Outside Edge: Payroll misgivings

Tash Shifrin, a specialist social affairs writer

The Government's new scheme would work if it didn't cost the lower earners more and reward their employers, says Tash Shifrin.

Payroll giving: it's a good thing, isn't it? Regular sums of money for the charity, given in a tax-efficient way that boosts their value but costs the donor less.

Now the Government has launched a payroll-giving grant scheme to increase the take-up of payroll giving in smaller firms employing fewer than 500 people. And everyone is very pleased.

But nothing is ever as glossy as it looks - and there are things about the payroll-giving scheme that are a bit unsettling.

First, it is directed at employees. Yes, the people who make all the money for the firm, and then get rather less of it back in wages, are the ones being targeted to give.

The companies - which already scoop off a certain amount of the takings as profits before dishing out the pay packets - are left un-touched by the scheme, as are their profits.

This is an important point because corporate giving is so low. The top 100 firms listed on the London Stock Exchange gave less than 1 per cent of their pre-tax profits to charity last year. But it is in the profit margins of these mega-businesses that the real money lies. The average employee's wage doesn't leave that much sloshing around after housing costs and bills have been met.

Firms with fewer than 500 staff may not constitute the commanding heights of industry in quite the way the top 100 do. But there is still something strange about the payroll- giving grants scheme aimed at them - the grant itself.

The scheme awards participating firms up to £500, which they can keep.

So taxpayers are funding a donation to businesses to reward them for the money their staff - not the companies themselves - will give.

Shame on any firm that doesn't hand the grant straight to charity. But isn't there something about the thinking behind the peculiar incentive that seems messed up?

There is also something messed up in the way the tax-efficient, payroll-giving scheme affects different employees. Gifts are deducted from gross salaries, giving an immediate tax relief that the Government boasts is "up to £4 for every £10 donated".

The "up to" is crucial. Staff paying standard rate income tax at 22 per cent give their £10 at a cost of £7.80. But those paying higher rate tax - because they earn more - give the same amount at a cost of just £6.

Giving is cheaper for the rich.

Research shows that poorer people generally give a larger percentage of their money to charity than the rich, even though they can least afford it. This might explain why they are a likelier prospect for charities than the corporate fat cats.

But charities that care about inequalities of income and wealth should ask questions too.

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