Is the tycoon tax threatening the big society?
Forget the pasty tax, or the granny tax, there’s another candidate for the role of Budget 2012 foremost fiscal faux pas.
A wholesome Coalition of dogs homes, art galleries, universities, volunteering organisations and other epitomes of the big society, all consider one budget decision to be a “charity tax” and have started a formal campaign to “Give it back, George”.
Those charities have been joined by a think tank started by Iain Duncan Smith and pressure from within some Government departments. It’s not difficult to see why. It is frankly amazing that the Department of Business and the Department of Culture have spent the best part of two years persuading charities and universities to seek out new private sector and philanthropic funding streams only to see that, having partially succeeded, the tax break is capped, and basically withdrawn.
“It’s a catastrophe that the government is introducing a tax on giving when it should be promoting giving,” says Paul Rees of the Charities Aid Foundation. Sir Stuart Etherington of the National Council for Voluntary Organisations: “It’s absolutely appalling. We’ve seen the government cut public money charity and now they are putting a cap on philanthropy”.
The charity tax might end up as the “lifeguard tax” or the “culture tax” or the “universities tax”, if the Government is not careful. That’s why the PM seemed to hint that he was willing to listen to changes to the proposals in the coming months. No 10 and No 11 clarified this during the day and remained pretty hardline saying that it wasn’t a U-turn.
Indeed there were some words in the Budget document suggesting longer consultations over the impact for charities dependent on large donations.
But there’s more going on here. remember that the cap on tax reliefs was what Nick Clegg referred to as the “tycoon tax”. It was the late political quid pro quo for the abandonment of the 50p tax. It is forecast to be the second biggest tax raiser from last month’s Budget by 2014/15.
Don’t take my word for this. Krishnan has just pressed Sir Ronald Cohen, the Chairman of Big Society Capital on the tax relief cap issues:
He said: “It is very unfortunate that the possibility of a reduction in tax relief for donations has been mooted in the budget. However the prime minister… went out of his way to point out that he did not want to see charities affected by a change in legislation… I think it was a hint that there will be a period of consultation now and I hope that as a result of this consultation the idea will be rescinded.
It could certainly have a bigger impact – negative impact – than the amount of money flowing into us (Big Society Capital).”
The proposal caps all reliefs – not just charitable giving but also interest on loans etc – at £50,000 or a quarter of annual income of the donor. The Chancellor and the LibDems used this tax relief cap as part of the political justification for the 50p scrapping (“This Budget raises five times as much from the wealthy as 50p tax.. etc”). If it turns out that much of that money really comes specifically from donations to charity, then there might be some political problems.
The Treasury points out that the US has a cap, and that these reliefs were used by some wealthy people to completely erase their tax liability. It does raise an interesting moral question about whether £1m in the hands of a charity is “better than” £400k in the hands of government. The charities point out that the US cap is 50% of income and that there’s a variety of “living legacy” ways for philanthropists to donate in the US.
All of which is a shame. Because the Big Society Bank is a brilliant tri-partisan idea. There is some stunning work being done by social entrepreneurs in local communities in Britain. Not just that, the opportunities for retail investors to accept lower returns for higher social returns in their ISAs, will, I predict, be fabulously popular. But the Government is sending rather mixed messages by restricting philanthropic reliefs.
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