So charities are losing out on £600m every year because people don’t understand Gift Aid. HM Revenue & Customs has revealed that perhaps a third of all donations that could be Gift-Aided aren’t. What does this tell us about the system?
Under Gift Aid, every donated pound is worth £1.25 for the receiving charity because we give from our pre-tax rather than post-tax income. When Labour reduced the basic rate of income tax from 22p to 20p in 2008, reducing the benefit to charities by 9 per cent, I successfully called in parliament for Gift Aid to be protected for three years.
In 2014/15, Gift Aid was worth almost £1.2bn to the charities that claimed it, yet it could have generated 50 per cent more if only more people had ticked the correct boxes. It’s time to ask how Gift Aid might better help our charities.
Gift Aid is the only use of taxpayers’ money for which the government not only does not but cannot account for how it’s spent and thereby know the good, the social value, that it creates. Nor can it tell for certain how much it will be spending on it each year – that depends on how many people tick the right boxes.
I always tick the Gift Aid box on any form associated with my charitable giving. I do this so often that I lose track, and when the time comes to complete my tax return I can’t remember to which charities I’ve donated or how much, so the Gift Aid information on my return is incomplete. Does that mean the Gift Aid is lost? I don’t know. Why does it have to be reported twice?
It’s rare in tax affairs that you can choose whether to register your donation either in the year you donate or when you make your tax return (usually the following year). Apparently I can’t declare Gift Aid donations of more than four times my annual earnings in any given year – not that this happens very often. I suppose that before 2000, when Gift Aid did not apply to gifts of less than £600, the only people who utilised it were pretty tax-savvy.
A similar process to Gift Aid applies to corporation taxpayers, although oddly they’re no longer required to declare their charitable donations.
We pay tax to contribute to the "common good". Tax pays for those building blocks of a decent society that we don’t ask the market to provide. Many such services support households that can’t afford to purchase those services themselves: from each according to his means; to each according to his need. And many are provided by the taxpayer through agents such as charities that perform specific functions.
There are arguments against mainstreaming this money, effectively ending Gift Aid: paying off government debt or buying a new fighter plane is probably not what charity donors would opt to do; if charities didn’t get it, the money would just "disappear".
Gift Aid’s very existence incentivises fundraisers. Instead of scrapping it, let’s calculate what it should be each year (£1.8bn, not £1.2bn), fix it at a set proportion of funds raised by charities from the public and put that calculated amount annually into a fund for grants for charity infrastructure and running costs, administered by the Big Lottery Fund. These elements of charity spending are notoriously difficult to fund from other outside sources (politicians prefer impact, not infrastructure). Perhaps 1 per cent could go to help fund the Charity Commission. After all, infrastructure and running costs are what Gift Aid proceeds would probably fund in any case.
Gift Aid works out at about £12,000 per charity, per year, which is more than the annual income of half of our charities. Distributed on a sliding scale (let’s say your grant can’t be more than half your income from last year) to charities that don’t opt out of receiving it could have a great impact, and could be readily automated.
At the moment some charities are more effective at Gift Aid maximisation than others, but does this reflect support for their cause or the efficient way they squeeze their supporters? In my scenario they should keep doing this, in order to maintain and grow the overall pot.
Gift Aid needs rethinking. My approach would be simpler and raise more money than the present arrangement. It would help smaller charities to fund infrastructure and running costs and encourage charities to work for the good of the sector as a whole. Today, Gift Aid promotes competition between charities while skewing its benefit towards richer, more effective fundraisers rather than promoting the common good.
Tom Levitt is a former chair of the All Party Parliamentary Group on Civil Society and the author of The Company Citizen