LET’S be clear: charities rely on large donations. And the current government has, up to now, seemed committed to support philanthropy. So it was a shock to hear George Osborne announce in his Budget last week – completely out of the blue – a new £50,000 cap on income tax reliefs, including the reliefs that higher-rate taxpayers can get on their charitable donations. This poses a threat to a crucial stream of income into the charitable sector, just when the needs it tries to serve are increasing. That is why many organisations, including mine, have signed up to the “Give It Back, George” campaign, calling on the chancellor to reverse his decision and exempt charitable donations from the plans to cap personal tax reliefs.
Recently, philanthropy seemed to be high on the government’s agenda – and not just as a way of talking about the Big Society and the increased role that charities and local communities could play in improving our lives. Last year, it released a white paper, after consultation with the charities sector, on the best ways to encourage more giving (of both money and time) in this country. It has also made various fiscal changes to encourage philanthropy, such as promoting greater lifetime giving of works of art through a reduced tax liability, an increase in the limits to gift aid benefits that a donor can receive without losing tax reliefs, and a reduction in the inheritance tax rate from 40 per cent to 36 per cent if 10 per cent or more of an estate is given to charity.
Given these various positive moves by the government to promote more giving, last week’s Budget goes completely against the grain. It will be highly damaging for the sector, unless charitable giving is exempted from the limit on tax reliefs.
Donors are not motivated to give by tax incentives alone, but they certainly help, especially for donations over £140,000 which is where, up until now, a higher-rate taxpayer has been able to claim a relief of around £50,000.
George Osborne defended this new cap when he faced the Treasury Select Committee this week by giving examples of very wealthy individuals who use the reliefs as a way of significantly reducing their tax burden. This may well be true for some, but that does not affect the charitable benefits of the money they donate – or the gap in charitable funding that capturing more money for the exchequer will create.
We don’t know precisely how many gifts over the relief threshold are made in the UK each year, or how many higher-rate taxpayers pass the relief onto charities versus how many keep it for themselves. But from research done by Dr Beth Breeze at the University of Kent, we know that in 2009/10, there were over 80 gifts by individuals of more than £1m, amounting in total to over £780m. Major gifts are very significant for the charitable sector. Charities Aid Foundation (CAF) research shows that of £11bn given to charity last year, 45 per cent came from only 7 per cent of all donors. There’s little doubt that these significant donors might think twice about the amount they donate to charity if they are unable to claim tax relief.
To risk a potential slaughtering of large private donations when individual donors’ gifts are so necessary in the sector just doesn’t make sense, especially at a time of public sector austerity. It is astonishing that the government didn’t think this through more carefully.
There is a glimmer of hope: small print in the Budget document suggests that the Treasury is open to negotiation on this. The government is due to hold a Giving Summit on 8 May, to address the issues that are holding back philanthropy in this country. If the government doesn’t take action quickly, the summit is in danger of being overshadowed by this debate. That would be a pity, given the energy at the moment from the government and others in the charitable sector to seek ways to encourage more philanthropy in the UK.
The Give It Back, George campaign is online at: http://giveitbackgeorge.org
Plum Lomax is a senior consultant for New Philanthropy Capital.