The year in finance: 2012

The main developments of the past twelve months included a bill to introduce the Gift Aid Small Donations Scheme and the creation of the social lender Big Society Capital

Of all the announcements made about the charity sector in 2012, perhaps the biggest surprise was Chancellor George Osborne’s decision, announced in the Budget, to cap tax relief on major donations to charity.

The decision was defended on the grounds that it was only fair that everyone paid some taxes – but later the government changed tack, and said it was because the wealthy were giving to "charities that did very little charitable work".

Charities reacted angrily, saying that the relief could cost hundreds of millions of pounds, and launched the Give It Back, George campaign to fight the decision. It was successful, and at the end of May, Osborne announced that the cap would be dropped.

The tax cap campaign meant that other tax problems went relatively unnoticed, including a cut in VAT on alterations to listed buildings, expected to cost the sector tens of millions of pounds, and difficulties with a scheme designed to allow sharing services without paying VAT.

In May, the government announced, through the Queen’s speech, the Small Charitable Donations Bill. It will introduce from April the Gift Aid Small Donations Scheme, which will allow charities to claim Gift Aid-like payments on small cash donations totalling up to £5,000 a year without individual paperwork.

However, the government faced repeated calls from umbrella bodies to scrap bureaucratic and complex limitations on who can claim. After a long campaign, Sajid Javid, economic secretary to the Treasury and the minister guiding the bill through parliament, eventually agreed to water down those measures.

During the arguments about the bill, the government also revealed that one fraudster had tried to set up 189 fake charities to claim Gift Aid, and that fraudulent claims worth £20m had been made in the past two years.

The bill has progressed through the Lords and should gain royal assent soon.

The year also saw the creation of Big Society Capital, a £600m wholesaler that will invest money in other social investment organisations. The lender has announced £32m of investments, alongside predictions that the social investment market will be worth £1bn by 2016.

The year also saw a proliferation of other schemes to support and encourage social investment, including a new government fund to back social impact bonds and the Social Value Act, which requires commissioners to look at the social benefits of the organisations bidding for contracts and became law in March.

Meanwhile, surveys throughout the year suggested that charities faced falling reserves and falling incomes, and that more difficult circumstances were to come.

Detailed data collected by the National Council for Voluntary Organisations and the Charities Aid Foundation predicted a 20 per cent drop in giving.

Towards the end of the year, however, there were signs that charity income was still rising in 2011.

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