Autumn Budget 2024: CSG pushes for Budget reforms to strengthen charity sector and social care

With charities across the UK facing unprecedented financial strain, the Civil Society Group has written an open letter to Chancellor Rachel Reeves urging for key Budget reforms, including increased tax reliefs and better funding for charities delivering public services.

If adopted, these proposals could ease funding pressures, enhance tax reliefs, and ensure fairer contracts for charities delivering public services, making the sector more resilient in challenging economic conditions. Our article examines the proposals in more detail.

The Civil Society Group (CSG) has written an open letter to Chancellor Rachel Reeves ahead of the new government's first Autumn Budget on 30 October. Established during the pandemic, the CSG is an informal collaboration between over 80 charity sector and wider civil society groups.

The letter sets out a number of proposals for the Budget that the CSG believes would improve the charity sector's ability to make a difference in society, bearing in mind that – like every other part of the economy – it has been adversely affected by the pandemic and the cost-of-living crisis. The proposals pertain in particular to the tax reliefs available to charities and to charity retail spaces. Still, they also deal more broadly with the funding of social care, with a view to ensuring that the grants and contracts made by public bodies meet the true costs of the services that are delivered by charities on behalf of the state.

Short-to-medium term proposals

Most of the proposals are measures that the CSG considers to be low-cost but impactful and which could be implemented in the short-to-medium term. They include:

• Increasing charity tax limits in line with inflation – on the basis that many of these (such as the maximum total benefit value for Gift Aid and the threshold for the small trading tax exemption) have remained static since they were introduced, despite their value to the sector having been eroded significantly as a result of the high inflation levels that followed the pandemic.

• Launching a consultation on the introduction of VAT relief on charitable donations and donated goods – the letter encourages the government to consult on (and ultimately introduce) a targeted VAT relief for low-value goods that businesses donate to charities to be given away free of charge to people in need. The possibility of such a consultation was announced by the previous government, and the CSG is therefore urging the new government to press ahead with it.

• Extending charitable rate relief to wholly owned charity trading subsidiaries – charities are currently entitled to mandatory business rates relief of 80% on properties that are used wholly or mainly for their charitable purposes (and some local authorities also apply for discretionary relief from the remaining 20%), but the relief is not available to wholly-owned charity trading subsidiaries. The result of this is that charities can be penalised if they organise their activities through subsidiaries, which many do as a means of ringfencing funds and managing risk. The CSG argues that the relief should be extended to trading subsidiaries as, however a charity structures its fundraising activities, the purpose is to generate funds that will be used to further its objects.

The third of these proposals would be an easy way for the chancellor to gain favour with the sector, given that the relief is already being informally applied to trading subsidiaries by some local authorities – albeit out of local, rather than central funds. The first two may be more challenging given the budgetary constraints that have already been highlighted but, as any cuts to social care will mean society looking to the third sector to plug the gaps, there is a clear case for the tax cuts being called for.

The letter also asks for confirmation that funding will be provided to continue HMRC’s promised review of Gift Aid, for greater clarity on the removal of business rates relief for private schools in England to ensure that there are no unintended consequences, and for a commitment to make philanthropy training mandatory for wealth advisors.

Longer-term proposals

Protecting universal credit recipients

The CSG's longer-term proposals include the introduction of a protected minimum floor for reductions to Universal Credit Standard Allowance, with a view to giving those in the most precarious financial situations more certainty about their income. The signatories explain that, despite living in one of the wealthiest countries in the world, five in six people in low-income households receiving Universal Credit are going without essentials, heading further into hardship and therefore in greater need of charity support. At the same time, however, charities are struggling to secure funding to meet this growing demand. Around half of households receiving Universal Credit have deductions made from their entitlements in the form of debt repayments and benefit cap reductions. The CSG is asking the government to ensure that these deductions are not set at an unaffordable rate, which should help to reduce the burden on both individuals and the charities that support them.

While we wholeheartedly support the sentiment behind this proposal, we wonder whether – given the hole in the country's finances – it seems perhaps unlikely that it will be implemented as suggested, although it may at least encourage the chancellor to ensure that any measures have inbuilt protections for the most vulnerable.

Addressing funding gaps in public service delivery

The letter also points out that the voluntary sector is a critical partner in delivering public services, including social care, health and employment training services. In some service areas, such as commissioned homelessness services and services to support victims of domestic violence and sexual abuse, charities are the main provider. However, the grants and contracts for these services do not have inflationary uplifts built in and inflation has therefore been eroding their value for years, with the result that underfunding is now posing a threat to charities' ability to deliver them. The CSG is therefore calling on the government to increase funding to local government and other public bodies – including the NHS – to ensure that the true costs to charities of delivering public services are met.

Strengthening the Charity Commission

CSG has also called on the government to adequately fund the Charity Commission to improve its effectiveness and efficiency. The letter does not mention this but, in 2010, the Commission's budget was cut by a third from almost £31 million to £21 million, meaning that it was forced to reduce staffing levels despite concerns that it would not be able to operate as an effective regulator with such reduced resources. Only recently has its budget returned to pre-2010 levels, despite the annual income of the sector as a whole having increased by £44 billion since that time. The CSG's letter points out that it is crucial for the sector that the Commission has sufficient funding for staff to respond quickly to registration applications, offer advice and support and grant consents, as well as to carry out its regulatory and compliance functions. As at the end of March, the Commission had 476 full-time employees, which is one employee for every 357 charities currently on the register and, arguably, not enough.

Appointing a philanthropy champion

Finally, the CSG has suggested the appointment of a philanthropy champion to drive up charitable giving by individuals and businesses. Such an appointment would, it says, set the tone for a national conversation about giving and, ideally, greater giving.

What next?

It remains to be seen which of the CSG's proposals – if any – will be taken forward by the government in some form, but we will be keeping an eye on developments. We will give our views on any measures affecting the sector that are introduced once the Budget has been announced.