Charities are left disappointed by Brown's valedictory budget

The tax changes in Gordon Brown's 11th and almost certainly final Budget had a sting in the tail for third sector organisations, according to charity finance experts.

The Chancellor pledged to start an awareness-raising campaign to help charities improve the take-up of Gift Aid, but it is predicted that the 2p drop in the standard rate of income tax will lead to a fall in Gift Aid income.

The Charities Aid Foundation estimated that the income tax cut could lose charities more than £70m each year. It also said that as much as £700m of Gift Aid is unclaimed.

It remains to be seen whether any measures emerging from the Chancellor's review of Gift Aid will compensate for losses. Gift Aid totalled £750m last year.

"It's going to take a lot of ease-of-use measures for charities to make up losses from the tax drop," said Charles Nall, finance director at the Children's Society. "For us, this loss will be equivalent to about £165,000 a year."

Nall said the review should consider proposals such as moving to paperless direct debits or allowing charities to work on the presumption that donors will pay income tax.

Keith Hickey, chief executive of the CFDG, agreed that the review provided scope for charities to redress their tax income losses. "We will push for a simpler opt-out system to drive up Gift Aid usage," he said.

Helen Donoghue, director of the Charities' Tax Reform Group, said: "The Government has long said that it prefers using tax concessions to encourage charitable giving to the VAT relief the sector needs to help it play a full part in public service delivery. The impact of the 2p cut shows the real flaw in the Chancellor's arguments. Charities will be the losers."

Independent third sector finance expert Cathy Pharoah identified a way in which charities might benefit from the tax cut. She pointed to US research showing that people give more to charity when they have more money in their pockets.

In general, charities were disappointed. The CFDG and chief executives body Acevo said they saw little evidence of the 15 proposals in their joint Budget submission to the Treasury, which included measures for VAT reform, reliefs on charitable buildings and trading within charities.

Ernese Skinner, policy officer at the CFDG, said: "Although we put forward some challenging recommendations, we also added quick wins that could easily have been implemented."

Greg Clark, the shadow charities minister, said: "The Budget has conned Britain's charities. The Chancellor was cowardly enough not to mention that his tax changes will hit Britain's good causes hardest. He must have known this, but he kept quiet and hoped no one would notice."

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Despite the sector's hopes for a full-scale expansion of Community Investment Tax Relief, the Chancellor made only one small concession. Community development finance institutions that invest in CITR funds that are more than three years old will now be required to lend only an annual average of 75 per cent of their total rather than this percentage at all times. This is understood to have been one of more than 20 recommendations made to the Treasury concerning this tax relief in the run-up to the Budget.

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