Business rates relief for charities

A response from WCVA

December 2012

WCVA

Baltic House

Mount Stuart Square

Cardiff

CF10 5FH

Wales Council for Voluntary Action

A response to the consultation on business rates relief for charities

Summary of key points:

  • The proposed changes to business rate relief for charities could be disastrous for the third sector in Wales, leading to a loss of £4 million of charitable income and resulting in a third of Wales’ charity shops being forced to close.
  • Charity shops in Wales provide 700 jobs and 9,000 volunteer placements.
  • We believe that the proposals put forward in the review would not create the changes required to regenerate high streets and would be highly problematic to implement.
  • The third sector is currently being hit from all angles as its income is reduced and demand for its services increases. Its ability to access independent sources of income is essential to its survival and sustainability and supports the wider Welsh Government social enterprise agenda. These proposals could have a disastrous effect on charities in Wales and make Wales a place where charities struggle to survive and potentially remove their services altogether. This is not the Wales that we believe the Welsh Government would wish to create.

1.Introduction to WCVA

1.1Wales Council for Voluntary Action represents, campaigns for, supports and develops voluntary organisations, community action and volunteering in Wales. It represents the sector at UK and national level; and together with a range of national specialist agencies, County Voluntary Councils, Volunteer Centres and other development agencies, it provides a support structure for the third sector in Wales. It has over 3,000 members, and is in touch with many more organisations through a wide range of national and local networks.

1.2WCVA’s mission is to provide excellent support, leadership and an influential voice for the third sector and volunteering in Wales.

2.The business rates review and charity shops

2.1WCVA is pleased to have the opportunity to respond to this consultation on business rate relief for charities. We were concerned to read recommendation 15 of Professor Morgan’s review of May 2012 and whilst we are disappointed that this recommendation was not rejected by the Welsh Government we welcome an opportunity to offer our views at this stage. We hope that the current work being undertaken to give further consideration to the recommendation will offer a chance for genuine engagement with the third sector and an appreciation of the major impact that any changes to rate relief may have on the sector in Wales.

2.2WCVA is very concerned about the impact that the implementation of any of the proposals outlined in Recommendation 15 of the ‘Business Rates Wales Review: Incentivising Growth’ report could have on charity shops in Wales. We also believe that the recommendations would be problematic to implement and not achieve the regeneration of high streets and communities that we would all want to see.

2.3We have circulated details of this work to our members and have had responses from a number of organisations who are seriously concerned about the impact that any changes could have on their ability to raise funds and deliver services. We are in touch with larger organisations who may have a number of shops but we are also in touch with smaller, local organisations who may operate just one shop. We have also been working closely with the Charity Retail Associationand strongly support their position on this issue.

2.4WCVA offers support to help third sector organisations in Wales to diversify their income and develop sustainable funding models. The ability to raise unrestricted funds that enable organisations to provide services in communities across Wales is essential to the financial stability of the sector. The amount of third sector income coming from government and public bodies fell from 43 per cent in 2008/9 to 31 per cent in 2009/10; conversely the amount of income from trading and investments grew from 20 per cent in 2008/9 to 30 per cent in 2009/10[1]. The sector is diversifying its funding base and for many organisations trading is an essential part of this.

3.Consultation Questions

Levels of rate relief

3.1We believe that the levels of rate relief currently available to charities (80 per cent mandatory relief, 20 percent discretionary relief) are appropriate and should be maintained.

3.2We believe that all of the proposals set out for consideration the ‘Business Rates Wales: Incentivising Growth’ report would have a negative impact on the third sector in Wales. We also consider that many of them would be highly problematic to implement.

3.3The first proposal suggests limiting rate relief to 50 per cent for ‘larger charity shops trading in new goods.”’ We believe that it would be very difficult to find a suitable definition of a ‘larger’ charity shop. Would this mean shops that are part of organisations with a certain level of income, be based on the income or size of the individual shop or be based on some other financial criteria? In terms of new goods, our understanding is that new goods make up no more than ten per cent of the goods sold in almost all of Wales’ charity shops. There is a misconception that charity shops sell more new goods than they actually do due to the high quality and high standard of presentation of donations. We are very concerned about the possible cost of these proposals to charities across Wales – for example, Oxfam Cymru estimate that limiting rate relief to 50 per cent would cost them over £72,000 and the Paul Sartori Foundation estimate a cost of £30,000.

3.4Placing an upper Rateable Value limit on premises eligible for charitable relief could simply result in larger properties being left vacant. We do not believe that this change would result in more diverse and prosperous high streets. This also appears at odds with the encouragement being given to ‘meanwhile use’ in the Welsh Government’s Vibrant and Viable Places consultation with supporting evidence and recommendations made by CREW, the Centre for Regeneration Excellence in Wales.

3.5The introduction of tighter qualifying criteria also seems problematic. Charities have to meet tight criteria to register with the Charity Commission and by their very nature they are ‘philanthropic’ and ‘providing social or community benefit’ as the recommendation suggests. There is a danger of creating a system where central government or local authorities decide which causes they feel are more beneficial than others and therefore who should be given space to raise funds. We do not believe that this is in the spirit of the relationship that the Welsh Government has with the third sector.

3.6A further complication to tightening qualifying criteria is that increasingly charity shops are being created as ‘community hubs’ combining charity shops and the provision of services. For example, the Welsh cancer research and care charity, Tenovus, has a number of buildings that combine charity shops and ‘community hubs’ for cancer patients and their families that offer services such as health checks and welfare rights advice. We would like to see this approach supported and encouraged.

3.7We are aware of the issue of premises not being appropriately used in some instances and are concerned about this as it is a practice that we do not support, that creates reputational issues for the sector and that contravenes Charity Commission guidance. We would expect the Charity Commission and HMRC to do all that they can to stop this practice and would be happy to work with them to issue any guidance required to our members in partnership with the Charity Retail Association. We hope that any poor practice will be stopped but this should not be used as a rationale to penalise reputable charity retailers who are operating within the law.

3.8Likewise, limiting the number of shops in an area could prove problematic in terms of how decisions are made and runs the risk of leaving empty properties where there could be charity shops providing low-cost goods to communities who value them. Successful examples of third sector activity in this area include the award-winning Holyhead Empty Shops initiative led by the Plas Cybi Partnership, a local third sector organisation and community regeneration organisation which has created five new businesses, and 12 new jobs since February 2011, increasing footfall in the town centre, minimising high street decline and contributing to social and economic regeneration. The benefits of this innovative approach are acknowledged in the Welsh Government’s own Vibrant and Viable Places review document and its supporting evidence.

The impact of changes

3.9Charity Retail Association figures suggest that the proposed changes could result in a third of Wales’ 500 charity shops being forced to close. This would represent a loss of £4million of charitable income in Wales. This money is used to deliver services and support organisations that work with some of the most vulnerable and disadvantaged people in Wales.

3.10We have had anecdotal responses to this consultation from a number of organisations representing larger and smaller charities. By way of example, YMCA Wales has told us:

YMCA Wales receives a modest income from YMCA charity shops. However this is only the tip of the iceberg. The ten YMCA charity shops in Wales provide a mixture of paid employment and volunteering opportunities which contribute to the local economy. They can offer valuable work experience, and confidence building opportunities in a supportive environment to trainees seeking to join the Welsh workforce. Because of their low profit margins, many charity shops would be seriously affected by a reduction in the present level of business rate relief to the extent that some may have to cease trading.

And from the smaller charities’ point of view, Caerphilly Mind (an independent Mind organisation) has told us:

We run a small independent charity shop (not part of the Mind group of shops) next to our premises in Ystrad Mynach.The shop is rented froma private landlord. It provides us with an ideal arena to support individuals with long term mental health issues into volunteering roles with the long term goal of returning to work. The shop also provides a community facility which is very much appreciated by local people and of course a small income (£10K per year) towards our running costs.If we were required to pay rates on top of rent and running costs this project would be unsustainable.Before we took over the shop three years ago, the premises had been empty for many years and was in a poor state of repair and quite dilapidated - everyone comments on the improvement to the street scene by our refurbishment and upkeep of the premises.

3.11WCVA is very concerned about any proposals that would reduce the income of charities in Wales at a time of cuts in public spending and increasing demand for services. Our most recent ‘State of the Sector’[2] survey shows that 25 per cent of the organisations surveyed who provided services had seen an increase in demand for their services.

3.12The proposals would have a very damaging effect on charity shops in Wales and the amount of money raised from it would not be enough to make a significant difference to economic growth. The Charity Retail Association estimates that even if charity rate relief were entirely removed, the amount raised would not even cover five per cent of the funding required to extend the small business relief scheme (£72 million according to Professor Morgan’s report). The disparity between the impact on charity shops and the impact that could be made to economic growth is stark and should be considered.

Social Enterprise and Credit Unions

3.13WCVA welcomes support for Social Enterprises and Credit Unions but we do not believe that this can or should be achieved through any potential savings made by reducing support for charity shops.

3.14This proposal is also problematicas there is no standard legal form for a Social Enterprise. Social enterprises may be charities, companies limited by guarantee (with or without charitable status, friendly societies, community interest companies or simply unincorporated associations. Research commissioned by Welsh Government in 2009 to map social enterprises in Wales found that 63 per cent of organisations identified as social enterprises had charitable status[3].

3.15In the present economic circumstances many third sector organisations are looking at ways of moving away from grant dependence to become more sustainable by generation of new income or through income diversification. For many organisations this route into social enterprise can include the business opportunities provided by running a charity shop. WCVA’s experience, through the management of the third sector loan fund (the Communities Investment Fund), showed how some third sector organisations were prepared to take on loan finance and were able to show the ability to make the repayments through unrestricted income derived through their retail activities. Also the skills and business discipline obtained by charities running charity shops has made them more entrepreneurial and led to cultural changes that see them keen to move onto other social enterprise initiatives. The experience of the WCVA-managed project Enterprising Communities also shows practical examples of how the running of charity shops has been a stepping stone to financial sustainability and leads to third sector organisations becoming stronger from a financial, governance and volunteer development perspective.

4.Further Comments

4.1The contribution that charity shops make to life in Wales goes far beyond the money raised for good causes. Charity shops contribute to tackling poverty, tackling climate change and supporting growth and jobs. These are three principal aims of the Welsh Government’s Programme for Government. Implementation of the proposals in the review would damage the third sector’s ability to contribute to these aims and contradict Welsh Government stated priorities. The third sector and/or WCVA is listed as a key delivery partner in relation to the Programme for Government and we would be very disappointed to see our ability to contribute towards these important goals being diminished.

4.2The Charity Retail Association reports that charity shops in Wales divert 20,000 tonnes of textiles from landfill and reduce Welsh carbon emissions by over 200,000 tonnes of CO2 every year. Charity shops have a key role to play in tackling climate change and contributing towards the Welsh Government’s climate change agenda.

4.3Charity shops create jobs and volunteering opportunities, often for those who are most disadvantaged in the labour market. Charity Retail Association figures show that charity shops in Wales provide 700 jobs and 9,000 volunteer placements. The third sector’s experience of delivering employment programmes such as Future Jobs Fund and Jobs Growth Wales also includes examples of employment opportunities within charity shops that have helped people to get back into the labour market.

4.4Charity shops contribute to the anti-poverty and regeneration agendas by providing an accessible and affordable outlet for cheap, quality clothing, footwear, furniture, white goods and other household necessities which families in many areas may rely upon. Our policy paper, the Poverty Challenge,[4] provides practical examples of the kinds of contributions made, and the Plas Cybi Partnership experience in Holyhead shows that the third sector can play a crucial role in supporting the creation of sustainable jobs and supporting local sole traders and self employed people.

5.Conclusion

5.1WCVA is keen to see the Welsh economy grow and to ensure that high streets and communities can thrive.We believe that charity shops are part of the solution to high street and community led regeneration and renewal and should not be seen as part of the problem.

5.2With a circa 15 per cent vacancy rate reported in shops across Wales we do not believe that penalising charity shops will have the desired effect of regenerating high streets or communities. Small businesses need to be supported and we would encourage this but not to the detriment of the charity sector. The two should not be pitched against one another, both have a valuable contribution to make to the economy and to communities locally and nationally and as the Plas Cybi Partnership and the Holyhead Empty Shops Initiative shows partnership working cross sectors can deliver benefits for local government, local businesses, the local community and the third sector locally.

5.3The Welsh Government has led the way in its commitment to, and support for, the third sector. We are proud of the positive relationship between the sector and Welsh Government and are deeply concerned by these proposals which could represent a backwards step in Welsh Government understanding, appreciation and support for the third sector in Wales.

5.4The third sector is currently being hit from all angles as its income is reduced and demand for its services increases. Its ability to access independent sources of income is essential to its survival and sustainability and supports the wider Welsh Government social enterprise agenda. These proposals could have a disastrous effect on charities in Wales and make Wales a place where charities struggle to survive and potentially remove their services altogether. This is not the Wales that we believe the Welsh Government would wish to create.