15/04/2012 03:09 BST | Updated 14/06/2012 06:12 BST

Charity Tax U-Turn Suggested After Criticism From Philanthropists, Donors And Senior Tories

Pressure is rising on George Osborne to reverse a "charity tax" outlined in last month's Budget, after dozens of wealthy donors and philanthropists described the measure as "confusing and dispiriting".

The changes - due to come into effect next year - would cap the amount those paying the higher rates of tax would be able to reclaim against their charitable donations at £50,000.

46 wealthy philanthropists have used a letter in the Sunday Telegraph to warn that the measure would deprive good causes of much-needed money.

They write:

None of us view tax relief as a primary motive, although it may substantially increase our donations. But it is an important signal that the decision to use wealth to help others, rather than to enrich ourselves, is recognised, encouraged and supported by society.

The issue appears to be causing a potential fault-line within the coalition - with senior Tories urging the Chancellor to U-turn on the measure. Lord Fink, the Tory party treasurer, said on Saturday night the cap would mean that he, along with other rich people, would end up giving less to charity.

But deputy prime minister Nick Clegg insists it will stop rich people avoid paying tax. Writing in The People newspaper, Clegg insists: "It is not right that some wealthy individuals can use them without limit to reduce tax bills to close to zero."

The Observer reports that the Deputy Prime Minister has "hastily" set up a series of events in the coming week to meet with charity leaders, fuelling speculation that the Charity Tax is, in fact, a Lib Dem addition to the Budget.

The Sunday Telegraph reports that ministers are preparing to U-turn on the Budget measure amid mounting criticism of the impact it could have on charitable giving.

The paper reports that an alternative system, popular in the United States, is under consideration as an alternative to the Charity Tax, a complicated system known as "lifetime legacies". Under the scheme wealthy donors pledge to bequest their assets to a good cause after their death, in order to gain tax relief on those assets for the remainder of their life.

A wide range of organisations have come out against the so-called Charity Tax in recent days. 800 charities signed up to a letter urging George Osborne to U-turn on the measure, outraged at ministers' claims that some of the charities getting money from the wealthy don't do very much.

Number 10 had said that the Charity Tax would prevent "abuse" of the system, following Osborne's apparent "shock" at discovering that some wealthy people were using it to avoid paying any tax at all.

Universities are also concerned that the changes would make it harder for philanthropic funding of higher education, which currently amounts to more than half a billion pounds a year for the sector.

The Charity Tax row is the third significant cause of outrage from this year's Budget, following on from the Granny Tax (a freeze on the tax-free threshold for the over 65s) and the Pasty Tax (the introduction of VAT on cooked food sold in shops).

Since the Budget the Tories' standing in the polls has been in freefall - they now trail Labour by between six and eight points in most projections. The Budget is only one of several problems to hit the government, though, with Francis Maude's handling of a potential strike by petrol tanker drivers also causing embarrassment.