It will take more than tax cuts to rejuvenate the charity sector, experts have told the government ahead of today’s mini-budget.
Amid reports that the new Chancellor, Kwasi Kwarteng, is considering announcing a swathe of tax cuts, one leader told Third Sector he could not see how tax reductions “will make any difference to charities and social enterprises” as they struggle with growing demand and higher costs.
Experts have also urged the Chancellor to ensure charities do not lose out on Gift Aid as a consequence of any tax changes.
Kwarteng is rumoured to be preparing reductions to national insurance and stamp duty as well as bringing forward an income tax cut by 12 months, as part of the government’s plan to stimulate economic growth.
But Tony Armstrong, chief executive of Locality, which supports community charities, said: “With a huge wave of poverty hitting across the country, it is not clear how cutting taxes will make any difference to charities and social enterprises which are trying desperately to keep people afloat.
“Many charity services are run from community centres, libraries and other buildings, so while it’s good that charities were specifically included in the energy bill freeze this week, many will struggle to carry on in the face of massively increased costs.
“That is why [these] announcements and how the new ministerial team engages with the sector in the coming weeks will be the real sign of whether they recognise how much charities and social enterprises are now needed.”
Armstrong said local community groups should be prioritised for help with energy bills, and that there should be long-term investment in the whole sector.
Dan Corry, chief executive of the think tank NPC and a former Labour government economic adviser, said: “It is doubtful that tax cuts alone will help those struggling the most: the people who so many charities are working hard to support.”
The Charity Tax Group warned that, in the event of an income tax cut, charities will receive less money from Gift Aid unless the government plugs the gap through transitional relief.
Richard Bray, chair of the CTG, said: “Should the income tax rate cut be brought forward by a year, we hope that the government will bring forward transitional relief for Gift Aid.”
Charities receive income from Gift Aid in the form of a repayment of the tax already paid on donations, so any reduction in basic rates of income tax will reduce that repayment.
Rishi Sunak, the previous Chancellor, announced last year that the basic rate of income tax would fall from 20 per cent to 19 per cent in 2024, and promised a three-year transition fund to help charities cope with the loss of Gift Aid income as a result.
Bray said: “We will also keep a close eye on any developments relating to VAT, business rates and employment taxes, to ensure that the impact for charities of the measures are fully understood”.
The disability charity Sense repeated its call for “targeted financial support” for disabled families hit hardest by rising energy bills and inflation levels.
Richard Kramer, chief executive of Sense, said: “Our recent research has shown that nearly three-quarters (72 per cent) of disabled households have been pushed into debt by rising costs, with two in five skipping meals to save money.
“In addition, for the first time in our history, Sense stepped in and created a cost of living support fund to help 1,000 disabled people and their families deal with rising costs.
“But this can only be a short-term solution, with a longer-term one needed from the government.”