CHARITIES could be on the brink of saving around £1bn a year, after the Prime Minister said he would look at funding charities, voluntary organisations and social enterprises on the same basis as government.

The Prime Minister made the announcement in parliament in response to a question on how to save charities from next year’s increase in VAT.

It has led to a call for an immediate VAT rebate to be introduced to put the third sector on the same footing as local authorities and other public bodies that are currently able to reclaim the VAT they spend.

Across the UK, charities pay £1bn in VAT every year, an amount that will rise by £150m when the tax goes up in January next year.

In Scotland this translates to around £115m a year.

The extra cash would enable the voluntary sector to better support vulnerable people during the economically difficult times ahead, and is also necessary to create the Prime Minister’s vision of a Big Society, said sector leaders.

Speaking during Prime Ministers question time last week, David Cameron said: “We will want to do everything we can to help what used to be called, rather condescendingly, the third sector but I believe is the first sector: the excellent charities, voluntary organisations and social enterprises that do so much for our country.

“One thing we should do is look at funding them on the same basis as the government funds itself. The government is always very generous with its own bureaucracy, and it needs to recognise that so often these first sector organisations have the right answers to the social problems in our country.”

The chief executive of the Scottish Council for Voluntary Organisations (SCVO), Martin Sime, urged the Prime Minister to take immediate action before the VAT increase in January next year.

“David Cameron’s warm words on this issue are very welcome indeed,” he said. “The third sector is currently battling against a tax injustice that undermines its ability to deliver effective public services.

“This week the Prime Minister also announced his plans for a Big Society and I would urge him to recognise that the government needs to learn to nurture and support rather than direct and control such initiatives.
“If the UK Government really wants to help charities and voluntary organisations do more then there are some pretty simple steps it can take, such as removing petty restrictions which prevent unemployed people from volunteering, allowing charities to reclaim VAT on the things they buy, and by making Gift Aid easier to claim.”

Stephen Bubb, chief executive of the Association of Chief Officer of Voluntary Organisations (ACEVO), writing in his blog this week, also called for the government to introduce a VAT rebate.

“I was delighted to see an exchange in the Commons on Wednesday at PMQs. Bob Russell MP is a good friend of the sector and one of the MPs ACEVO had been in touch with on the whole VAT scandal.

“David Cameron’s answer goes right to the heart of the issue of the unfair playing field between us and the state in tendering.

“We are following up with the PM and the Chancellor. One solution we will be suggesting is what the HMRC do for academies. It refunds the academies’ VAT bills in full through a grant so that academies are not at a disadvantage with local authority schools.

“So a refund grant scheme maybe the answer. We are proposing this to government.”

The Prime Minister’s Big Society plans include encouraging groups to run post offices, libraries, transport services and shape housing projects.

This week he announced a pilot project through which the government will fund and encourage the creation of community groups.

However, fears have been raised that the government will be pushing community and voluntary groups to fill gaps in public services arising as a result of cuts.

SCVO has this week written to Scottish Secretary Michael Moore urging the government to act on VAT and Gift Aid.

A 10 point plan to kick-start the Big Society
?Here are 10 things Government can do if they are serious about the Big Society:-

1 Learn from the Danes and let charities claim back the VAT they pay. This would, at a stroke, make a huge difference to our capacity to do more and would level the public service playing field with business and government itself.

2 Make every public service contract “voluntary sector friendly”. Eliminate unnecessary risk/reward approaches, value genuine social outcomes, make sure the scale and duration is appropriate and support users to contribute to the design, planning and delivery of services.

3 Stop issuing policy directions to lottery distributors. Agree on their broad missions and
let them get on with the job of promoting and developing the work of voluntary organisations in the longer term.

4 Use endowment as a long-term tool to strengthen civil society. Create new community endowments around the renewable energy industry, the profits from the crown estate and air industry taxes.

5 Invest in the upscale and replication of what works. Do not tinker about with short term contracts but put voluntary sector services on a par with the statutory sector. Only then can they capture the full value and potential of their work.

6 Cut out the bureaucracy which is slowing the sector down and costing millions. Gift Aid needs to be simplified, HMRC rules need overhauled, the new Incorporated vehicle for charities needs to be introduced and a whole host of other burdens should be eliminated.

7 Remove the petty restrictions that stop unemployed people from volunteering or taking on short-term work experience for fear of losing their benefits.  Take the edge off rising unemployment by transforming it into a resource for communities.

8 Work through volunteer providers and existing grassroots initiatives to nurture community service for young people. Work with these groups to jointly design and co-produce programmes that inspire a new generation to commit time to helping others.  

9 Bring the same principles of user involvement and co-production to international development. Persuade the Department for International Development to commit at least 25 per cent of its funds to be channelled through civil society organisations in the developing world and make clear that other funding will be contingent on countries working with and through civil society.

10 Above all, curb the instinct to direct and control. Voluntary endeavour always fails if it is the creature of government. Help nurture, promote and guard the independence of the third sector, however critical it may be.