The government should shelve its proposed cap on tax relief completely rather than just exempt charitable donations from it, the All-Party Parliamentary Group on Civil Society and Volunteering heard yesterday.
The cap, proposed in the Budget in March, would limit individuals to claiming tax relief on up to £50,000 or a quarter of their income, whichever is higher, from April 2013.
The Give it Back, George campaign, supported by hundreds of voluntary sector organisations, calls for charitable donations to be exempt from the cap.
Speaking at a meeting of the APPG in London, Cathy Pharoah, professor of charitable giving at Cass Business School, said that if the cap went ahead it could still have an effect on charitable donations, even if they were exempted from it.
She said that research had shown that when people decided how much to give to charity they looked at their total income. This cap could affect their income and therefore affect how much they give to charity, she said.
"It would not be enough to exclude charitable gifts from this cap," she said. "The proposal should be totally withdrawn, at least until we have more debate."
Pharoah said the proposal was met by anxiety and that it "could hardly have come at a worse time for charities". She said that large donations were also important to charities in attracting smaller gifts. "They attract confidence in the sector," she said.
"The proposal came as a large shock to all of us convinced in the government’s focus on philanthropy," she added. "No evidence has been put forward on the impact of the proposal. The policy seems poorly thought through."
Simon Bass, finance director at Action for Children, who was also speaking at the event, said that VAT in the charity sector was much more complex than anything he had seen in the private or public sectors.
He said that although new sources of finance were attractive, they were also very complex and needed to be treated with caution. "There will be benefits, but it will be beneficial when working alongside traditional forms of finance rather than being treated as a panacea," he said.
Caron Bradshaw, chief executive of the Charity Finance Group, said the Budget had been a "big disappointment" and wondered if the sector had seen its political capital diminish over the past 12 months.