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Posted: Fri 8th Nov 2024
Founders of social enterprises, and the groups that represent them, have expressed concern over the impact of the Autumn Budget on the provision of community services.
In chancellor Rachel Reeves' Autumn Budget speech in October, the headline measure was an 1.2 percentage points increase in employers' National Insurance and a cut in the threshold at which bosses must start paying National Insurance on an employee's salary.
She also announced a 6.7% increase in the National Living Wage for employees aged 21 and over, plus a 16.3% rise in the National Minimum Wage for 18 to 20-year-old workers.
These measures place extra costs on businesses, and social enterprises and not-for-profits, which are already operating on tight margins, say they could hinder their ability to provide key community services.
Estimates suggest the National Insurance changes could cost the voluntary sector £800m a year, and although the Social Enterprise Coalition welcomed the Budget as a "a decisive shift to higher levels of public investment", it said in a statement:
"The rise in employer National Insurance Contributions (NICs) will particularly impact social enterprises that create jobs, often for those furthest from the labour market.
"While the employment allowance has been increased, which will reduce pressures on smaller businesses, this still raises questions over whether this is the fairest way to distribute the increased tax burden.
"Social enterprises that provide vital public services may be particularly impacted by the Budget. The minimum wage will rise alongside NICs.
"While social enterprises are committed to paying a living wage and offering better working conditions, those reliant on public sector funding may struggle with these additional costs if they do not receive a fair funding settlement from the public sector bodies they work with."
Charities are lobbying the government to be exempt from the National Insurance changes, with Association of Chief Executives of Voluntary Organisations (ACEVO) chief executive Jane Ide telling the Civil Society website:
"Civil society leaders have very limited choices to make in how to manage these significant increases in operating costs. The harsh reality is that many organisations may be forced to reduce staff, cut salaries, and, most importantly, scale back services for the very people they strive to support.
"If civil society is to partner with government in delivering the decade of national renewal, as the prime minister invited us to, it is important that civil society is strong and able to play its part and yet the changes will affect the resilience of civil society and its vital role as a trusted partner in helping the government achieve its vision."
Enterprise Nation spoke to two social entrepreneurs about their thoughts on the impact of the Budget.
Ruth Finnan is co-CEO of Circle Scotland CIC, a social enterprise which provides various services including low cost workspaces for social organisations, volunteering and employment opportunities, and mobility devices. She said:
"Our biggest expense is staff salaries. We will now pay a higher percentage of National Insurance on employee salaries, with some part time workers now falling into the NI threshold, directly raising labour costs. The rise in the employment allowance does not offset the increase in NI from dropping the threshold.
"Our already tight margins will be squeezed unless we can offset these costs. Our cash flow projections and strategy for 2025 will now have to be re ooked at, and salary increases will potentially now not be possible.
"Increasing costs on small employers to fund public sector workers wages will result in the pay deficit between public sector and the third sector employees becoming wider.
"The majority of our service users are third sector businesses who will also be experiencing similar issues and we cannot expect them to pay for this through price increases."
Enterprise Nation member Joanne Baldock is managing director of Role Play Lane, a not-for-profit role play centre for children in Llantwit Fardre, South Wales. She said:
"The increased expenses will likely reduce funds available for direct community services, potentially limiting programme and support for families in need.
"As a smaller not-for-profit, we will struggle with absorbing these costs compared to larger charities with more diversified funding streams. We all work for minimum wage, including me as a managing director, so there is no wiggle room for us unfortunately.
"Increased worker rights will create administrative and financial challenges for small organisations like ours with limited HR resources. We do everything ourselves as there is no money to outsource so this would make everything more challenging. Although I agree that employees have certain rights, where is the help for small business owners/managers who do everything in the business?
"Increase business rates will impact our future and feasibility as a not-for-profit and how we are able to continue to support the community."
If you're running a social enterprise or not-for-profit business and you'd like to share your views, email Enterprise Nation head of media Liz Slee.
