Why Philip Stephens is wrong on the Charity Tax

by Stephen Tall on April 17, 2012

The usually very sane Philip Stephens Aunt Sallies forth in today’s Financial Times to argue that Philanthropy is no alternative to paying tax as he sticks up for the Coalition’s Charity Tax.

It rests on two false assumptions. First:

Faced with the need for swingeing spending cuts and tax increases to reduce the deficit, [George Osborne] thinks the wealthiest in society should contribute.

Sounds reasonable, yes? But there’s a big gaping hole in this line of argument: donations to charities are entirely voluntary, transfers to the Exchequer are not. A wealthy person who doesn’t want to be taxed more to pay down the deficit can easily avoid being affected at all by the Charity Tax: donate less to charity. Net result? The wealthiest in society are just as well off, perhaps even wealthier, but the charities and those they serve lose out.

The second false assumption from Mr Stephens is that the case for charitable tax-relief rests on:

the curious premise that charitable giving is invariably superior to public spending

I’ve no idea from where he got this ‘curious premise’ (or Aunt Sally, to give its proper name). Perhaps someone, somewhere has made that over-inflated claim. Personally, as I argued last week, I support a mixed economy approach to serving the public benefit: both the state and the charitable sector have a place in that mix.

Sometimes, for example, transport spending, I’d agree the state is likely to be superior to charities at spending money. However, if we’re looking at an essential but discretionary service, such as the provision of guide dogs for the blind — which doesn’t receive a penny of state support — then I’d opt for the charity sector.

One of the least enlightening aspects of the past week’s debate has been the setting up of a distorted binary choice, which Mr Stephens tortures to its natural conclusion, that you can either promote charitable giving or you can tax fairly. This is a wholly false choice.

Last year, the Treasury took in £447 billion in taxation. By contrast £11 billion was donated to charity. The idea that the charitable sector is starving the state of cash is absurd.

Almost as absurd as the idea that only the state knows all the answers to curing the ills of society.