Millionaires 'Paying Less Than Basic Income Tax Rate'

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The Treasury has released figures on the levels of tax avoidance by the rich | PA

Almost one in 10 people earning more than £10 million a year is paying less than the 20% basic rate of income tax, the Treasury said, as it launched a defence of plans for a crackdown.

It said figures released for the first time underlined the need for action to prevent the super-rich exploiting the system of reliefs to reduce their tax bill below that of low-paid workers.

But the move looked set to do little to calm anger over one part of that effort - with evidence of a widespread backbench revolt over capping the tax breaks on charitable giving.

Former prime minister Tony Blair has joined the outcry, writing today on HuffPost UK.

"This is absolutely the right moment for government to do all it can to promote philanthropy; and certainly nothing to harm it," he wrote, in a thinly-veiled swipe.

A poll found almost two thirds of Conservative and Liberal Democrat MPs are opposed to the measure announced in last month's budget and which has been condemned by philanthropists, good causes and senior Tories.

Of 71 asked by from ComRes on behalf of the Charities Aid Foundation, 46 agreed that charity donations should not be subject to the new limit with 15 supporting the policy and 10 not expressing a view.

As the latest row to surround a measure announced by George Osborne in March gathered pace at the weekend with the intervention of Tory treasurer Lord Fink, the Government pledged to find a solution.

The senior peer, himself one of the most generous supporters of charity in the UK, said the change would inevitably put off other wealthy philanthropists from giving as much.

Tory MP Zac Goldsmith said he was "ashamed" his party appeared to have "declared war" on the very people who should be at the heart of the Government's Big Society project.

Foreign Secretary William Hague led the defence, insisting the cap was designed to fix a genuine problem of top earners exploiting the system to pay almost no income tax.

Amid reports that the Treasury had drawn up alternatives however, Hague repeated an assurance from the Prime Minister that the concerns would be considered "very sympathetically".

A series of meetings have begun with philanthropists, a group of whom warned of a damaging effect on donations in a letter to the Sunday Telegraph, and charities to find a way forward.

The Treasury figures showed that 6% £10 million-plus earners paid less than 10% in tax and another 3% came in below the basic 20% rate. Fewer than three quarters paid more than 40%.

A spokeswoman said: "There are currently millionaires paying a lower tax rate than ordinary taxpayers.

"This is the system we have at the moment, but the Government is committed to making it fairer. We're capping benefits and these figures clearly show why it's fair to cap tax reliefs for the wealthy as well."

Responding to the poll, John Low, chief executive of the Charities Aid Foundation, said: "The Government now needs to listen and act on to this clear message from coalition backbenchers, as well as from ministers, charities and donors, and reverse this ill-thought through tax change.

"Clearly, any abuse of the system is quite wrong and damaging to the work of charities. We absolutely must work with Government to ensure that where any abuse occurs, all necessary measures are taken to eradicate it.

"But a blanket cap on tax relief for giving is not the way to do it. It is not the rich who will suffer from this tax cap, it will be disadvantaged people and the causes we all care about."

Labour will seek this week to keep up the pressure on the Government over the budget by forcing a series of votes on controversial tax measures as the package is debated in the Commons.

The Chancellor has faced several weeks of sustained criticism over cutting the 50p top rate of income tax while removing tax reliefs for some pensioners and imposing new levies on pasties and other hot snacks.

Shadow chief treasury secretary Rachel Reeves said: "We are urging MPs from all parties... they have a chance and a choice this week with the way they vote.

"Labour will be leading calls this week to oppose the cut in the top rate of tax for the very wealthy and voting against this raid on pensioner income."

Exchequer Secretary David Gauke said the overall cap on tax reliefs was expected to bring in £300 million of additional revenue, of which between £50 million and £100 million would come from the charities cap.

He told the BBC Radio 4 Today programme: "We don't think it is entirely fair that the tax system, as currently designed, does mean that there are some very wealthy individuals who are essentially able to take themselves out of the income tax system."

Gauke said the Government accepted that the "vast majority" of charitable giving was "not abusive in terms of dodgy charities".

"The broader point is that at the moment people are able to give to charities and indeed make use of other reliefs within the tax system that gets their rate down and the concern that we have, we don't think it is fair that people are able to get the rate down that low even when the donations are to perfectly legitimate charities."

Gauke said the Treasury accepts that there "will be an impact" on charities but insisted the Government believed the wealthiest should not be able to "opt out" of paying income tax.

"We are not legislating for this today, this is something that will come in in next year's Finance Bill.

"We made it very clear from the very beginning that between now and then we were going to be working with charities to find ways to protect those charities that are particularly affected by large donations."

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