When George Osborne announced the introduction of the National Living Wage (NLW), it was part of a package which was designed – in part at least – to guarantee higher wages for those who need it whilst reducing the tax burden on the employer.
The logic was that, as the Living Wage grew quickly in real terms towards a figure of £9 an hour by 2020, Corporation Tax rates would decrease year on year. Whether the initial increase in the minimum hourly rate of just over ten per cent in April this year, to be followed by a further four per cent rise in April 2017, is fully covered by a one per cent decrease in Corporation Tax is a moot point, but at least for commercial businesses there was some recognition of the extra wage burden that NLW would bring.
In the charitable sector however, the sweetener is irrelevant because most Charities will not pay Corporation Tax. So at a time when many charities are under financial strain due to restricted budgets and higher competition for grants, the introduction of the National Living Wage, and further above-inflation rises for the next three years, is likely to threaten many charities’ very existence.
As a trustee and financial director of a charity myself (the excellent Centre 81
, which provides a Skills and Activities Centre and Community Transport Service for people across Great Yarmouth and into Waveney), I understand only too well the pressure this is putting on charities.
There is no easy answer to overcoming this challenge: as employers, charities must abide by the new NLW requirements. The main piece of advice I can provide is to leave no stone unturned in the drive for efficiency and maximisation of income sources. Trustees are likely to feel the pressure like never before and it will take some diverse thinking for many to overcome the pressures which will be experienced over the coming years.
There is nothing inherently wrong in taking this approach, providing you stay focussed on the organisation’s charitable objectives and trustees with commercial experience will be invaluable in achieving these very challenging objectives.
Many voluntary organisations have traditionally shied away from using words like ‘efficiency’ and ‘productivity’, but they are just as relevant in the charitable world as they are in the business arena – and for those which directly employ people, they are concepts which are every bit as vital to adopt.