, we believe it fundamentally needs to invest in the charity sector’s use of AI too.

There isn’t really a system to support the sector to harness the capabilities AI can bring. Support for charities to build their skills and drive effectiveness and efficiencies will help civil society play its role in growth.

We need greater consistency and a sector-wide approach to building AI skills so that civil society can play its role as an innovative contributor to economic growth and better community outcomes.

Official development assistance

Andrew: There’s been a question on official development assistance. Have there been any changes to ODA, and what impact do you foresee for the sector?

Richard: Official development assistance is essentially what is often called aid.

There’s no fundamental change. The government remains committed to restoring the 0.7% of GNI target, but given the fiscal circumstances it doesn’t foresee that happening in this Parliament.

That makes this another example where no update is bad news. It is likely to continue to be a difficult period for aid charities and, particularly, the beneficiaries they serve.

Preventative spending and civil society

Andrew: Leigh, there’s also a question about preventative expenditure intended to address needs before they become acute. Is there meaningful change on that front?

Leigh: This is a classic example of something that could easily be overlooked in a Treasury statement but could have significant potential for the charity sector.

A focus on prevention is absolutely what the sector has been looking for. We want to move away from firefighting towards prevention.

There’s not much detail yet on exactly what that will mean, but prevention is a key part of the sector’s role.

If we can become involved earlier, before problems become crises or people present with multiple complicated needs, that is extremely valuable.

The questions are where preventative funding will be directed, what we mean by prevention, how civil society will be involved in delivery and how communities’ voices and experiences will shape the design of those services.

What the Budget means for small charities

Andrew: We have a question from a small charity with no government contracts. Which measures affect them most directly?

Richard: It partly depends on which sector you work in and your location.

As we said at the outset, there was very little of direct relevance to charities unless they operate in one of the specific areas receiving additional funding.

For many small charities, the biggest considerations are therefore likely to include staffing and other cost pressures.

Leigh: Small charities make up the bulk of the charity and voluntary sector. They’re often niche, highly specific or hyperlocal, and can get left out of the conversation.

It is disappointing that there aren’t more measures specifically for small charities.

Small organisations can feel these pressures particularly acutely. If they employ people on entry-level salaries, for example, they may be hit hardest by increases in employment costs.

For many, it will mean another year of significant pressure and a need to look carefully at their core purpose and budgets while still trying to meet increasingly complicated beneficiary needs.

Moving towards multi-year funding

Andrew: There’s a question around multi-year funding. How can charities work towards multi-year funding with funders when things are so hand-to-mouth and the process uses so much internal resource?

Richard: It’s a really good question and was one of the major asks in our joint Budget submission.

It partly depends on who the funder is. Is it a grant-making body, a local authority or central government?

Have open conversations about whether the current offer is sustainable. I wouldn’t be afraid, depending on the circumstances, to say no sometimes and explain that something doesn’t work for your organisation without additional uplifts or other changes.

Leigh: The charity sector needs long-term investment, not simply so that individual organisations survive, but because many programmes need time to achieve their goals.

Many local authorities have confidence only to offer one-year contracts because they themselves haven’t been given sufficient long-term funding certainty.

Those one-year cycles can be really dangerous for charities. Organisations reach a point where they don’t know whether funding will continue, so they have to make decisions about staffing and potentially lose skills, knowledge and experience, only for a contract subsequently to be renewed.

We really do need to get away from those one-year cycles.

Richard: I agree entirely. Part of the problem is system-wide. Local authorities are themselves under significant funding pressure, and that needs to be addressed as part of the wider solution.

Older people, pensions and endowments

Andrew: We’ve had a question about measures that could help an ageing population who cannot afford to retire or need to find work.

Richard: There were measures relating to pensions, although this is a complex area and the precise impact depends on individual circumstances.

Leigh: As an infrastructure organisation, this isn’t my area of specialism. Specialist organisations focusing specifically on older people will be best placed to provide detailed analysis of what the Budget means for that group.

Andrew: We also have a question from an endowment foundation. Is there anything new to consider that could help the charity or its donors?

Richard: Aside from the things we’ve already mentioned, I don’t think there are fundamental new changes that directly benefit endowment foundations. It partly depends on the specific foundation and its circumstances.

One thing that isn’t a Budget measure but is worth considering is the economic outlook and inflation. That should form part of discussions around reserves and investment policies.

Leigh: There are a number of levers the Treasury could pull to support the charity sector, including measures that would help mobilise more money into the sector, make it easier to rebuild reserves or encourage investment.

As we prepare for the Spending Review, we need clear, evidence-based arguments for those changes.

When the measures take effect

Andrew: How quickly will these key policies come into effect? Are we looking at immediate changes, next year or later?

Leigh: It’s a real mix. Some of the headline funding numbers are spread across a number of years, so it’s important to recognise that the full amount won’t necessarily become available immediately.

For charities, the key point is to look at the implementation date for each individual measure and model future costs accordingly.

Richard: I agree. Some measures are more immediate and others will take longer, so charities should check the implementation date of each measure relevant to them when preparing budgets.

Representing the charity sector in government

Andrew: Finally, Leigh, you mentioned a recent meeting with the Chancellor. Who gets around the table with government for these discussions, and who champions the charity sector?

Leigh: As a sector, particularly among representative and infrastructure organisations, we work closely together to make sure civil society is represented where it needs to be.

Not every room can have everybody in it. In that instance, we were there on behalf of civil society, bringing the Civil Society Group’s Budget submission and sharing the views of our members and the wider sector.

There are multiple opportunities and different ways to navigate these Budget conversations. Individual organisations will also represent themselves and build coalitions and partnerships to campaign together.

It’s about the sector understanding where and how to use its voice to advocate for what it needs, at the right time, in the right rooms and in the right ways.

Richard: Alongside the big set-piece meetings, there is also a constant drumbeat of conversations with officials in departments such as the Treasury, HMRC and DCMS.

Organisations like ours regularly engage with government on procedural issues, guidance and smaller changes as well as the larger reforms associated with Budgets and Spending Reviews.

Closing remarks

Andrew: With that, we’re almost at time. I would like to formally thank you both, Richard and Leigh, for making what can be quite a dry subject very informative and thoroughly interesting.

To everyone who attended, thank you very much for taking the time and for submitting so many questions. It really does help and is very much appreciated.

We’ll follow up on unanswered questions, share the recording for anyone else you think would benefit from hearing the discussion, and send the feedback survey.

To discuss your charity’s investments, of course, contact one of the charities team here at Rathbones.

Thank you all for attending and we hope to see you at the next Charity Expert Series webinar. Enjoy the rest of your afternoon.