Brexit and the voluntary sector: Preparing for change

Karl Wilding's presentation outlining NCVO’s thinking on how Brexit will shape the landscape for the voluntary sector, what we can do to prepare for all eventualities and what it might mean in the longer term. Presented at the VONNE Conference, 18 October 2018 

The accompanying slides for this presentation are available here.

Good morning everyone.

Thank you for the opportunity to speak today. NCVO is the national body for charities and volunteering and we work alongside umbrella bodies like VONNE, without whom we wouldn’t be able to make a bigger different to the sector.

Over two years have passed since the UK took the monumental decision to leave the European Union. Those two years have felt like a lifetime, but we are now in the final stretch on the road to Brexit. With less than six months to go until we leave the EU, it’s never been more important that we as a sector think about how Brexit will shape the landscape of our country in the years to come, and our role in what could be a pivotal moment of national renewal.

There is so much left to be decided. Not just in terms of whether we get a soft Brexit, a hard Brexit, or a no-deal Brexit, but also in terms of what we as a country want to be going forward. What kind of country do we want to build? If Brexit was a vote for change, then what change are we going to use it for?

This is where I believe the voluntary sector’s voice is more important than ever.

Now, I’m not here to talk about the politics of the referendum. The campaign was divisive, and I don’t believe that there is anything to gain from re-running those arguments. I am here to talk about how we, as a sector and a community, work together to prepare for the environment ahead. Because things are going to change. Whatever your personal beliefs, the reality facing the UK is that there is change ahead, and we need to be ready for it.

After two years of intense negotiations, it’s looking increasingly likely that we could leave the EU with no deal (don’t hold me to that). We are constantly hearing from the government the mantra that 'no deal is better than a bad deal', and a recent KPMG survey of the public with over 3,000 respondents reported that a majority expect a no-deal outcome.

The week of Christmas this year will mark 100 days until Brexit. Time has all but run out for the government to get a deal, not to mention convince parliament to back it. That is no mean feat, so many commentators think we really are heading for a so-called cliff-edge Brexit. Of course, things can change very quickly in politics, so I’m not in the business of predicting outcomes. What is important, though, is that we think about what we can do now to mitigate against any immediate impacts that we may see, whether it’s no deal, the PM’s deal or some alternative. I cannot stress enough how important it is that we are having these discussions now, both internally and externally.

Social impact of Brexit, how will the country change, themes to think about

Before we go any further, we need to think about what change we are likely to see for the country as a whole. In the short term, extended uncertainty and volatility look set to dominate. We may see an 'investment strike', much slower economic growth, and many economists tell us that we are closer to the next recession than the last. The latest economic data shows a downbeat – or at best mixed – picture. The Bank of England had expected business investment to have grown more than 13% over the two-year period from 2016. However, we are currently seeing investment rates only 2% higher than at the time of the Brexit vote, and 0.2% lower than a year ago.

Clearly, uncertainty and hardship are already defining the economic environment that our sector has to operate in, and I’ll come back to more specific financial matters a bit later on. But it’s the social impact of what has happened over the last two years that we mustn’t forget.

It’s an uncomfortable truth that many of us in the voluntary sector did not see this coming. I’ve spoken to countless people across the sector who are still shocked by what is unraveling before us. People who think that this is a disaster, or that we should have a second referendum. There is a dissonance here.

How can it be that we, a sector built on and grounded in community action, fail to understand the concerns of those communities who voted for change?

If we are to represent those who feel disaffected, left behind, remote from policy makers in London, then we have to come to terms with the fact that people who we work with voted to leave because their community was not working for them. Professor John Curtice’s recent polling on what outcome a second referendum might throw up is really interesting. It suggests that a rerun would be just as close as the first. If that’s true, it means that those same people feel real change hasn’t come. That their community still isn’t working for them. We the voluntary sector need to think about why that is, to listen to those people, and to start rebuilding trust.

Going forward, showing leadership in our communities is our first and biggest challenge – leadership that goes above and beyond our own organisations.

Reflecting on the referendum and what's changed already

In broader economic terms however, we are already seeing the decision to leave the EU take a toll. The UK is not far off the bottom of the G7 league table for annual growth; only Italy, experiencing a populist uprising, experienced slower growth in the second quarter of this year. By the end of the first quarter of 2018, the UK economy was between 1 and 1.5% smaller than it would have been without the Brexit vote according to the FT. The hit could have been as large as 2.5% if we are to believe independent estimates from the Centre for European Reform.

Even Julian Jessop, the Brexit-supporting Chief Economist of the Institute for Economic Affairs, tells us that 'the UK economy has probably grown more slowly due to the additional inflation prompted by the sterling’s fall, and the heightened uncertainty'.

In other areas, too, the country has in fact suffered. Real wage increases dropped away after the Brexit vote as inflation climbed well above the Bank of England’s 2% target. Everyday price rises have recently exceeded expectations and wage increases have been struggling to reflect this throughout 2017 and 2018. The household sector has moved into a net financial deficit, borrowing more than it is saving for the first time 1988. However, household spending has seen a rise compared to savings throughout 2017 and 2018. The danger for the economy is that if households seek to save at normal levels once again, bearing in mind that the 50 year average is around a 9 per cent rate, spending will take a big knock, as will the wider economy.

But I’m not here to tell you that everything is terrible. And those who will tell you only of the negative impacts of Brexit have to face some uncomfortable truths of their own. Because some areas have improved since 2016. The labour market has strengthened significantly since the referendum. Unemployment has fallen to 4%, its lowest rate since the mid 1970s. Not only is employment up, but most of the growth has been in full-time jobs. The number of people in part-time jobs and in self-employment is now falling gently, and is more than offset by the rise in full-time work. These stats are encouraging for all of us. However, it should be noted that employment growth rates do now appear to be tailing off, with overall employment growing by only 3,000 in the second quarter of 2018, compared with a growth of almost 150,000 from January to March. The shift in employment is especially marked for people born outside the UK: 5.6 million of them were working in the UK in the second quarter of this year, 1% less than in the same period of 2017. This trend should surely worry those of us in this sector who rely on the brilliant work of our colleagues from Europe and further afield.

These facts and figures are vital to us. We need them to measure what is going on, and our ability to do the work we do depends on a robust, buoyant economy. But it’s not all about numbers and economic statistics. I’d like to share with you a story from Professor Anand Menon. Anand is Professor of European Politics and Foreign Affairs at King’s College London. Just before the referendum, Anand was explaining to an audience in Newcastle that, in the view of most economists, leaving the EU would be bad for their economic health. A woman rose from the audience and, with finger pointed, uttered the memorable line, 'That’s your bloody GDP, not ours'.

For me, nothing gets to the heart of what the referendum was all about more than that, because there is no right of reply. There is no question that our society is divided, more so than it has been at any point in living memory. The result of the referendum, then, is not for the elites in London to belittle or to dismiss the concerns of those who voted leave as 'uneducated', 'misled' or 'racist'. The referendum gave people a voice which they had been deprived of for so long, and that in isolation can only be positive, even if what they were saying was uncomfortable for the political classes – and us – to hear.

And in response? As Chukka Umunna argued, our political classes appear to have given ‘accountants’ answers’ to questions about culture and values. And for us in the sector, to paraphrase Clay Shirky, it seems like we have simply taken fact checkers to a culture war.

So Brexit has already changed our country, and will undoubtedly continue to do so for years to come. But this change is not helping those who voted for it. And it’s not doing so because of a failure to listen to the concerns of communities divided and left behind. Our role, therefore, is to work together to bridge those divides – between communities, between people and government, and between individuals. We have a unique power to speak on behalf of communities, and it’s our responsibility to use that voice to right these wrongs.

At this juncture I’d like to take a moment to think a little further about the social impact of Brexit. The University of Warwick’s Professor Thiemo Fetzer has recently published a piece of research which I think is crucial to this disconnect. He has looked at the correlation between the geography of public spending cuts between 2010 and 2016 with the growth of UKIP and Leave voters, finding that cuts fell disproportionately hard in places already suffering acute social distress. Unsurprisingly, he found a close, symbiotic relationship. People in Blackpool, for example, already reeling from low pay and high levels of personal depression, suffered on average a £914 drop in social and welfare spending over those years compared with a drop of under £200 for those in the richer parts of Remain-voting London. Blackpool voted 67.5% to Leave as a protest against a palpably unfair status quo. Fetzer concludes that in a world without austerity, the Remain vote would probably have been 10% higher. We’ll never know whether that’s true, but it speaks to the disconnect that we the voluntary sector must address. Rarely has a country sowed the seeds for its own division in this way.

Is it any surprise, then, that on one side of the political divide, those on the left are winning a hearing for policies considered anathema only a few years ago (energy caps, nationalization)? And on the other, some on the right see our country’s future as an off-shore, low-cost no-regulation alernative?

So, we are a country bitterly divided. By economic fortunes, by social unrest. If our role as the voluntary sector is to unite communities around a common vision for a better country, what do we need to be doing to prepare for the challenges ahead?

Direct and indirect impacts for charities, and what we can do to prepare

There are specific considerations for the voluntary sector. There are opportunities, and there are major challenges. The first thing I will say here is that I believe the impact of Brexit has probably been overstated in the short term, but understated in the long term. Yes, I’ve outlined the ways in which the economic environment has changed in the last two years, but the change has been gradual and often part of longer-term trends. But it’s our long term future that is vital.

The Charity Finance Group has recently published a 'cost benefit analysis of Brexit for charities'. I’d like to share the conclusion of that report with you. They say that:

'Based on what we know so far, there is a very high risk that charities are going to be saddled with all the costs of Brexit, and none of the potential benefits. There is a huge risk that instead of healing the divisions in society for those who feel left behind, Brexit is about business and the wealthy and not about ordinary people and the disadvantaged'

If this is the case, what do we as a sector need to be thinking about? Well, before I go any further, I will say this.

The voluntary sector is not on the government’s agenda. I don’t think we are on the opposition’s either.

That’s not likely to change in the foreseeable future. Uncertainty will define our environment in the short term. We have, however, received some pledges from the government in their no deal technical notices which we should be alert to. We know that European Structural Funds will be underwritten for the duration of their project lives. We know that successful bids into EU funds between now and March will be underwritten. We hope that the UK Shared Prosperity Fund will not only replace the vital European funding we have benefited from in the past, but also improve on the delivery of that money, cutting beauracracy. With the Shared Prosperity Fund going out to consultation later this year, it’s imperative that we open a dialogue amongst ourselves now about how we want funds aimed at regenerating our communities to be awarded, designed and delivered.

These pledges are important, but I would like to talk about four broader themes that we as a sector must consider. The first of these is growing need. As I’ve discussed already, whatever your views on Brexit, there is no denying that the economic picture for the UK right now is not particularly healthy. The voices of experts lining up to warn of hard times ahead or problems already here – the CPAGs, the JRFs, the Shelters - cannot and must not be ignored.

In difficult times, people’s lives become harder. Everyone in this room will remember the hardships of the economic crash in 2008. Here we are, 10 years later with the prospect of another recession within the next decade. With our economy struggling, need increases. It’s so important that we as charities are ready to help when those people seek help. Local government in the UK is in crisis, with over 40% of its funding lost since 2010, and disadvantaged communities look set to suffer the worst of Brexit. Public services, which have suffered so much in the last decade, could be hit further.

Charities and voluntary organisations will bear the brunt. Indeed, they already have – grants from local government to our sector are in long-term decline. And they are not coming back.

We need something different. This does rather imply doing more with less, much as I hate that phrase because it is usually said to us – those already with less – by those with more. But it does imply that we must think about how to do things differently, whether that be looking more at digital, or thinking differently about how we involved volunteers or share assets.

Inextricably linked to this, funding problems will dominate many charity board meetings in the coming months. We hope that the Prime Minister’s call to end austerity will lead to some good news in the Autumn budget. But while policy announcements are not forthcoming, it is imperative that the sector’s voice is coordinated in pushing for a fair, well designed Shared Prosperity Fund that allocates funding based on social benefits, not just contribution to GVA.

Furthermore, NCVO is advocating that UKSPF follows a funding model commissioned around places and needs so that the power to allocate money is in the hands of those who better understand its impact. And this is but one of a basket of policy changes that we need if we are to better support the small, local organisations that are so crucial to rebuilding the trust and community cohesion that we have lost. We have a once in a lifetime opportunity to use dormant assets to build a new network of local grantmaking charities, coin a phrase you may have heard, help people take back control. And local and central government need to change the way that they buy services, putting more emphasis on social value that stays in the community, rather than just buying whatever is cheapest.

Of course, voluntary organisations depend on the framework of a strong economy. John Rosser, chief executive of World Child Cancer, tells us that 'the fall in the pound has already led to a 9-13% cut in our programme funding'. Domestic grant making foundations rely on investment income, whilst a fall in sterling and a rise in inflation could seriously affect charitable giving. I’d encourage all voluntary organisations to consider the impact that this could have on us.

The third area I wish to highlight is, unsurprisingly, our workforce. According to the Institute for Public Policy Research, over 80% of EU nationals currently working in the charity sector would be ineligible to work in the UK post-Brexit under current migration proposals. This figure increases to 87% in social and residential care jobs. Furthermore, 62% of the charities surveyed by the IPPR said that they had no experience of recruiting non-EU nationals, and do not have the funds to train British workers. In amongst all this, the Office for National Statistics tells us that the number of EU workers in the UK fell by 86,000 in 2017. What does all of this mean for us? Well, it means that there is a real danger of our organisations experiencing a skills shortage.

These problems are all specific, but tie into the fourth and final challenge I would like to draw to your attention today. That is the difficulty we face in policy making. The political classes are obsessed with Brexit. They talk about it all the time with the lion’s share of Parliamentary time given over to Brexit. Justifiably, it permeates every level of political debate, and has become the schism which defines our politics. Government departments dedicate a vast amount of resource to Brexit and the civil service is bigger now than at any point in its recent history. What does this mean for us? Quite simply, that social change is not on the agenda. Politicians don’t have the appetite, the headspace or the ability to push for social change when every news cycle revolves around Brexit. It is our challenge to make sure that our voice is heard, that we do not relent in pushing for what our communities need. When all this is done, a new country will need to be built, and we must be at the forefront of ensuring that it is a united one.

Perhaps, then, we should be talking of the opportunities that we can seize in the coming months and years. As others focus on winning the war, we need to step in and do the thinking about how to win the peace. Nobody else is.

Leaving EU rules behind gives us the freedom to form new VAT rules, potentially lowering the £1.5bn VAT bill charities spend each year on procuring services. The opportunity to reform state aid rules allows us to focus on enforcing competition in real markets rather than providing 'red tape', or make it easier for the state to intervene and fund socially useful activities.

And I hope we see an end to the procurement officer who tells us why something can’t be done because of EU rules. Not that it was ever true. Increased flexibility on public procurement rules would mean that we can push for the social value of charities to be considered more openly. But more than that, we have the opportunity to address why our communities are divided, so that we can help in bringing them back together.

Be it age, income, education, race, or geography, our social cohesion hasn’t looked as threatened in recent memory as it does now. According to the National Police Chief’s Council, the week after the referendum saw a 58% rise in hate crime in the UK. Intergenerational tensions are greater than ever. It is so important that this anger is addressed. We simply cannot allow these divides to widen, and whilst we ourselves cannot provide every answer, we can play our part in changing the conversation.

Conclusion

Paul Johnson at the Institute of Fiscal Studies sums this situation up perfectly: 'we are in unchartered waters without a compass'. There are challenging times ahead. I hope that we can have an open and honest dialogue about what we as a sector can do to help, and where we must do better.

There are always practical considerations, and we must ensure that our organisations are fit for purpose in an unstable and uncertain environment. We mustn’t dwell on our feelings about the referendum, but on the ‘what ifs’ for the future, based on the contracts and relationships our organisations have. Individually and collectively, we need to think about income streams, grants, relationships, our workforce and our governance. And that includes re-thinking what we value and how we measure it – there is no point expecting voluntary organisations to build cohesive communities if we fund them based upon how many units of service they delivered in the last quarter.

And of course, we have to remain resilient in volatile times.

But more than any of these, I believe it is our responsibility to be proactive, not reactive. To think outwardly, leading our communities, not just our organisations. We need to face up to the uncomfortable possibility that our sector may well have become disconnected from the communities we serve. Brexit is a major moment in this country’s history: there will be impacts both positive and negative, and there may be winners and losers. What is imperative is that we work together, bridging the space between our organisations, our communities and the people within them. And we must make sure that those who feel left behind are not frustrated and made to suffer further. That their voices are heard and their needs considered. That, ladies and gentleman, is the challenge for our sector going forward, and what I’d like to leave you with today.

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