Budget analysis: short-term scraps, long-term damage

By Toby Blume
24 Mar 2011

Although the Budget offered charities some specific assistance to encourage philanthropy, it was in the big scheme of things, a fairly dull affair. There were a number of relatively modest announcements - a couple of new taxes, a few tax cuts - but it was fairly unexceptional compared with the emergency Budget in June 2010 or November's Comprehensive Spending Review (CSR).

The fact that, amidst all the economic uncertainty, a 1p reduction in the cost of petrol fills the media tells you something about the content of George Osborne's speech.

We should not, however, let this distract us from what is going on. Remember that the really big decisions have already been taken and from next week will start to be implemented (if they have not already been). In June the Chancellor announced that the government would cut public spending by £32 billion every year (on top of the cuts already planned by Labour when in government). Over one third of these (£11 billion) of these cuts were to benefits; Child Benefit has been frozen (representing a four per cent cut after inflation), Housing Benefit is being capped, Disability Living Allowance is being limited and working tax credits reduced. And on top of this VAT - a deeply regressive tax that disproportionately affects poorer households - was raised to 20 per cent. All of which has resulted in the poorest being worse off than all but the very richest (and proportionately worst off).

We cannot therefore look at this Budget in isolation from the decisions that have already been taken. The question we must ask is not whether this budget is good news for charities and their beneficiaries, but whether these changes do enough to offset the impact of previously announced decisions. The answer on that front is a resounding ‘no'.

Charities offered ‘big help for Big Society'?

Support for charities was unusually prominent in the Chancellor's statement, with announcements on Gift Aid reform and a tax break for leaving money to charity when you die. Gift Aid will be simplified and the benefits limits raised from £500 to £2,500 and there will be a 10 per cent tax break on Inheritance Tax for people who bequeath money to charities.

While both of these measures are welcome, it's little comfort to the thousands of not-for-profit organisations that [are] seeing their funding cut with immediate effect. And of course, whilst these changes will potentially benefit civil society as a whole, the increased revenue flowing into the sector will not be event shared.

According to the most recent data in the National Council for Voluntary Organisations (NCVO) Almanac. 90 per cent of legacy income goes to charities with a turnover of more than £1 million. Conversely, community groups with annual incomes of less than £10,000 (which are estimated to be more than half of the voluntary and community sector) receive less than one per cent of the money people leave to charity in their wills. So the bigger, better off organisations will, in all likelihood, benefit most from the Chancellor's announcement. Good luck to them! But it is unlikely to help the small local community groups that Urban Forum works with.

George Osborne said these changes were "a big help for the Big Society". Community groups across England that we work with might beg to disagree with him.

One thing that we can welcome unreservedly is the retention of Community Investment Tax Relief (CITR). There had been fears that the Chancellor was planning to abolish CITR, which is used by community finance organisations to leverage investment. The Community Development Finance Association (CDFA) whose members benefit most from the tax break had been coordinating lobbying against its scrapping and they (like us) will be pleased with its retention.

A budget for enterprise?

The introduction of 21 Local Enterprise Zones seems to hark back to the 1980s, though we must hope that we do not repeat the mistakes of the past. LEPs will play a leading role in establishing these, but to date they have not demonstrated a high level of awareness of the role of civil society in enterprise, so let us hope things improve. Civil society is best equipped to engage with and support the most excluded and those furthest from the labour market. Charities, community groups and social enterprises must be seen as central partners to economic development, rather than peripheral players, if long-term sustainable regeneration is to be realised.

George Osborne was keen to present himself as being on the side of enterprise - particularly small businesses (SMEs), who he said were the ‘the innocent victims of credit crunch' (and there was me thinking it was poor people who rely on public services that were the real victims here).

The Chancellor announced that the UK's most successful firms were to help SMEs and entrepreneurs to start and grow businessess. This surprised me somewhat as I had rather assumed that the successful firms have a vested interest in keeping their competitors down (isn't that what's made them successful in the first place?). So I find this slightly confusing...but these days nothing should surprise us, so maybe the turkeys really will vote for Christmas.

Corporation tax will be reduced by two per cent - however as UK Uncut have helpfully highlighted, some of the largest corporations have been paying little or no tax anyway, so this news will not affect them. Thankfully George Osborne decided that this reduction should not apply to banks and so he will increase the Bank Levy to offset the reduction in Corporation Tax. Although as Stella Creasy MP pointed out, the Levy does only apply above a £20 billion threshold.

Planning reform

Perhaps I had missed it, but the introduction of ‘land auctions' took me somewhat by surprise. This is an interesting idea to enable local authorities to maximise the financial benefit of development (where changes in land use significantly increase the value of land). Effectively councils will be able to seek the best deals from landowners to sell their land and then auction it off (with planning permission) and pocket the difference. Quite how this will work in practice and what the benefits will be for deprived communities we will have to wait and see, but if it is well designed it should offer significant potential.

In the past, Eric Pickles has apparently described land auctions as "communist" and is thought to be opposed to them...so this appears to be a small victory for Business Secretary Vince Cable, no doubt as a result of Treasury support.

In addition, in the new Enterprise Zones planning will be "radically simplified". It is important to recognise that the drivers for this planning reform are growth and economic development - making it faster and easier for developers and regeneration companies to operate. Quite how this fits with the government's Big Society objectives to give local people greater control over what happens in their areas remains to be seen. Involving people should lead to improved outcomes and better development, but it also takes time and money to do it properly. There is an inherent tension between the objectives driving planning reform [and] of supporting growth and community empowerment and something will have to give.

The Greenest Budget Ever?

There was an additional £2 billion for the Green Investment Bank (up to £3 billion in total). We should not turn our noses up at anything running into the billions right now, though new economics foundation's reaction that the funding was "now three peanuts, up from one peanut" has a kernel of truth.

The bank will now be able to start a year earlier in 2012 and (in a victory for Chris Huhne over the Treasury) the bank will be able to borrow money....but only from 2015 - so perhaps a slightly hollow victory. (NB in my experience the Treasury almost never lose... they just move the goal posts from time to time).

Scrapping the fuel duty rise (which in any event is a bit of spin, since the VAT increase is adding 3p per litre and they're only reducing it by 1p), may be good news for motorists but it does not do much for the urgent need to grow the market in green technology and energy. Sadly it appears we will have to wait at least a little bit longer for these two things to be aligned.

George Osborne did talk about renewing "our dilapidated energy infrastructure". Presumably this is as a result of having deregulated of our energy markets and leaving things to the market?

Conclusion

While the budget was practically fiscally neutral, it did offer some improvements for some charities and social enterprises with gift aid and inheritance tax reform and the retention of CITR.

However it did not address the huge pain that is being felt within the voluntary and community sector at present and the impact of previously announced cuts to public spending. It was certainly far less brutal than the Emergency Budget back in June and the impact of the Spending Review. But that is little cause for comfort and the prospects for the foreseeable future are still bleak for the poorest and most vulnerable in our society.

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© Toby Blume is chief executive of Urban Forum (http://www.urbanforum.org.uk/), a national charity and a membership organisation that supports communities to have a greater say over decisions that affect them. UF works with members to influence government policy and by supporting them to influence decision-making locally.

Reproduced with grateful acknowledgment

Ekklesia's reporting and allied comment on the 2011 budget is being consolidated at: http://www.ekklesia.co.uk/Budget2011

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