With the Budget to come tomorrow, Andrew O'Brien of the Charity Finance Group asks what charities must look out for.

There has been a lot of soul searching this weekend in HM Treasury. What to do about a growing debt burden, in the midst of fractious negotiations about how to implement budget cuts that can command popular approval. No, this wasn’t about Greece, but the UK in the lead up to the Chancellor’s Summer Budget.

Thankfully for George, he doesn’t have to get his budget passed via a referendum – but as officials put the finishing touches to the Budget, we got some early indications of what to look out for.

Charities as a critical part of society and the economy, as well as having a unique tax position, will be following this Summer Budget with interest. CFG, alongside a range of other sector bodies, put forward out our proposals to the Chancellor in a letter this week. Here a few things that we think that charities should particularly be looking out for.

Profile of the cuts

We’ll have to wait till December for the detail of the cuts in the Autumn Statement and the Spending Review, but reports say that the Chancellor will be outlining the ‘profile’ of the cuts in this Budget. Why is this important?

In the last Autumn Statement before the election, the Chancellor came under a lot of criticism for his efforts to ‘speed up’ the cuts in the early years of this Parliament to hit his self-imposed target of balancing the books and running a surplus early, before raising public spending towards the end of the Parliament once this target had been hit. Many commented that this ‘U-shaped’ plan was not a paradigm of fiscal governance.

Given this, the Chancellor may want to ‘even out’ the cuts over this Parliament rather than rush to meet his target early. This is important for charities as more speed to reduce the deficit now could need higher levels of cuts over the next few years, making life particularly difficult for those organisations which rely on public contracts and grants. A more sensible profile of spending reductions, whilst not reducing the overall level of cuts, would make it far easier for organisations to adapt.

A £9 Minimum Wage aspiration?

Gone it seems is the noughties consensus that leading politicians shouldn’t talk about wages and leave the national minimum wage (NNW) to the ‘experts’. It now seems every politician has an opinion and is quite keen to push the Low Pay Commission towards their chosen target.

All the main parties went into the election talking about creating the conditions for the minimum wage to be raised substantially in the next Parliament. The Conservatives had an aspiration for it to be £8 an hour by the end of the decade. However, over the weekend there have been talks about the Chancellor trying to push that higher to £9 an hour by 2020.

Charities employ over 800,000 people and spending on staffing costs is one of the sector’s biggest expenses. According to the NCVO Civil Society Almanac 2014, the lower quartile of the sector’s workforce earned less than £7.78 an hour in 2011/12. The sector also has a large number of staff working in social care, which is traditionally low paid. Significant increases in the minimum wage over the next few years would be challenging for many charities to implement particularly given the experience of cuts so far in government contracts and grants – so let’s see if the Chancellor makes any noises about the NMW.

Direction of travel on business rates reform

HM Treasury’s consultation on its discussion paper on the future of business rates only concluded on the 12th June, but it is a hot topic for both business and charities. Charities received over £1.5bn in business rate relief in 2013-14 and many small charities would struggle to run their services without it.

There is no indication that the government intends to get rid of the relief, but the Chancellor has previously spoken about ‘major’ review of rates so that they reflect our more ‘modern economy’. Charities will be concerned that business rate relief may ‘fall out’ in this reform process, so watch out for any indication from the Chancellor on the scale of change that he wants to see in business rates.

Targeted giveaways

One of the Chancellor’s favourite tactics (one inherited from Gordon Brown) is to use politically popular but financially small giveaways to show that he is on the ‘side’ of the public.

Some charities have been the beneficiaries of that approach with VAT reliefs for air ambulances, hospices and blood bikes as well as money from LIBOR fines for military charities. However, given the unpalatable news that will mark most of the budget, particularly welfare cuts, look out for a few more of these giveaways as an effort to counter any potential negative fallouts from his other measures.

Devolution

The Northern Powerhouse (which as one FD pointed out sounds very similar, but is surely completely different, to The Northern Way) will no doubt be mentioned, but there are already rumours that Cornwall has seen health and social care spending devolved to it and other areas are likely to see additional powers given to them by the Chancellor.

As we discussed at our most recent Northern Conference, devolution may not change the profile of spending cuts for charities, but will mean that charities to navigate more complex commissioning environments. On the flip side, there may be more opportunities to influence the design and implementation of services.

Whilst charities will not the priority for the Chancellor as he stands up at the dispatch box, his decisions will have a big impact on the sector’s funding environment over the next few years. Come tomorrow afternoon, we’ll all be a little more certain about the climate that we’ll be operating in.

PS. My colleague Anjelica Finnegan has also done a comprehensive pre-budget blog that touches on other issues that may come up which you can read here.

Andrew O'Brien is head of policy and public affairs at the Charity Finance Group.