There is no justification for the Chancellor's decision to reduce tax relief on charitable donations by higher-rate taxpayers. From 2013 previously uncapped tax relief will have a limit set at £50,000 or 25% of a person's income, whichever is higher. George Osborne is attempting to crack down on tax avoidance by the wealthy. However, limiting the tax they can claim on money they donate to good causes is not the way to do it. With this measure the Treasury will only be penalising charitable giving. The cap will mean that rich people give less to charity.
I understand the principle that the Treasury wants to stop tax avoidance by rich people but the idea that tax relief is a primary motive for giving is simply wrong. Osborne is right to crack down on any abuse of the system but to target charities getting money from the wealthy is not right. Our tax system needs to be fair but not punitive to genuine charitable givers.
The Sunday Telegraph has published a letter from 46 philanthropists opposed to a reversal in a charity tax. The measure, they argue, would result in a decrease in donations to good causes. The Community Foundation Network which represents community groups and donors and funds local charities in the UK has suggested they stand to lose around a fifth of their donations. Also Arts Council England warns that almost £80 million of donations to its organisations are at risk. Concerns have been raised by numerous cultural charities including the Wallace Collection and the National Theatre.
The patrons I know who give money to good causes such as museums, theatres and other cultural organisations do not do so for tax relief. They do so as they are aware of how fortunate they are and believe that it is a responsibility to donate a percentage of their wealth to charities. Many of them give more than the 25% they will be allowed under the new system. Take for example the huge £25 million donation that the Sainsbury family donated to the British Museum in what was one of the biggest donations ever to the arts. Without this charitable donation, through the family's trust, this major UK institution would not be able to fund the development of the museum's facilities or build its new World Conservation and Exhibitions Centre. Over the years Lord Sainsbury and his family have financed the construction of a new wing at the National Gallery for £50m and donated £10m for renovations of the Ashmolean Museum in Oxford. Gifts such as these are essential to ensure the financial viability of our great cultural institutions.
Private philanthropy ensures that these national treasures are preserved for future generations. Donors such as the Sainsbury's give much more every year than the 25% of their income that will become the limit under the new budget. This is all begs the question of why we would want to brand our most generous philanthropists as tax dodgers?
The British are one of the most generous nations in the world with a great tradition of philanthropy. The government promised to encourage giving but this new cap will attack the very individuals and organisations that they pledged to support. In the United States it is possible to offset all donations to charitable causes directly against tax. The result is that Americans give much more than we do here. In fact Americans with an annual income of more than $150,000 give eight times more than their British counterparts. Conservatives have rightly been championing the Big Society and surely philanthropy is a core element of this idea. So why take the step of penalising charitable giving? The government should instead be actively encouraging people to donate their wealth.
The Culture Secretary Jeremy Hunt understands the problem facing charities if this plan to cap tax relief is implemented. He has pledged to encourage philanthropy and has championed the arts. However, he has so far failed to say much about this budget. He needs to be more vocal in his concerns about this new charity tax. Several MPs have come out and announced their opposition to the government's plan in addition to leading Conservatives such as the Party Treasurer Lord Fink.
Ministers have suggested that the tax relief needs to be cut to prevent 'abuse' by rich people looking to reduce their tax burden through charitable donations. However, the Treasury has yet to identify any group or individual believed to have dodged tax through this route.
Charities cannot exist without the support of philanthropists and their generous donations. To penalise charities at a time when many cultural organisations are facing cutbacks and a funding squeeze in tough economic times is madness. The Chancellor would be wise to listen to the British public and exempt charities from his tax relief cap.
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