A mixed box
June 2009
Ernese Skinner shares her perspective on the Budget highlights and lowlights
Delayed by a month and generally anticipated as the day of reckoning by many, Alistair Darling finally made his Budget announcement on 22 April. His figures were certainly ambitious, forecasting signs of growth by the end of the year and in 2010 predicting economic growth of 1.25 per cent. All this despite acknowledging that government borrowing will reach £175bn, circa 12.4 per cent of the GDP this year. However, the International Monetary Fund (IMF) quickly quashed the Chancellor’s optimistic outlook with figures from their latest World Economic Outlook published just three days later saying that the economy would contract by 4.1 per cent over 2009 rather than 3.5 per cent and that rather than seeing signs of recovery in 2010 the recession would persist and the economy would shrink by another 0.4 per cent.
A drop in the ocean?
The big news this year for the sector was the Hardship Loan Fund. This is a £20m fund to provide grant support to third sector organisations that have been affected by the recession, with demonstrable resource constraints due to cash flow difficulties or increased demand. This builds on the £42.5m the government pledged back in February as part of its action plan to support the sector through the recession. CFDG welcomes this additional injection of cash into the sector which will not only help the sector but importantly the most vulnerable people in society whom it serves. Given that the charities sector is worth £49.3bn it will be interesting to see how far the £20m hardship fund stretches particularly given that we are beginning to see charities really feel the pinch of the recession and this is likely to deepen as public sector funders start trimming their budgets and charities lose out.
In addition there was the announcement on the creation of a Wholesale Investment Bank and consultation with the sector on the design and functions of such a bank to be followed by substantive proposals from the Office of the Third Sector.
Tax reform
It was disappointing to note that there was no explicit commitment to explore an opt-out system for Gift Aid supported by all the main sector umbrella bodies. However, the government has committed to continuing to explore ideas to improve Gift Aid with the sector. CFDG will continue to work with the Association of Chief Executives of Voluntary Organisations, Charities Aid Foundation, Charity Tax Group, Institute of Fundraising and National Council for Voluntary Organisations, to effect change that will benefit the sector.
These organisations have been lobbying the government to introduce an opt-out scheme that could overcome the inertia that prevents many Gift Aid declarations being completed and to increase the legitimate take-up of Gift Aid. We believe that such a scheme would simplify the process of claiming Gift Aid for charities and HMRC, whilst retaining the link to the taxpayer making the donation. These sector bodies have sent out a survey to their respective members on a potential opt out scheme to gauge the benefit it would bring and the demand for such a change. The Budget also referred to the research they have commissioned into the effect of redirecting the higher rate relief from the donors to charities. We look forward to seeing the results of this research in early autumn and how the research will be taken forward in partnership with the sector in the 2010 Budget.
CFDG would also have liked to see movement on VAT for shared services, particularly given the recent focus from government on promoting collaboration through the Charities Act 2006 and the Government Action Plan published earlier this year. In addition, we would have liked to see a postponement of the removal of the VAT Staff Hire Concession especially given the current state of the economy and the high levels of unemployment. Finally we were disappointed that the legislation on substantial donors was not repealed. We are, however, pleased that some progress has been made here in the form of a consultation with the sector on new rules based around an effective anti-avoidance purpose test.
Investment regulation
The Budget also recognised the importance of Common Investment Funds and Common Deposit Funds to the charitable sector and the government will consult shortly in conjunction with the Charity Commission on ways to bring these funds more fully under the FSA’s regulation whilst preserving their existing tax reliefs. This move could mean that VAT will not be payable on the management fees for such funds which will be real benefit to the sector.
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