01/06/2012 10:36 BST

Charity Tax Was Osborne's 'Biggest Error', Says Former Chancellor

George Osborne took his eye off the ball when it came to capping tax relief on charitable donations, former chancellor Lord Lawson said today.

The Tory peer said the Chancellor may have been too busy negotiating with the Liberal Democrats to notice the problems a cap on tax relief would cause.

He said the cap was the "biggest error" in the Budget but insisted the chancellor had shown "courage" by scrapping the plans.

Yesterday, Mr Osborne made his third Budget U-turn in less than a week, having already embarked on embarrassing climbdowns over VAT on hot pasties and caravans.

Speaking on BBC Radio 4, Lord Lawson said: "The great thing is that George, on charities in particular which in my judgment was the most important thing - the biggest error, he has done the right thing and has had the courage to do the right thing. I am delighted."

He added: "I think it happened in this way: that one of the things that has changed since I was making budgets in the 1980s is that we have a coalition Government and that every single thing has to be argued out in discussion with the other party.

"Whereas, when I was doing budgets, I was able to focus on all the various measures. Are there problems? Are there catches? Should we modify it this way or that way?

"Instead (his) eye is not on the ball because what (he is) doing is that George is trying to get a deal with the Liberal Democrats.

"I think he has taken his eye off the ball in this particular case and one or two others."

The cap, limiting tax relief at £50,000 or 25% of income (whichever is higher), was proposed in Mr Osborne's March 21 Budget and was expected to save the Treasury £50 million-£80 million a year.

The Chancellor told MPs then that it was wrong to allow wealthy individuals to make "unlimited" use of income tax reliefs.

It is understood that he was particularly concerned about donations to bogus foreign charities being used to avoid tax in the UK.