Robbing Peter to Pay Paul – Government imposes national insurance hike on voluntary sector

This blog is written in a personal capacity and does not represent the views of Citizens Advice Sheffield. Also – treat my maths with caution!

The government plans to increase Employers National Insurance Contribution from 13.8% to 15% from April 2025.

I think the Chancellor has failed to understand what this means to the voluntary and community sector. Particularly those parts of the VCS where the majority of their income comes from contracts and grants from the local or national state.

Citizens Advice Services are a good example here. The overwhelming majority of local Citizens Advice funding comes from the following sources:

• Local Government
• The NHS
• Government Contracts

I am a trustee of Citizens Advice Sheffield – we are one of the largest local citizens advice in the country – in 22/23 we helped over 24,000 people in Sheffield, we brought in some £13m to the city and helped people resolve £1.4m of personal debt. We also helped thousands of people who were having problems with their energy supplier and provided a statutory advocacy service to over 2,000 people.

Impact of this increase

Currently our total income is approximately £6m – this includes a large contract to provide advocacy services in Sheffield.

Over 80% of our income is used to pay salaries. So in crude terms:

Current expenditure on salaries – £4.8m of which 13.8% is employers NI – so net expenditure on salaries is approximately £4.8m – £662400 = £4.1m

The impact of this National Insurance increase means that we will need to find roughly an additional £80,000 a year. This equates to 3 or so posts.

For years much of our income through contracts and grants has not received uplifts to keep in line with inflation – let alone this increase.

We face the following options:

• Reduce our establishment by 3 staff, which means will we help fewer people.
• Ask our funders to cover the costs – this means that local and national government organisations will in effect be putting tax revenue back into the treasury. Indeed some of it will be local government funding that will now go back to Westminster!  

Lacks nuance. 

Maybe the original thinking was that this is a tax on profit. It may work for companies who are making a large amount of profit and currently passing this on to shareholders etc. 

The government appears to be treating some sections of the VCS as a special case such as Hospices. I am not going to criticise them at all – but it does feel as though the Government is being led by PR here – not by a strategic view of priorities.

It may even work with VCS organisations whose funding base is primarily charitable giving – for example the RNLI and Macmillan. In theory they can try to increase the amount of unrestricted funds by making further demands on the public for donations! 

It is most iniquitous for VCSE organisations whose funding streams are predominantly based on  contracts with the local and/or national state – there is no built in profit margin. Many of these contracts were won through competitive processes that emphasised low cost. Predictably, the contracts with the  tightest margins are government contracts!

Impact

If organisations like Local Citizens Advice have to reduce the number of employees this has a number of effects.

• The government no longer gets the NI from the staff we did employ.
• We have fewer staff in our organisation – so we help fewer people. This means we put less money into the pockets of the most disadvantaged and we bring less money into Sheffield.

Westminster Debate

There has been a bit of a debate sponsored by Joe Robinson about the impact the NI increase will have on the voluntary sector. You can read this here. Not surprisingly most participation came from the conservative (whose policies meant that the VCS is already in poor shape) and liberal democratic opposition,  although I was pleased to see that a couple of Lab0ur MPs including one of our Sheffield MPs (Abtisam Mohamed) raised concerns about this issue too.

What do you think?