What a no-deal Brexit means for charities

Economic impact

What has happened since the referendum

The performance of the UK economy since the Brexit vote has been mediocre, but not disastrous. Long-term growth has slowed but not halted, and employment growth has continued on its pre-referendum track. In the second quarter of 2019 however, as the threat of a no-deal exit grew, the economy shrank 0.2%, its worst performance since 2012.

What this might mean

The economy’s current performance could be a prediction of the risk of a no-deal Brexit, as investment falls and the value of the pound decreases. This could have dire consequences for the economy and the environment in which voluntary organisations carry out their work.

Charities rely on a buoyant economy to operate successfully. Times of increased need put a strain on already limited resources. Whether it relates to income streams, or government funding, economic health directly affects our work.

According to recent research from the Office for Budget Responsibility (OBR), a no-deal Brexit could bring about a recession. It claims this could result in:

  • the economy shrinking by 2%
  • unemployment rising above 5%
  • house prices falling by around 10%.

The OBR predicts a year-long downturn which would increase borrowing by £30bn a year. It estimates that this recession would be as bad as that suffered in the 1990s and a third as bad as that caused by the financial crisis in the late 2000s. This could mean rising inflation, lower wages and a higher cost of living. It also predicts an immediate fall in the value of Sterling by 10%, which would increase the cost of imported goods and services. It would also further reduce the purchasing power of charities operating abroad.

The OBR’s assessment is based on one of two scenarios forecast by the International Monetary Fund (IMF) this year. These were only some of a range of estimates: the Bank of England’s worst case scenario analysis from November 2018 estimated an 8% decline in the economy and a recession worse than that of 2008.

Why it matters for voluntary organisations

In times of economic difficulty, need increases, and the work of voluntary organisations becomes all the more important. Voluntary organisations must remain financially robust in order to cope with the needs of beneficiaries and support the communities we work in. A decline in the pound, increased inflation, rising prices and supply chain disruption could all have direct and indirect impacts on the work carried out by charities.

It is important to consider some of the actions suggested in our checklist below. See also our useful resources, and our appendix on the relationship between charities and economic health.

EU funding

What a no-deal Brexit means for EU funding

Leaving the EU without a deal could have serious long-term implications for charity funding in the UK as we would leave EU institutions overnight.

The government announced in July 2018 that it would underwrite the cost of all EU-funded projects covered by the 2014–2020 multiannual financial framework in any scenario. The Department for Work and Pensions, the devolved administrations and the government of Gibraltar will continue to approve European social fund (ESF) projects after Brexit until programme closure. Successful bids until the end of 2020 will be honoured for their entire project life. What happens after this remains unclear.

Charities should continue to apply for and deliver EU-funded projects until exit day under current arrangements regardless of any Brexit scenario. ESF managing authorities will continue their current roles, while existing audit, monitoring and evaluation processes will remain in place.

What happens after EU funding stops

After 2020, the picture remains unclear. At the 2017 general election, the Conservative party manifesto promised a UK shared prosperity fund (UKSPF) to ‘reduce inequalities between communities’ and replace EU funding with a newly devised, improved funding model. Over two years later, we are yet to see this policy go out to consultation.

NCVO has recently demanded action from the new prime minister on the UKSPF, and he has committed to bringing forward plans as part of an ambitious range of spending promises made during his leadership campaign. It is important that voluntary organisations are proactive in responding to any UKSPF consultation, pushing for a well-designed fund that allocates resources based on social benefits, and puts charities and local expertise at the heart of decision making.

The voice of voluntary organisations needs to be heeded in the design of this fund. If it is not sufficiently well resourced, or if it attempts to roll too many areas of concern into one fund, the loss of EU funding (estimated to be at least £258m per annum) could have devastating effects for charities and voluntary organisations.

The guarantees we have

  • The full 2014–2020 multiannual financial framework (MFF) allocation for European structural and investment funds (ESIF), and European regional development funds (ERDF). New bids will be guaranteed until the MFF ends.
  • The payment of awards where UK organisations successfully bid directly to the European Commission (through projects such as Horizon 2020) on a competitive basis until the end of 2020.
  • The payment of awards under successful bids where UK organisations are able to participate as a third country in competitive grant programmes from exit day until the end of the programme. For example, it does not apply to bids under the small and medium-sized enterprise (SME) instrument in Horizon 2020, where an SME is either awarded a grant after Brexit day or applies for one after Brexit day.

Employing EU nationals

Currently, freedom of movement guarantees EU citizens the right to live in the UK, receiving the same legal treatment and access to services as British nationals. However, Brexit has created an air of uncertainty around the future of EU citizens in the UK.

What has already been agreed

  • The government has repeatedly affirmed its commitment to uphold the rights of individuals already living in the UK even after freedom of movement comes to an end under any Brexit scenario.
  • The EU settlement scheme will grant EU nationals indefinite leave to remain in the UK with the same rights they currently enjoy.
  • EU nationals who have lived and worked in the UK for five years by December 2020 will qualify for ‘settled status’, a right which extends to family members (spouses, civil and unmarried partners, dependent children and grandchildren, and dependent parents and grandparents).
  • Those who have spent less than five years in the UK are eligible for ‘pre-settled status’ which will upgrade automatically at the five year mark.
  • The deadline for application in a no-deal scenario is 31 December 2020, and requires proof of identity, a recent photograph and a declaration of any criminal convictions.
  • The Ireland-UK common travel agreements in the 1949 Ireland Act ensure that Irish citizens need not apply for any special status.

Implications for the charity workforce

Research from the Institute of Public Policy Research (IPPR) has highlighted the impact that Brexit could have on the charity workforce.

  • Under current Tier 2 rules for non-EU nationals which will apply to EU nationals under current proposals, over 80% of EU nationals currently working in charities would be ineligible to work in the UK.
  • Although the 2019 Civil Society Almanac tells us that EU nationals make up only 4% of voluntary sector staff, the numbers are concentrated in particular areas such as social and residential care jobs. 87% of EU nationals currently employed in these areas will become ineligible under new proposals.
  • Half of the charities surveyed by the Charity Finance Group thought that it would be even more difficult to recruit for hard-to-fill vacancies after the end of free movement, while 62% had no experience of using the visa system for recruiting non-EU nationals. Even more stated that they were unable to increase wages or invest in training for local recruitment.

The latest immigration proposals

The Migration Advisory Committee (MAC) has suggested that the cap on low-skilled migrants in the UK should be significantly reduced with a new ‘skills-selective approach’. However, the government’s immigration white paper proposes raising the cap on high-skilled migration.

A rise in high-skilled migration would be offset by one-year temporary visas not limited to specific employers designed for low-skilled employees. This constitutes a plan to rely heavily on short-term migration, with employers choosing from a pool of newly-arriving workers to fill low-paid positions. The proposals may cause problems for charities who currently rely heavily on EU nationals.

Furthermore, the unclear skill status of research workers and students may have knock-on consequences for medical charities who rely on the UK’s ability to attract world-class researchers.

The prime minister has announced a new fast-track system to allow the UK to attract high-skilled workers in science, engineering and technology by abolishing the cap for Tier 1 ‘exceptional talent’ visas. He has also announced plans to remove the need for immigrants to have an offer of employment before they can arrive in the country. Dependents will be given full access to the labour market and the pool of UK research institutes and universities able to endorse candidates will be expanded. The new visa, which offers an accelerated path to settlement through automatic endorsement for those who qualify, will apply to high-skilled workers and will be launched later in 2019.

Volunteering

The current situation

UK citizens are currently able to participate in EU-funded volunteering programmes and many UK charities work with EU volunteers. UK citizens are eligible to take part in several schemes through the European Voluntary Service. These include:

  • 12-month full-time volunteering placements funded by the Erasmus+ programme (worth €14.7bn).
  • the European Solidary Corps (ESC), which provides voluntary placements for young people throughout the EU and EEA. Between 2018 and 2020, the ESC has been allocated €433.5bn.
  • the EU Aid Volunteers programme to which a further €147.9bn has been allocated between 2015 and 2020.

Will this change after Brexit?

The UK’s ability to participate in these programmes after a no-deal Brexit remains unclear. There is currently no guarantee that membership of these organisations will remain open to British citizens and organisations.

The EU has announced its intention to incorporate some programmes – including Creative Europe, Europe for Citizens, and the Rights, Equality and Citizenship programmes – into a single ‘EU values fund’. It is widely expected that the UK will not wish to participate fully in this new programme.

What remains uncertain for volunteering in the UK

A great deal of uncertainty remains for EU citizens volunteering in the UK in a no-deal scenario. The automatic right of EEA citizens to travel, live and volunteer in the UK will cease to exist. It is impossible to know the impact this will have on UK-based charities as we do not know how many EU citizens currently volunteer in the UK,

Unless there is a change to the visa regime, the process that non-EEA citizens go through to obtain visas will apply to all non-British citizens looking to enter and volunteer in the UK. This entails registering for a Tier 5 (charity) visa, signing up to a registered volunteering provider and facing restrictions on the amount of hours they can volunteer.

The rights of EU citizens who currently volunteer in the UK but are not in paid work is yet to be addressed in a no-deal scenario. If it is not addressed, there is no assurance that they will be able to remain in the UK.

What remains uncertain for volunteering in the Europe

For UK citizens volunteering abroad, much depends on the government’s willingness to negotiate access to programmes for UK-based organisations and individuals. We know that Erasmus+ is likely to remain as a standalone programme, and that UK citizens will be able to participate in all projects until the end of the current multiannual financial framework in 2020. Building European connections outside of EU structures will be important for charities working with EU-based volunteers in the future.

UK nationals who volunteer abroad but are not in paid work must speak to the authorities of their country of residence for further information on their rights in a no-deal scenario.

State aid

State aid is support (financial or in kind) from government (central, regional or local) that gives an organisation a benefit in the single market that could not be obtained during the normal course of business. State aid rules apply to grants, loan or any funding given to charities. To ensure open and fair competition, the extent of state aid that a government can give an organisation is governed by a legal framework set out in the Treaty of the Functioning of the European Union. This also prevents subsidies causing unfair distortions in the single market.

In the event of a no-deal Brexit, EU state aid rules will be transposed into UK domestic legislation. The government will create a UK-wide subsidy control framework to ensure the continuing control of anti-competitive subsidies. The Competition and Markets Authority will also take on the role of enforcement and supervision.

Product, environmental and data standards

Preparations have been taking place across government to ensure that if we leave the EU without a deal, regulatory continuity on product standards will be ensured.

What has been done to make sure product standards are upheld

  • The new legislative framework has introduced, for certain legislation, a UK regulatory mark that will be affixed to products or their packaging.
  • The role of this UK conformity assessed (UKCA) mark will be to support authorities and provide clarity to manufacturers placing products on the market in the UK post-Brexit.
  • The EU concept of 'harmonised standards' will be transferred into UK law, now termed ‘designated standards’.
  • From exit day, the relevant secretary of state will cite these designated standards to provide assurances that UK product standards will be upheld as they are in the EU.
  • The statutory instrument enabling the creation of this new legislative framework was formally adopted in the House of Commons on 20 march and will come into law on Brexit day in the case of no deal .

What has been done to make sure environmental standards are upheld

  • EU environmental law accounts for around 80% of UK domestic law on the environment. This covers air quality, waste and resources, water, wildlife and habitats, chemicals, and pesticides.
  • The EU Withdrawal Act 2018 will ensure all existing EU environmental law continues to operate within UK law, with enforcement powers transferred to domestic institutions.
  • The government has pledged to establish a new, independent body to ensure accountability for environmental issues. However, we do not currently know any further details, nor is there clarity over interim measures which may be necessary to ensure that standards are maintained (and penalised when they are not) following a no-deal Brexit.

What has been done to make sure data protection standards are upheld

The government has enshrined GDPR in UK law in any Brexit scenario. In the event of a no-deal Brexit, the government has pledged that transfers of data from the UK to the EEA will continue unrestricted. However, it is not clear whether data transfers from the EEA to the UK will have the same status. This may affect organisations whose servers are EU-based, or who use EU-based organisations for HR and payroll services.

See our checklist below for recommended actions organisations can take to avoid complications on data transfers.

Political fallout from a no-deal Brexit

Much of the above suggests that the impact of a no-deal Brexit will be more significant in the long- rather than the short-term. However, it is vital that organisations are making contingency plans now.

The political fallout of a no-deal Brexit is likely to be significant, with large swathes of parliament implacably opposed to this scenario. The prime minister has recently committed to a series of domestic policy announcements, but with the stalemate in parliament ongoing and so much parliamentary and civil service time required for Brexit, it may be difficult to break the current stagnation in social policy. Nor do we expect government to be able to assist more than it has already in organisational preparedness. Charities must carry out this work themselves – collaboration and dialogue between organisations is more important than ever.

Regardless of the manner of our departure from the EU, Brexit and its implications will continue to dominate political discussion for the foreseeable future. The possibility of a general election could have implications for the civil service’s ability to carry out no-deal preparations, further contributing to this political uncertainty. Charities should be thinking now about what activity they might plan during a general election campaign and which issues they would like to see on the agenda.