The Government needs  the third  sector for the Big Society

But funding issues could be obstacle


Although many still don’t quite grasp the concept of the Big Society and what it means in practice, implicit in the idea is a greater role for charities in the delivery of public services. Indeed, there has been an expansion of the work of charities in recent years often to cover work that previously was carried out by the Government-at local or, indeed, national level. It follows that the Big Society’s proponents should be extending the capacity of charities rather than reducing it. The big society agenda requires the state not only to pull back when services can be provided more cost-effectively and successfully by charities, mutual organisations and co-operatives, but to help social entrepreneurs and voluntary groups to work in partnership with the state and gain access to the support and finance they need in order to provide innovative, bottom-up solutions where expensive state provision has failed.


But there are some problems associated with this.  Services previously provided by local government benefited from an exemption, under section 33 of the Value Added Tax Act 1994, allowing local authorities to reclaim irrecoverable VAT incurred for non-business purposes. The rationale was that the VAT burden should not fall on local taxpayers. In a world where services are increasingly provided by charities,  the  third sector feels it is unfair to require charities to bear that burden. What makes the problem more acute is the Government’s decision to increase VAT from 17.5 to 20% while concurrently announcing  a decrease in corporation tax which benefits many companies but  does not benefit charities.  The Charity Tax Group has calculated that the increase will cost charities £143 million-money that will go directly into the pockets of the Government.


However the picture is slightly more complex than at first seems in respect of VAT and Charities. As things stand existing VAT zero rates for charities, which were introduced at the start of VAT, and which successive Governments have maintained, provide a benefit  according to the Government of more than £150 million to the sector. They include VAT zero rating on sales of donated goods, on medical and scientific equipment and on goods for use by disabled people for qualifying charities. Charities are also  not charged VAT on the costs of advertising in public media. In addition, they qualify for zero rating on the construction of certain buildings to be used for charitable purposes. All those zero rates are derogations from the normal EU VAT rules and represent benefits not enjoyed by charities elsewhere in Europe. Charities also benefit from certain specific VAT exemptions that apply to goods and services used in connection  for instance with fundraising events, providing further support for all charities.  The reality is that the Government is fairly constrained in  law as to what it can and cant do with VAT. It  is not in fact  open to  the Government  under our European agreements to extend or amend the zero rates. It really has to look at the wider tax regime to see if it can deliver  additional relief to Charities  (Gift Aid etc). Any refund system, would  of course involve a considerable cost to the Exchequer so it is a very sensitive area.


The Treasury Minister David Gauke, in a recent debate on the Sector said “ we are providing structural support designed to make it (charity sector)  more efficient and resilient, and reforming commissioning and procurement, which currently hamper its involvement in public service delivery. During the spending review 2010 period, we want there to be more opportunities for the sector to be  involved. We want to help the sector to access a wider range of funding to increase its strength and independence. We are establishing a big society bank to lever additional social investment into the sector, and we are reviewing ways to incentivise further philanthropy and charitable giving. The Government are keen to progress this project as quickly as possible. Any progress will, however, be subject to the availability of dormant account funds.”  On a positive note the Government understands that the Charity Sector  must have the right enabling environment to entice it into delivering more public services  and that access to funding is a big issue  and  so  it is listening to the sector. It has to if its Big Society idea is to take flight.



The Compact, published in December 2009, is an agreement between central Government and the voluntary, community and social enterprise (VCSE) sector. Local Compacts, which are agreed locally between the local statutory sector and the local VCSE,  aim to make an important contribution to encouraging good relations between local authorities and voluntary organisations. Compact Voice, supported by the Cabinet Office, offers practical help and guidance to local areas on how to get their Local Compacts working effectively. They also share best practice across England on how to improve partnerships between public bodies and the VCSE sector.


Social Enterprises are also supposed to be contributing to the Big Society. To make it easier for social enterprises to work with the state and connect with existing social enterprise networks, the Office for Civil Society Strategic Partner’s programme provides social enterprise support organisations with the resources they need to support their membership and to represent their voice to government.




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