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and philanthropic funding streams only to see that, having partially succeeded, the tax break is capped, and basically withdrawn.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).”
So the losses from donations could exceed the £600m of funding for Big Society Capital. Says the boss of 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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There are 8 comments on this post
Faisal,
There’s a semantic/contextual problem here.
It is placing the words “society” and “Tories” in the same sentence. Add “capitalism” into the mix and it gets even worse. You can, of course, forget “big” altogether.
The Tories have no concept of society, social responsibility or fairness. They never have had and never will have. They are self-admittedly the representatives of profiteering businesses and anti-democratic organisations. The middle class, bribable to a man/woman, are useful to them only as a buffer against the worst effects of their own system. The latter are little more than slaves to their mortgages and cars finance.
The “Big Society” is as big a con trick as Lyndon Johnson’s “Great Society” and created for much the same reason.
Lest it be forgotten, Cameron and co. come from the same roots as the people who caused the latest Establishment mass thievery. They’ve had their 30 years free run and managed to produce only the usual rotten to the core corruption and impoverishment of a quarter of our population.
It’s the same old story. As an economist you should know that. If matters continue as they are you might as well keep these…
I find it fascinating, Philip, that a government and party that relies so heavily on Eton and similar establishments for its members, doesn’t use them as the template for their education system.
Perhaps if our local comprehensives had small classes, taught by well-paid teachers in well maintained buildings, kids might do better.
And of course if you got rid of private schools so that the pushy parents who currently pay for education were active in the public sector, the standard would go up again.
Surely they don’t want to keep the monopoly just to people born into the families of the rich? Can’t believe that of such a well grounded lot as Cameron, Clegg, Miliband, Osborne, Johnson…
While I understand that there are elements of what Cameron describes as the “Big Society” that are valuable & genuinely help people, too much of this is a con to replace properly qualified public sector workers with unqualified volunteers so that less money is spent & eventually more taxes can be reduced for the rich. The government is again showing its incompetence, its inability to pull things together & look at them in an overall, strategic way. That’s not surprising in a bunch of PR men & career politicians.
I want to marry Philip Edwards
I take advantage of the tax relief on charitable giving, and rushed to beat the 5th April year end.
Would I change my practice now that the relief is restricted?
No. But without the benefit of the relief, more money will go to the Treasury, and less to charities.
Which is what Lord Snooty wants, isn’t it?
I should add that the tax relief I’m aiming at is the long-running ‘Grany’ tax of 30% that’s levied on ALL over 65′s.
Not a lot of people know this. But, over 65s in that category pay a special tax of 30% on all income falling within the bracket of £24,000pa and £29,000pa.
Younger tax-payers with the same earnings don’t face that special tax hike. So you may not have such a strong incentive to divert income above £200 pcm into charitable causes.
Although I think the coallition are restricting tax reliefs for a bad reason, there should not be any need for this to restrict genuine charitable giving.
“Give to Caesar what is Caesar’s, and to God what is God’s” JC
He clearly understood the difference between church and state, and by extension, that there is no hurdle presented by taxation that inhibits charitable giving.
Abba Lerner made a point in harmony with is when he said that “money is a creature of the state”.
I’m bewildered that the tories have chosen to hit charity giving in their bid to ‘make rich people pay their fair share of tax.’
So far we have heard nothing about companies like Boots, Amazon, Vodafone etc who have token companies in tax havens and so dodge their commitment.
And nothing about Philip Green and his ilk who pay his dividends to his wife in Monte Carlo to rob the country in which he makes his money.
In trying to win brownie points after a bodged budget for the wealthy, followed by a bodged petrol shortage alarm, they have picked on the one sector that people tend to think deserve tax breaks to encourage them.
They are picking on their own big society.
Are they just incompetent fools, or is it that the nature of PR men is to think the public will believe any old rubbish they throw to them?