Editorial: Big givers and the tax regime

The tax cap row has opened a new line of debate, writes Stephen Cook

Stephen Cook, editor
Stephen Cook, editor

The government's withdrawal of the Budget proposal to cap tax relief on donations to charity by the wealthy was the best example we have seen recently of what a united sector can achieve when it campaigns hard with a clear message. It makes you wonder what might have happened if it had done the same on other questions, such as the attempt to reform Gift Aid a couple of years ago.

The U-turn has been particularly welcomed by parts of the sector that are not usually quite so vocal - the arts charities and the universities that tend to benefit most from large philanthropic donations. Indeed, one reason for the government's concession might be the contradiction between the proposed cap and its own stated desire for philanthropists to help make up for cuts in public subsidy of such charities.

We can now wave goodbye to a proposal that had not been thought through and looked politically unsustainable from the start, and HM Revenue & Customs can perhaps get on with using its existing powers to pursue any abuse - the "dodgy charities" syndrome that Downing Street unwisely referred to some weeks ago. There's no justice in penalising everyone because a small number might be misbehaving.

But this sorry affair has also drawn attention to an aspect of the Gift Aid system for higher rate taxpayers that not everyone feels comfortable with.

Very large donations have the effect of diverting considerable sums from the exchequer to the donor's chosen cause. Some big givers do donate to charitable causes that are less popular - such as homelessness, drug or alcohol addiction, offenders or asylum seekers - but in general they tend to favour, say, Oxford University or the Tate galleries. This is admirable, but it means less taxation income that might, with the necessary political will, find its way to the shoestring causes.

A few people did try to assert the principle of "first pay your taxes, then give to charity", and they were rather shouted down. But there is an important debate here, and it's unlikely to go away.

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