Coalition’s Charity Tax U-turn: the lessons that charities and the Government need to learn

by Stephen Tall on May 31, 2012

I asked two days ago if the Government’s ‘Pasty Tax’ U-turn would herald a reversal of the ‘Charity Tax’. I got word this morning that this was indeed on the cards:

And the formal announcement has just been made. Here’s the BBC News report:

Chancellor George Osborne has dropped plans to limit tax relief on charitable giving announced in March’s Budget following protests from charities. There will be no limit – as existed before the Budget – on what an individual can donate to charity and offset against their tax liability. … Mr Osborne said: “I can confirm that we will proceed next year with a cap on income tax reliefs for wealthy people, but we won’t be capping relief for giving money to charity. It is clear from our conversations with charities that any kind cap could damage donations, and as I said at the Budget that’s not what we want at all. So we’ve listened. Frankly, at a time like this the government is going to focus on the big issues like the worsening eurozone crisis and Britain’s deficit, and not get distracted with unnecessary arguments. We’re going to concentrate our efforts on what really matters: keeping Britain safe in the gathering storm.”

Kudos to the Coalition for unequivocally defusing this row, rather than (as I’d feared would happen) attempting to finesse a compromise that would have been messy and satisfied no-one. The simple principle which I’ve consistently argued — that in a liberal ‘Big Society’ individuals shouldn’t pay tax on money they voluntarily forego for charitable causes — is the one that’s been upheld.

However, the argument has been damaging and unnecessary. All that’s happened is that the clock has been re-set to seven weeks ago, before George Osborne’s ill-fated budget which triggered the onset of the Tories’ ‘omnishambles’.

There are no winners here:

  • the Government has shown itself not to have a grasp of its own strategy, pursuing a policy which would’ve undermined its own idea of further involving volunteers and the Third Sector in helping deliver public services;
  • potential philanthropists — the wealthy people we need to look to in order to help charities as public funding is reduced — will think twice before giving now they’ve been wrongly tainted in the eyes of many as tax-avoiding shysters;
  • and charities have been damaged not only by the wasted energy spent in fire-fighting the ‘Charity Tax’ and the potential drop-off in donations caused by the Government’s actions, but also by the bad publicity generated by claims that many charities are undeserving.

There are three lessons I think that need to be learned from this debacle:

  • The Government desperately needs to find ways to make nice to charities and philanthropists if it really wants to promote the concept of the ‘Big Society’ (at its heart a very liberal idea);
  • Charities and Government need to work together constructively to promote charitable giving in a way which treats all donors equally, basic-rate and higher-rate taxpayers alike. Although this generally holds true — the same tax-deductions are available to basic-rate PAYE taxpayers as to all higher-rate taxpayers — there is an omission in that non-PAYE employees cannot reclaim their basic-rate tax for any donations made. That exception should be remedied;
  • There is clearly public appetite for a debate about the definition of ‘public good’ that applies to all charities. Should Cancer Research and Oxfam be treated the same as Eton and donkey sanctuaries? The way to argue this is not through the tax system, which is how the debate has been framed these past few weeks — but if charities are to receive tax exemptions then it’s right they should justify this privilege in a publicly accountable way.

Oh, and one final lesson for the Coalition parties: think ideas and their consequences through properly before hasty Budgets are repented at leisure in pain.

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