Time is ticking towards the new financial year and organisations of all types are setting their annual budgets. 

There is much uncertainty over public funding for the third sector, not least when it comes to the increased costs associated with employers National Insurance Contributions (NICs).

The rate of secondary Class 1 NICs will rise from 13.8% to 15%, and the NIC Secondary Threshold will fall from £9,100 a year to £5,000.  

Whilst public sector services will be protected to some extent, the Scottish Government have said that they expect that there will be a shortfall in funding from the UK Government to cover the full costs to the public sector.  This means they will have less money for other things.  The third sector is not so lucky, and we expect most organisations will face the full brunt of costs with little additional support.  Local Authorities are unable to confirm their position until their own funding is confirmed, leaving much up in the air until national budgets are confirmed.

These increases are not costs which the third sector can absorb without significant detrimental impact on the provision of services.  Contracts for providing services may become financially unviable and there is a genuine fear that staff will lose their jobs.  Certainly, pay rises which match the cost of living for third sector employees seem further away than ever.  Across the city, the cost to the sector will be over £5 million and funding to fill that gap simply doesn’t exist.

As a basic example, in the current financial year an employee paid a £25,000 salary requires Employer NICs of £2194.20 per year.  The changes in both rate and threshold mean that cost will rise to £3,000, a whopping 36.7% increase.  Is any third sector organisation expecting a rise in income to match that?

In addition to the lack of comfort from funders and commissioners, there is evidence emerging that many organisations are not fully aware the extent of the impact on their staffing budgets. 

ACVO is urging all organisations to speak with their accountants and treasurers as a matter of urgency to ensure they have a firm picture of costs for the coming year.  Please contact us if you need further information.

There is some better news for organisations with lower staffing costs.  The Employment Allowance is rising from £5,000 to £10,000 a year which will exempt some from paying any contributions.