Hammer cheaters, not charities

Philanthropy. Who could be against it? The alliance of those opposing the Government’s plans to cap tax relief on large charitable donations by the very rich is formidable. Several thousand British charities, big philanthropists, Tony Blair and even the Conservative party’s own wealthy Treasurer, Lord Fink, have called on the Coalition to do a U-turn.

The Chancellor, George Osborne, is stubbornly refusing, though he has offered a “consultation” on the matter. His motives are clear enough. With massive public spending cuts on the way, including caps on benefits and disability pay, he needs to be able to say that he is being tough on the rich as well as the poor.

The problem is that Treasury plans to hit a comparatively few very rich people will have a disproportionate impact on charities. Just 7 per cent of charity donors last year between them gave almost half of the £11bn charities receive from the British public. Public spending cuts have already slashed charities’ incomes by 8 per cent. They can’t afford to lose more.

Certainly Mr Osborne should crack down on the rich with their wide range of scams – offshore accounts, turning income to capital gains, setting up companies to rent their own homes from themselves – to avoid paying tax like the rest of us.

Tax relief on charitable donations is another area in which the rich are privileged. If a basic-rate tax payer gives £1 to charity the state will give another 25p in Gift Aid to the charity. But if a higher-rate taxpayer gives £1 the state gives the 25p to the charity but also another 15p or 25p to the rich person in extra tax relief. So top philanthropists don’t just get a knighthood or dinner with the prime minister or a new art gallery named after them – they also get money back.

But that is not all. Individuals chose which charities they give to; but the Treasury has no choice about whether or not to stump up the Gift Aid. However personal or eccentric the choice – donkey sanctuary, home for orphaned chimpanzees, opera house or Eton College – society (that’s us taxpayers) has to pay the Gift Aid, so long as it’s a registered charity.

Democratic theory would suggest that it is preferable for the community, rather than odd individuals, to decide how best to spend money for the common good. That is what voting is all about. Politics is about priorities and we elect people to order them. The trouble is that, though in theory it is better for the Government than some rich individual to decide what society needs, in practice there is no way of a voter being sure that their money will be spent on keeping a Surestart nursery open rather than on replacing a Trident missile. So, if we want to use the tax system to encourage charitable donations, then any charity approved by law as performing a public good will qualify.

Charities have another advantage over the state. They can act more quickly, more creatively and can be less risk-averse than governments. The best philanthropists, as Tony Blair said this week, also bring to charities the vision, drive, determination and can-do refusal to follow conventional thinking which made them wealthy in the first place.

It is not that long since David Cameron was talking about how he would “foster and support a new culture of philanthropy” as part of the Big Society. It ought not to be beyond the wit of the Treasury’s top minds to find a way to crack down on mega-rich tax avoidance without hammering the charities which are the archetypes of the Big Society vision. Announcing that every penny of tax relief on donations by higher-rate taxpayers would go direct to the charity, rather than partly back to the donor’s bank account, might be a start.

The Church Times

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