The ‘Pasty Tax’ is dead, is the ‘Charity Tax’ next? Fingers-crossed for the next Coalition budget U-turn

by Stephen Tall on May 29, 2012

Yesterday it was the ‘Pasty Tax’ which proved indigestible to the Coalition — the Government U-turned on a tax which would have proved unworkable in reality. Now there are rumours of a second budget reversal, with Tory MP David Ruffley telling BBC News:

“I think the political management here really does demand that there is some lessening of the hit to charities that his cap involves. It wouldn’t surprise me if in the November Autumn Statement there is some change.”

Let’s hope so. The ‘Charity Tax’ was an exemplum of unintended consequences, with the Lib Dems taking aim at tax-avoiding tycoons and accidentally shooting the Coalition’s ‘Big Society’ in the foot.

To see how this happened it’s worth continuing John Ruffley’s quotes because it commits the same basic errors that got the Coalition into this mess in the first place:

“I think it’s fair to point out that on church tax, on pasties and caravans, those involved relatively small amounts of money – sort of, give or take £50m. On something like the capping of charitable relief you’re onto the hundreds of millions, and that’s when it starts getting tricky doing U-turns.”

Wrong. The Treasury itself estimates the saving to the Exchequer from the Charity Tax at £50-100m, not the hundreds of millions that Mr Ruffley plucks out of thin air.

Of course it is true that tax-effective giving levers in additional funding on top — for example, a wealthy philanthropist who pledges half the costs of a new £10m university library makes that project viable, which encourages others to add their contributions. But I don’t think was his point :)

So why did Mr Ruffley think the Charity Tax would yield hundreds of millions of pounds of new revenue? Quite simply by assuming the Charity Tax is the sole component of the Coalition’s crackdown on tax reliefs when it’s not. The full ‘Tycoon Tax’ was expected to yield £300m. Mr Ruffley’s is just the kind of muddled thinking which produces bad policy.

The Coalition would never have got itself into this pickle if it had simply exempted charitable donations from this crackdown from the get-go. But ‘Tycoon Tax’ policy was made in a hurry, on-the-hoof, with the inevitable consequences. And while I’ve handed out some plaudits to Nick Clegg today, for this 24-carat omnishambles he has to take a large part of the blame.

Here’s my archive of stories relating to the ‘Charity Tax’:

To show your support for the ‘Give it back George’ campaign for the Government to drop the charity tax, please visit this site and sign the petition.