George Osborne

What will tax credit cuts mean for charities?

By Rachel Wharton 27 October 2015

The chancellor has run into some serious trouble over his tax credit reforms. At the moment, households can receive the maximum amount of tax credits until they reach an ‘income threshold’ of £6,420. The new policy, announced in July, will reduce this threshold to £3,850, meaning that 3 million families will be more than £1,000 a year worse off from April 2016.

Opposition to the changes have spread, including among the government’s own backbench MPs, and the chancellor will have until the spending review next month to make any ‘tweaks’.

Changes to tax credits will have substantial consequences, which highlights an important issue for charities and philanthropists: How does civil society respond to a shifting external policy environment?

Some families affected by the cuts will seek support from charities, meaning not just a greater demand for services but also greater variety in the services that are needed. People may be after an explanation of what the changes will mean for them, or help in their job search to earn more, or urgent intervention if they are about to be plunged into debt.

Charities will need to anticipate these issues and set up help as swiftly as they can, as will the people who fund them—not an easy task at all.

This may pose a slighter challenge for national charities who are already engaged with the policy environment—Citizens Advice, for example, who are typically swift off the mark. It gets harder for smaller charities, though, who may be rocked by the same external changes with far fewer of the resources to respond.

For example, if a charity working with prisoners suddenly finds that offenders are being kept in their cells for longer, and that it is therefore much harder to reach them, there will be significant affects on its impact. This could worry funders in turn, who may wonder why the charity is suddenly achieving less. This is hardly the charities’ fault, but it will need to be clear to its supporters about what has happened.

Sometimes external changes can be catastrophic for a charity. This summer the British Association for Adoption and Fostering (BAAF) had to close suddenly, citing ‘significant changes and prevailing economic conditions‘, despite being a long-serving and seemingly stable charity.

Most of the attention around BAAF’s closure has focused, sensibly enough, on the charity’s financial difficulties. But they were subject to a number of external forces too. Despite political impetus to increase the number of children adopted in the UK, a series of events meant that these numbers actually dropped significantly. A string of court rulings criticised social workers for not trying harder to keep birth families together, leaving local authorities even more reluctant to separate birth families. A revised framework was introduced for long-term foster care, while there were fewer resources to fund social work training. The environment in which BAAF worked had changed dramatically, and it wasn’t able to manage this change.

No matter how brilliantly a charity delivers its services or campaigns for social good, it will always be vulnerable to sudden shifts in the policy landscape. This may result from a change in the law, or tough financial decisions from local councils, or short-term thinking by a government under pressure. But if charities can’t respond and adapt, or their funders are slow to help them when they need to, the results can be very serious indeed.

A version of this blog was first published by Spears Magazine as part of our philanthropy series.