Briefing Published on Impact of National Insurance Increase on VCFSE Sector in GM
Total additional cost to the Sector in Greater Manchester estimated at £38 million.
A briefing has been published that highlights the significant financial challenges facing Greater Manchester’s Voluntary, Community, Faith, and Social Enterprise (VCFSE) sector following changes to National Insurance (NI) announced in the Autumn Budget 2024. The increase in employer NI contributions from 13.8% to 15%, combined with a reduction in the Secondary Threshold to £5,000, will substantially increase staffing costs for VCFSE organisations.
Summary
In the Autumn Budget 2024, the Government announced its plans to increase employer National Insurance (NI) contributions from 13.8% to 15%, alongside a reduction in the Secondary Threshold to £5,000, which could increase the cost of employing staff for those with lower-paid roles or part time workers.
The VCFSE sector is already contending with rising wage demands, contracts that haven’t kept pace with cost increases and now faces an additional financial challenge. This additional pressure is estimated to cost each VCFSE employers on average between£20,000- £50,000 per annum to their budgets next year. The total estimated additional cost to the Sector in GM as a whole could be in the region of £38 million.
These additional costs will exacerbate existing financial pressures and threaten to weaken the delivery of community-led support and services. Those organisations, previously in a position to increase capacity and impact, will now face a barrier to growth. This will create challenges for expanding the role of the VCFSE sector in GM’s strategic priorities under the GM Live Well Trailblazer and Good Growth Plans.
Concern from the VCFSE sector is often raised following budgets but the fear and anger expressed by leaders is much stronger at this decision. This has the potential to reshape relationships between the state and the VCFSE Sector.
Example Impacts on the Sector in Greater Manchester
There are 75,000 people employed by Greater Manchester’s VCFSE Sector with over 62% of paid staff employed by the 500 largest organisations (with a turnover greater than£1m). Many VCFSE organisations report finding it harder each year to keep up with inflation-matching uplifts for their staff wages and increased costs to the Accredited Real Living Wage. We can see in 10GMs pay and conditions report that local VCFSE salary ratios in this Sector are already fairly flat.
It is estimated that the changes to National Insurance coming into effect on the 6 April, will increase costs for VCFSE organisation that employ staff on average between £20,000-£50,000 per annum. In a recent survey carried out by GM VCFSE Reform Lead for Criminal Justice, 16 organisations tackling Violence Against Women and Girls (VAWG) face an additional £853,136 in costs annually, equating to 3.1% of their collective turnover (£27.36m).
Changes like this hit the VCFSE sector particularly hard because approximately 85% of its expenditure on staffing. In addition, the reduction to the Secondary Threshold increases the cost to an employer who employs more part time roles. The Institute of Fiscal Studies (IFS) estimates that on average next year a full-time worker will be 8% more expensive and a part-time worker 11%. Part time work is more common in the VCFSE sector where many organisations seek to provide accessible employment for those with limiting conditions and care responsibilities.
Response from the Sector
Many VCFSE organisations are currently in their annual budget setting process that will take effect at the beginning of the financial year. Most VCSFE organisations do not have the option available to many commercial firms of raising prices and passing costs to consumers and users. They are reporting stark choices, and will be forced to implement, some or all of the following:
· Make redundancies to reduce headcount which will affect their services and activities and jeopardise their ability to offer support.
· Freeze recruitment, leading to decreased capacity and capability to flex and respond to local needs and priorities.
· Consult staff in taking real-time pay cuts and reduce other benefits such as wellbeing support that maintain their commitment to the Good Employment Charter or require de-registration on the Accredited Real Living Wage employer.
· Have less resource in operating budgets to fund technological and other digital innovation and service re-design/improvements.
· Closure due to unsustainability of operating model
Local VCFSE infrastructure partners have already seen an increase in the number of organisations in financial distress in the first half of this financial year and expect this change to herald increased numbers of organisational closure.
These changes will reduce the range and quality of support to Greater Manchester residents. In addition, the majority of VCFSE organisations work in formal or informal partnerships with others. Reducing the provision from or presence of key organisations risks eroding the level of support of all organisations in their network.
Local Sector Leaders Call for Action
VCFSE sector leaders have highlighted that the following would demonstrate positive system support to mitigate the impacts:
1. Contract Uplifts: Ensuring in the current round of contract /service contracting that there are annual uplifts to contract or grant payments in line with inflation, tax increases and other employment costs are properly considered. Where this can’t be implemented a joint risk plan should be put in place to jointly manage the risks. (This would be in line with commitments made by GMCA in the GMCA’s Fair Funding Protocol and will enable VCFSE organisations to maintain their commitment to Real Living Wage Accreditation and the GM Good Employment Charter.)
2. Collaborating on risk: Working with VCFSE partners to understand and share risks to delivery of services in communities and impacts on the citizens of GM. This includes the offer that residents receive outside of public sector commissioned services as well as those that do.
3. Commissioning Commitments: A clear commitment to be made to mitigate the risks of commissioning decisions that ‘keep services in-house’ within institutions that are exempt from the NI increases.
4. National Advocacy: Continue to advocate with VCFSE leaders for NI policy adjustments or exemptions at national level.
