6 months on from the Charity Tax U-turn – time for an injection of evidence into the debate

by Stephen Tall on October 30, 2012

It’s six months since the Coalition Government was forced into an embarrassing U-turn over the ‘Charity Tax’ — you can read my post mortem article on that instalment of the omnishambles here — and I want to return to it because there’s opportunity now to assemble some actual evidence about the impact of tax incentives on charitable giving. If, that is, HMRC can be persuaded to cooperate.

Here’s an excerpt from a letter I’ve just written to Lib Dem peer Lord Phillips of Sudbury, an expert on charity law, asking him to submit a Parliamentary Written Question to ask HMRC to hep HM Government with its inquiries into this issue — in the hope we can a bit more evidence into the debate:

Dear Lord Phillips,

I have worked as a fundraiser for educational charities for the last 14 years. One of the issues we know very little about is the ‘elasticity of giving’ – how responsive are donors to tax incentives, and how much does that impact the overall value of their giving?

This was an issue that received a lot of coverage in the recent post-Budget ‘Charity Tax’ row which would have capped the amount of tax relief higher-rate donors can claim on their donations. However, there was little firm evidence on either side as to what the actual impact would be because of the lack of available information.

However, there is an opportunity now to find out. The changes in recent years to the rate of higher-rate tax on those earning more than £150k – increased from 40% to 50% in 2010, then to be dropped back to 45% from 2013 – means there will be very useful data available to HMRC on the declared charitable gifts of self-assessment taxpayers eligible for relief. This data will give us a much clearer sense of the ‘price-sensitivity’ of tax incentives on charitable giving.

Two academics – Kimberley Scharf of Warwick University and Sarah Smith of Bristol University, both of whom have worked with HMRC – have sought such information from HMRC. However, I understand from Sarah that the data is not readily to them:

Access to tax records:
I have been interested, together with Kimberley Scharf, in examining the effect of tax incentives on charitable giving. We have not been able to get access to HMRC tax record information for this purpose. We have not made a formal request, but on a couple of occasions, our informally made requests have been turned down (even when we have been working with HMRC). This has included requests for a sample of tax records. HMRC do make available some data in the form of the survey of personal incomes, but this comes with a long lag, making it hard to look at the effects of recent policy changes. We understand that these kinds of tax record data are available for research in other countries (Canada, Netherlands).

I understand from Mark Valladares that the ‘long lag’ referred to may be, at least in in part, due to the lengthy filing window for tax returns. However, given the importance of such information to enable informed policy-making on the utility of tax-incentives for charitable giving, it strikes me that HMRC could be much more forthcoming in making available anonymised data to enable such research. I would be grateful if you could take up this issue, and look forward to your response.

Yours sincerely,

Stephen Tall

(Incidentally, the blog of Kimberley Scharf – Professor of Economics at Warwick University – is well worth a read.)

I’ll let you know what happens next…