Why Charity Tax Relief should be limited
From The Times, April 2012
Charities are outraged at the Chancellor’s plans to limit tax relief on charitable
donations, which they say will sap the munificence of the wealthy. But it’s
dubious to argue that the proposed tax changes will stifle philanthropy. In
fact, as a group, the rich in the UK do not give generously, certainly not in
comparison with the US. There — where there are restrictions on tax relief
similar to those proposed by George Osborne — those with annual incomes of
more than £150,000 donate eight times more than their British counterparts.
Fifty-seven of America’s richest people have responded to Bill Gates’ Giving
Pledge by donating half their wealth. There is no equivalent movement in the
Charities are treated generously by the taxman. They enjoy Gift Aid, a scheme
under which the Treasury adds £2.50 for every £10 donated. Individuals get
tax relief when they give land, buildings or shares and anything left in a will
is not counted as part of the estate for tax purposes. Charities that run shops
are exempt from corporation tax, pay no VAT on the sale of donated goods
and receive an 80 per cent rebate on business rates.
If a billionaire wants to give a large sum to Eton College, the United Bible
Societies Trust or Islamic Relief Worldwide (all members of the top 100 UK
charity index, whose income last year grew by £355 million to an £11.4 billion
record) that’s fine but only if he or she has paid their taxes. Giving to
charities, some of which are doing well in the recession (three of the UK’s
biggest saw voluntary income grow by a third or more last year) should not
be an alternative to paying tax.
The Government is right to promote giving. But the belief that unlimited tax
relief is necessarily a good thing must be challenged. There are charities that
do so little in terms of charitable activity that, in effect, they are bogus.
Stephen Bubb, of the Association of Chief Executives of Voluntary
Organisations, demands in his blog — in near disbelief — that if such
charities exist they must be named. Well here’s just one that the Charity
Commission is closing down: Needy Children International spent only 13 per
cent of its income on charitable purposes in 2010.
The effectiveness of many legitimate charities is unproven at best. Too few
open themselves up to outside review. The New Philanthropy Capital thinktank provides analyses of some that have been willing to expose their
activities and spending to scrutiny, but they are a minority.
Tax relief on donations needs to be linked to demonstrable effectiveness by
individual charities. The fond public belief that all charities use money well
doesn’t bear too much examination.
Martin Narey is a former chief executive of Barnardo’s