The government should exempt charities from all direct and indirect taxation except employment taxes in order to plough an additional £2.5bn into the voluntary sector, parliamentarians have heard.
Speaking at the All Party Parliamentary Group on Charities and Volunteering in parliament yesterday, Andrew O’Brien, director of policy and engagement at the Charity Finance Group, said the government routinely "shoots itself in the foot" by failing to fully think through the implications of its tax regime on charities.
The purpose of the meeting was to discuss what charities could expect to see from the Budget announcement in autumn and to contribute to the APPG’s submission to the Treasury on the subject.
O’Brien said he believed the APPG’s submission should push for tax-reform decisions to be moved out of government and handed to parliament, which he said would have the ability to make more long-term decisions.
"I think the government has to figure out what it thinks the point of civil society is," he said.
"The government time and time again just shoots itself in the foot. For example, we give out a billion pounds in Gift Aid and take that billion pounds away in irrecoverable VAT.
"We’re just passing money around the system without any thoughts about the tax implications of that."
He said policies such as the insurance premium tax had been implemented without any thought for the impact they would have on charities and whether they would increase costs for the sector at a time when the government was also expecting it to save money.
"The government should set itself a bold agenda," O’Brien said. "I would love to see a situation where, apart from employment taxes, charities are not paying direct or indirect taxes by the middle of the next decade.
"I don’t see why that can’t be done. As a country we spend £360bn on tax reliefs every year. Charities get £3.7bn right now, according to government. Even if you got rid of the all the taxes we can find that charities face, which is about £2bn to £2.5bn of cost, we’d still be only 1.6 per cent of the total tax relief bill.
"We’re talking about peanuts here, but the work that would do would be immense."
He said he estimated that such funding would pay for a further 50,000 people to be employed in the sector.
But ultimately, O’Brien said: "The APPG would be wise to push for tax relief to be taken out of government and into parliament because parliament can take a cross-party, long-term view of these things."
Government got too bogged down in detail and lacked a big enough vision, he said, and often simply ended up undermining what the previous government had done.
Elizabeth Chamberlain, head of policy and public services at the National Council for Voluntary Organisations, said she believed the group should push for the government to take a more strategic approach to the charity sector, its funding and the tax system.
She told the group that, rather than list specific things NCVO would like included in the Budget, what it wanted was a more strategic approach to funding from the government, with a better understanding of its impact on the sector.
"What we want is the government to work with us to build a tax framework that enhances the sustainability of civil society and supports it for the long term," Chamberlain said.
"We want recognition from all government departments, including the Treasury, that giving and philanthropy, volunteering and social action relieve the state and should therefore be encouraged."