What are the impacts of National Insurance changes:
The recent changes to National Insurance (NI) in the UK, particularly the increase in employer contributions, are expected to have a significant impact on the third sector in Scotland and the wider UK. Here are a few key reasons why:
Increased Costs for Employers: The secondary Class 1 rate of employer NI contributions will rise from 13.8% to 15%, and the threshold at which employers start paying these contributions will be lowered from £9,100 to £5,0001. This means that third sector organisations, which operate on tight budgets, will face higher costs for employing staff. And those organisations with flexible work patterns and a higher proportion of female employees will be hit hardest!
Financial Strain on Voluntary Organisations: The Scottish Council for Voluntary Organisations (SCVO) estimates that these changes will cost voluntary sector employers in Scotland around £75 million per year. Many of these organisations are already struggling with financial difficulties due to rising costs and increased demand for their services. Further exacerbated by many years of underfunding and use of reserves to offset this.
Impact on Service Delivery: With higher employment costs, third sector organisations will have to cut back on services or reduce staff, which will affect the delivery of vital services such as social care, youth work, and the support for vulnerable communities. At a base level, this will we reduce services and increase the scale of unemployment.
Lack of Compensation: Unlike public sector employers, who will receive some compensation for the increased NI costs, third sector organisations are not guaranteed similar support. This disparity puts additional pressure on these organisations to find ways to cover the increased expenses.
What does this really mean?
These changes will ultimately undermine the ability of third sector organisations to continue providing our essential services to communities across Scotland and the wider UK. If the third sector were to fail, it would fall to the public sector purse to deal with the aftermath. Here are some potential impacts:
Increased Demand on Public Services: The third sector provides a wide range of essential services, including social care, mental health support, and community development. If these services disappear, the public sector will need to absorb this increased demand, potentially overwhelming the already stretched public resources.
Higher Costs: The third sector often delivers services more cost-effectively than the public sector due to its ability to leverage volunteer support and community engagement. Without the third sector, the public sector will face higher costs to deliver the same services – at a time as public sector budgets are constrained and continue to be reduced.
Reduced Service Quality and Accessibility: Third sector organisations often provide specialised, person-centred services that are tailored to the needs of specific communities. The loss of these services will lead to a reduction in the quality and accessibility of support available to people and communities who need it the most.
Economic Impact: The third sector is a significant employer and contributes to the economy through employment, purchasing, and commercial activities. Its failure will lead to job losses and reduced economic activity, further straining public finances.
Increased Inequality: Most third sector organisations work to reduce inequalities by supporting marginalised and disadvantaged groups. Without their support, these groups will face greater challenges, leading to increased social inequality.
The public sector would need to find ways to mitigate these impacts, potentially through increased funding, policy changes, and greater collaboration with remaining community organisations, if they still exist!
Why is the government not listening?
The Labour UK Government has acknowledged the challenges posed by the changes to National Insurance (NI) contributions, but their primary focus has been on addressing broader economic issues and public finances.
Economic Priorities: The UK government has emphasised the need to raise revenue to stabilise public finances and support public services. The increase in employer NI contributions is expected to generate significant revenue, which they argue is necessary for economic stability.
Public Sector Compensation: The government has planned compensation for public sector employers to offset the increased NI costs. However, similar support has not been extended to the third sector, which is seen as a lower priority compared to direct public sector funding.
Focus on Larger Economic Goals: The UK Government has been focused on larger economic goals, such as reducing the deficit and funding public services. This broader focus has led to less attention on the specific needs of the third sector.
Political and Budgetary Constraints: Political and budgetary constraints often mean that not all sectors can receive the support they need.
Room for optimism in Scotland?
Ongoing Discussions: There are ongoing discussions and scrutiny within the Scottish Parliament regarding the funding and support for the third sector. The Social Justice and Social Security Committee, for example, is actively reviewing the financial sustainability of the sector and exploring ways to support it.
Summary of the value of the third sector:
However, while the UK Government may not be ignoring the impact entirely, the third sector’s concerns are being overshadowed by broader economic and political priorities and a fundamental lack of understanding of the #essentailsector. The third sector in Scotland and the wider UK, which includes charities, community groups, and social enterprises, provides immense value both socially and economically on a daily basis.:
Social Value
Reducing Inequality: Third sector organisations reduce social inequalities by providing support to marginalised and disadvantaged groups. This includes services like food banks, shelters, and advocacy for vulnerable populations.
Community Cohesion: The third sector fosters community spirit and cohesion through local projects, events, and volunteer opportunities. It helps build stronger, more resilient communities.
Health and Wellbeing: Many Third sector organisations also provide essential health and social care services, including mental health support, elderly care, and disability services. They play a crucial role in improving the overall health and wellbeing of the entire population, picking up the pieces when the public and private sectors cannot. .
Education and Skills Development: Third sector organisations offer educational programmes, training, and skill development opportunities, helping individuals improve their employability and personal growth – regardless of age.
Economic Value
Cost-Effective Services: By leveraging volunteer support, other forms of funding and community engagement, third sector organisations often deliver services more cost-effectively than the public sector.
Innovation and Flexibility: The third sector is known for its innovative approaches to solving social problems. Third sector organisations often respond more quickly and flexibly to emerging needs compared to larger public sector bodies.
The third sector’s contributions are vital for both the social fabric and economic health of Scotland and the wider UK. I reiterate a point in a previous article I wrote: What happens if we bankrupt the third sector? I would argue that the public services delivered by the third sector are one of the reasons we still have a functioning public sector, we still have communities, and we still have a functioning social conscience. Current actions are putting the sector at risk by a lack of understanding as to what the sector truly delivers and how needed the sector is to communities, especially our most disadvantaged communities.
To paraphrase Winston Churchill: The third sector makes a living by what we get, but in return we make a life by what we give!”
