The final Budget of this Parliament contained some useful giveaways and legal changes, but did little to address the sector's wider problems, says David Ainsworth

There are basically four elements to consider when dissecting a Budget for the voluntary sector.

The first and most obvious is the technical stuff – giveaways and legislative amendments. The second is the structural environment – the promises to engage in areas like VAT and gift aid where they are fundamental underlying problems. The third is the impact of the wider economic environment, and the fourth is the propensity for disaster, in which the government undoes all good work elsewhere with a single stroke of a pen.

All four of these fronts saw potential changes in this Budget.

Technical

The government continues to hand out highly-targeted giveaways to its favourite charity sectors – £75m from Libor fines, mostly for military charities, £40m to repair church roofs, £35m in tax reliefs for orchestras, and £35m in VAT relief for hospices, blood bikes and search and rescue charities. All welcome enough, although much of the money is fines, not tax receipts, and it’s not clear why church roofs are more important than medium-sized charities struggling with their reserves.

Those charities are supposed to be the beneficiaries of a £40m Local Sustainability Fund, but that was first promised two Budgets and two charity ministers ago, and, like Godot, it has still not arrived.

It’s probably almost here, but the fact we’ve had to wait so long for what in ministerial terms is a pretty paltry amount of money speaks volumes about how the sector is prioritised.

There were some welcome changes. There was the introduction of the Charity Authorised Investment Fund to supersede the Common Investment Fund, which is likely to save £13m in VAT on investment management fees. And there was the promise of the welcome social venture capital trust, a new social investment tool which will allow smaller investors to get involved in this useful relief.

There was also an increase in the amount charities could claim under the Gift Aid Small Donations Scheme – a gift-aid like relief you can claim on cash donations, even if you don’t have a declaration form.

This is probably nearly useless, because the relief has major issues. It is supposed to be worth tens of millions a year but last year was actually worth £6m. The problem is that it’s so bewilderingly complicated that no one is willing to go to the effort of using it, and changing the threshold will do nothing to alter that fact. To use Osborne’s own language, it’s like fixing the door when the sun is shining. When it’s the roof that’s leaking.

All in all, a welcome package of measures but comparatively, small beer.

Structural

There was relatively little progress on a number of structural issues where the sector wants to engage with government. Obviously VAT refunds for a small number of charities are potentially the thin end of the wedge, and can be used to help drive wider VAT reform for the sector. But that’s a £1.5bn issue so £35m isn’t much help.

On gift aid, the government has previously promised a review of donor benefit rules, which govern how much a charity can give back to donors before they can’t claim gift aid, but this hasn’t appeared. It is astonishingly complicated, so it’s hard to complain too much.

And there is some progress, but not much, on the reform of digital gift aid, which will allow intermediaries to make gift aid claims on charities’ behalf.

Just before the Budget there was some really welcome movement on multi-employer defined benefit pension schemes, a problem which has the misfortune to be hugely important, bafflingly complicated and very boring, and is therefore getting solved very slowly.

The sector’s real problem, though, is not tax but funding, of which more below.

Economic

Obviously the key message of the Budget is that the economy is growing. This is good for the sector: a rising tide lifts all ships. But there’s a counterpoint to this: the sector is still facing the impact of swingeing public funding cuts.

To solve social problems you need money, and much of the commentary following this Budget highlights a desperate desire in the sector for a wider conversation about the financial relationship between voluntary and public sectors.

The sector’s dissatisfactions are laid out in detail by Karl Wilding, director of public policy at the NCVO, in his post-Budget blog.

The themes have remained constant for the last decade at least: a lack of sensible long-term funding for solving social problems, a failure to recognise the need for commissioning reform, and a need for effective early intervention funding.

These issues are unlikely to go away soon. There is essentially a dichotomy in government between the ideology of the Conservatives which says the market will solve people’s problems, and the ideology of Labour, which says those problems are best solved by the state.

Since the charity sector fundamentally exists to solve social problems that neither the market nor the state can solve, it is likely to remain a struggle for charities to engage effectively with whoever is in power.

The inclination is to just walk away. Unfortunately the sector’s basic purpose is to deliver long-term social change at scale, and if you want the cash you need to do this, government is the only game in town.

Disaster

It’s a simple fact that a good Budget for charities is one in which there is no ill-thought out announcement presaging a major calamity that will cost tens of millions and countless man hours to sort out.

There have been a few of these over the years, some deliberate and some accidental, many of them down to demands by paranoid factions deep in the bowels of HMRC. Most notable of these is the philanthropy tax, but in the last decade we’ve also seen things like substantial donor legislation, the community infrastructure levy, and the fit and proper persons test.

Many of these potential disasters never actually happen. They’re on the horizon, and then they’re scrapped or reduced to something acceptable, thanks to the good work of charity umbrella bodies, who labour unseen in the background to prevent them happening – kind of like charitable men in black.

In this Budget, according to the Charity Tax Group, there was one disaster which has been probably averted. The Diverted Profits Tax would have effectively accidentally made taxable all charitable donations from trading subsidiaries. It’s likely there will now be an exemption for charities and we can all forget every word about it.

There’s another problem which the sector needs to keep an eye on – the reform of business rates, which is not intended to affect charities, but which could yet cause significant problems.

And there’s a potential issue of as yet unknown scale – deeds of variation. The Budget has promised to do away with these legal tools, which essentially allow all parties to a will to change its terms, if they agree.

These are apparently often used by beneficiaries to make charitable giveaways, often to bring the total value of the estate below the threshold for inheritance tax – saving themselves a significant headache and passing on a decent lump sum to the sector.

How much impact these changes will have is so far unknown, but if they are abolished, legacy giving will definitely suffer.