Making the argument for the chancellor’s budget
Nick Robinson asked yesterday in his blog if anyone has been making the argument for capping tax relief on charitable donations. As he suggests, the answer has been “precious few”. Today we have Philip Stephens in the FT and Polly Toynbeee in The Guardian making the case.
At the weekend, Paddy Ashdown gave it a go on Marr, arguing why should rich people choose where their every penny goes when the rest of us have to hand it over for the state to divvy it up between schools, hospitals and the rest?
Insofar as there has been a government argument, it’s that the tax relief clampdown (charitable giving included) is about “dealing with abuse” (as the PM said in an interview in Jakarta), which has helped to provoke the philanthropists’ outrage. And putting the other side of the case, with powerful understatement, you can hear Tony Blair on last night’s Newsnight.
The best argument for freezing pensioners’ allowances was likewise never made by the government, but left to commentators and opinion pieces in the newspapers arguing about inter-generational fairness and re-balancing contributions to the national belt-tightening.
The chancellor, by contrast, in his budget speech talked about “harmonising” allowances – a slogan that probably won’t particularly help to get the vote out in May. That’s two important budget measures not forcefully defended by the government.
Some in the coalition think a lot of the blame for this attaches to the chancellor. George Osborne has modelled his media strategy on Gordon Brown’s years as chancellor – the so-called “submarine” strategy, surfacing only very occasionally for interviews or short “clips” with selected individuals on strict terms.
But policies without articulate public defenders can get pretty battered. By the way, it’s been pointed out to me that the 25 per cent of income cap on tax relief on charitable giving proposed in the budget makes it lower than the 50 per cent tax relief on seed investment in small business which took effect from 6 April this year.
Another argument runs that the government’s problem of policies without passionate advocates is down to being in Coalition. You see it in the case of the NHS reforms. Once both sides of the Coalition had battered each other into concessions it wasn’t clear who had ownership of the end product and would defend it. Tony Blair referred to the “policy trade” of coalition that can lead to policy “incoherence” in government.
And those tax relief beneficiaries get to trouser any profits of course. Like all reliefs, it’s there to incentivise certain behaviour – but why is the incentive for small business investment double the charity incentive?
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There are 9 comments on this post
The answer to your final question is because this government is incapable of thinking through the consequences of what they are doing.
They appear to make up policies on the hoof and then scramble around when everyone points out the anomalies.
Perhaps Eton and Oxford is not such a good education after all, just good for networking.
As you say Gary, it really does appear that with the budget story, commentators are catching up with public opinion as expressed in any number of blogs/commentaries etc. The vast majority of public opinion appears to support the idea that your first priority is to pay taxes with charity afterwards. It is clearly felt unfair that those with assets have been in effect hypothocating their income tax liabilities and probably gaining plaudits as philanthropists in the process. I think opinion has been torn because this argument is hardly Tory territory; fairness/equality/collective responsibility etc and Labour, who should have addressed this during their time in office, have been caught short. As for the harmonising of tax allowances,my contemporaries have been appalled that such a thing ever existed anyway and the integenerational fairness argument is strongly felt (it is also the basis of many heated exchanges with my mother who does not appeciate how lucky she is to have a large and index linked pension, huge disposable assets and jokes about her WI friends going on lovely day trips using ‘free’ buses, but that’s another argument!!)
Cheers
Brown’s submarine strategy was, of course, directly aimed at replacing Tony Blair. Has GO the same motives?
Also – though somehow the BBC thinks it’s news – the Damian MacBride blog on how Brown & his team had a process for avoiding these sorts of pitfalls (mentioned by another C4 blogger more than a week ago)indicates a failure of political attention.
And when we mention inter-generational fairness, it’s perhaps worth bringing into the equation that the older generation will have been hit much harder by the longstanding & substantial drop in interest rates & the collapse in dividends on which some at least will have been relying for income in retirement.
The combination of Granny Tax, Pasty Tax and Charity Hit must mark this out as the most politically inept Budget in modern times.
There were some very smart elements in it but Osborne has thrown that all away by offering up a clutch of monumental cock-ups, in themelves fiscally trivial but, when taken together with tabloid glee, he’s just given them a stick with which he will be beaten mercilessly.
Did the Treasury back-roomers stitch him up, getting past him all those items they’d always failed to sneak past Alistair Campbell ? And was it because no Andy Coulson was there to spot the potential damnage ?
Surely Gideon’s not so dense as to let that happen ? But he did and it will haunt him and the Coalition to the end of their time.
Can someone explain how these large donors to charities end up paying little or no tax? If I give a donation to a charity and, as a taxpayer, I ‘gift aid’ it, then my understanding is the charity receives the tax back as an addition to the donation. I don’t receive that tax.
Is there some other system especially for the wealthy who can then also obtain their own tax back (or not pay it in the first place?). Perhaps I should be claiming a rebate too on any charitable giving!
There is a facility for charitable gifts to be deducted from ones total taxable income, which is the method used in this case. A similar effect as Gift Aid, which is used for smaller donations, the tax-reclaim issue being processed by the charity rather than the donor.
However, it is alleged that some very wealthy donors claim to make very large gifts to ‘charities’, thus eliminating that amount from their total taxable income, but some of those ‘charities’, often based outside the UK, allegedly find ways to return the bulk of the money whence it came (if it ever left in the first place), in which case the only loser is the UK Taxman: the winners being the donor and the nominal ‘charity’ with a ‘handling fee’.
Trouble is, the UK Government would fall foul of EU rules if it sought to limit such relief to UK-based charities only, so it must put as much trust in the regulation and ethics of some nebulous Eastern European ‘charities’ as it does to the UK-based ones. But would you ?
Osborne’s approach may seem a pretty clumsy sledgehammer, but it’s a pretty grubby nut when you look closely at it – the tabloid hysteria is aimed at inhibiting that examination.
Thank you for explaining – it seems that even in charitable giving there is one rule for the rich and another for the rest of us. Plus of course, the opportunity to scam HMRC out of tax due by using these overseas ‘charities’!
Perhaps the gift aid model should simply be applied to all donations large or small. Then the tax relief would at least go directly to the charity and the millionaire who thinks that giving from his nett income means he cannot afford to give as much can reduce the amount with minimal impact on the charity. Although that would not make him look quite so benevolent to the rest of the world! But then if they only do it for the publicity and not the warm fuzzy feeling they get…
George Osborne’s latest budget was conceived using the lucky dip method. First out of the hat was reduction in income tax for the top earners. Then to compensate for the shortfall from this reduction he pulled out the Granny Tax. Then to make it more complicated he decided to pull the wool over the peoples eyes by saying that the pensioners will be better off and that is a good thing. What he did not say is that freezing the personal allowance would over a period of 2 or 3 years would increase the number of pensioners paying more income tax whilst his rich buddies will be paying even less tax than they pay at the present time. I wonder what George Osborne learned at university, it was definately not economics.
As we’re “all in it together” I’m still waiting for any major UK political party to to push for the ending of the very favourable treatment and statutory exemptions in relation to Income Tax & National Insurance currently enjoyed by Members of Parliament.
For instance; I’d have to pay Tax & NI on European Travel Expenses, but MPs don’t. There are plenty more examples of this favourable Tax & NI treatment for MPs on the IPSA web-site:
http://www.parliamentarystandards.org.uk/IPSAMPs/HR%20Payroll%20and%20Interns%20libruary/Tax%20and%20National%20Insurance%20contributions%20Guide%20for%20MPs%20and%20Ministers.pdf
What’s your Member of Parliament doing to end this?