Will budget be 'harsh but fair' for voluntary sector?

Following yesterday's budget, the MHF called on the voluntary sector to respond in numbers to the consultation on the Comprehensive Spending Review.

Áine Duggan who leads for the MHF on voluntary sector liaison said: 'there is a large role for the voluntary sector to play in responding to the consultation on the Comprehensive Spending Review, which will be published on October 20th. It is imperative that our voices are heard and that the voluntary sector seeks to influence the spending review.'

Chancellor George Osborne called the first budget of the coalition government ‘harsh but fair’ deeming it necessary, to eliminate the structural deficit by the end of parliament’s term. The budget contained a number of measures of particular relevance to the voluntary sector including:

Departmental spending

Osborne reiterated the coalition government’s pledge to increase spending on the NHS, year on year in real terms over the course of this parliament. However, other departments can expect to see an average cut of 25% in their budgets. The exact split will not be clear until the publication of the Comprehensive Spending Review in October 2010.

Reform of the welfare system

Another area that is likely to impact on voluntary sector frontline services is the welfare reforms announced. Overall, the government aims to save £11bn through welfare reform between now and 2014/15.

There is to be widespread reform of the welfare system, with the Secretary for Work and Pensions putting forward further proposals before the spending review in the autumn.

There will be a freeze in child benefit for three years.

New and existing disability living allowance claimants will undergo a medical assessment from April 2013. This will result in continuing to pay ‘this important benefit to those with the greatest needs, while significantly improving incentives to work for others’, according to Osborne.

Family tax credits are to be means tested. The health and pregnancy grant is to be abolished and Sure Start maternity grants will be limited. The Savings Gateway will not be extended. Jobseekers will be incentivised to seek work.

Basic state pensions will be linked to earnings and John Hutton is to lead a review of public sector pensions, while Will Hutton will review public sector pay.

There will be a number of changes to housing benefit. Local housing allowance will be restricted, social tenants’ entitlement to appropriately sized homes will be limited and there will be a new maximum threshold on housing benefit (from £280 a week for a one-bedroom property to £400 a week for a four-bedroom or larger). The budget for Discretionary Housing Payments will increase by £40m.

Taxes

A number of taxes that affect the voluntary sector are to be changed.

On 4 January 2011, the main rate of VAT will rise from 17.5 to 20 per cent. The Chancellor has pledged that items such as food and children’s clothing will remain exempt from VAT.

National Insurance payments are to be cut from April 2011. New businesses outside of London and the South East are set to be exempt from paying National Insurance for their first 10 employees. The threshold at which employers begin to pay NI is set to rise by £21 a week.

Other taxes that could have an impact for charitable giving include capital gains tax and income tax. Those who pay the basic tax rate will continue to pay an 18% capital gains tax. However, from midnight tonight, taxpayers on higher rates will pay 28%. The annual exempt amount for CGT stays at £10,000. The 10 per cent capital gains tax rate for entrepreneurs, will be extended to the first £5m of lifetime gains.

The lower income tax personal allowance will rise to £7,475 from April 2011.

The higher rate income tax threshold is frozen until 2013-2014. Osborne stated that the government’s long term objective remains to increase the personal allowance to £10,000.

Gift Aid

In the budget report, the government has stated that they will continue to explore with voluntary sector representatives ways to improve the Gift Aid system and encourage charitable giving. The report also states that the government will replace current rules on substantial charity donors and HMRC will consult informally on draft changes in the summer with a view to publishing final legislation in the autumn. The government is considering options for implementing the EU cost sharing VAT exemption for charities working in partnership and will launch a formal consultation in the autumn.

Next steps

The Comprehensive Spending Review will be published on 20 October 2010. This provides the real detail of public spending limits and allocation.

See our printable briefing on the budget for the voluntary sector here