UK Budget Increases Flexibility for Pensioners, Caps Social Welfare Spending

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March 19, 2014; The Guardian


Matt Mead of Nesta Impact Investments is happy with yesterday’s government release of information on the proposed U.K. national budget, especially its provisions for Social Investment Tax Relief. Mead is happy that PM Cameron’s budget, specifically the Social Investment Tax Relief component, contains incentives for “social sector organizations.” This provision, he believes, would be an incentive to people who want to start charitably oriented social enterprises the way the government has provided tax incentives for private capital to go to new businesses. 

Ultimately, however, Mead isn’t particularly attached to for-profit or charitable business structures for social enterprises. “Although some may disagree, it really shouldn’t matter what corporate form is used to drive social impact,” he writes. “A private company where management is motivated by social impact, a board that supports that mission and investors that want to maximize impact and grow scale can be a really powerful force for change.”

Mead likes the budget, but Labour leader Ed Miliband doesn’t, denouncing its “tax cuts for the richest whilst everyone else gets squeezed.” Among the key elements of Chancellor George Osborne’s budget speech were these commitments:

  • A £500 raise in the income workers can earn before being taxed, bringing the tax-free income amount to £10,500
  • Extension of the government’s “Help to Buy” program for new homeowners
  • A “five-year cap on structural welfare spending from 2015” excluding spending on pensions and job assistance
  • Elimination of inheritance taxes for people working in emergency services (because, Osborne said, they “give their lives protecting us”)
  • A new Individual Savings Account (ISA) with an annual tax free savings limit of £15,000 in either cash or shares (current ISA tax-free limits are £5,760 a year in a cash ISA and £11,520 in an ISA capitalized by stocks or shares) 
  • Changes in pension rules, allowing pensioners to cash in as much or as little as they want from their pensions rather than having to purchase fixed payment annuities, and the creation of a new Pensioner Bond paying 2.8 percent on one-year bonds and 4 percent on three-year bonds

Mead may be happy with the social enterprise provisions, but some charities are unhappy with Osborne’s cap on welfare payments. For example, Scottish charities such as Child Poverty Action Group Scotland and the Scotland branch of Save the Children slammed the budget for its impact on poor children. The cap on welfare spending, Child Poverty’s John Dickie said, “means the government’s hands are tied on the action it can take to tackle child poverty.” Save’s Neil Mathers added, “The budget was a missed opportunity to address the needs of families that are struggling to pay their food bill.” 

Some charities will specifically benefit from the proposed budget. Chancellor Osborne committed £100 million in expected fines on banks due to the LIBOR scandal to military charities and emergency services charities and for the Scouts and Guides (basically akin to the U.S. Boy Scouts and Girl Scouts). 

More money for the scouts and an exclusion from taxes of the first £10,500 a worker earns don’t seem to overcome a five-year cap on social welfare spending for people in need. Mead’s faith in social enterprises is admirable, but tax incentives for social enterprises won’t meet the needs of the U.K.’s underemployed and unemployed—who will end up going to charities for the help they can’t get from government.—Rick Cohen