Char­ity tax cap is the right idea

The Jewish Chronicle - - Comment - Barry Frank­furt

GIFT AID is one of the eas­i­est and most lu­cra­tive ways for many char­i­ties to sup­ple­ment their vol­un­tary in­come. As the blurb on char­ity web­sites typ­i­cally says: “Just tick this box and your do­na­tion could be worth 25 per cent more at no ex­tra cost to your­self.” Ex­cept, this is not strictly true. Gift Aid, like any form of tax re­lief, is a re­dis­tri­bu­tion of in­come tax. In­stead of the gov­ern­ment de­cid­ing how to spend your earn­ings, in­di­vid­u­als get to pri­ori­tise their favourite causes at the ex­pense of the na­tional purse. Put sim­ply, if you choose to sup­port don­keys (as so many do each year) it could be less money for schools and hos­pi­tals.

In the past 12 months, a stag­ger­ing £3.63 bil­lion of tax re­lief has gone to char­i­ties and their donors. With fig­ures so high, it is not hard to see why Ge­orge Os­borne de­cided that lim­its needed to be in­tro­duced. In rais­ing the is­sue in last month’s bud­get, the Chan­cel­lor was con­demned for driv­ing the final nail in the cof­fin of the Big So­ci­ety.

The char­ity sec­tor has turned on the gov­ern­ment; min­is­ters have dis­tanced them­selves from the pol­icy and, ear­lier this week, a full, for­mal en­quiry into the pro­pos­als was an­nounced. It is likely that the mea­sures will be dras­ti­cally re­vised and while many or­gan­i­sa­tions will hope they are abol­ished al­to­gether, some voices are emerg­ing that are urg­ing for them to stay. Tak­ing his leg­isla­tive sledge­ham­mer to crack the nut that is tax avoid­ance, Os­borne has in­ad­ver­tently started a de­bate that is long over­due.

The ar­gu­ment to im­ple­ment a re­lief cap is both ra­tio­nal and fair. There are more than 160,000 char­i­ties in the UK. Some need and de­serve the ad­di­tional in­come gen­er­ated through Gift Aid (worth £25 for ev­ery £100 given by a ba­sic rate tax payer). Some, but not all.

Con­sider this. A wealthy pa­tron gives £1m to “Cats Pro­tec­tion” (the UK’S lead­ing cat wel­fare char­ity, with an an­nual in­come of £33 mil­lion and cash re­serves ap­proach­ing £10 mil­lion).

That do­na­tion costs the pa­tron £600,000 and in mak­ing the do­na­tion, £400,000 is di­verted from the public purse. Money that should be spent in ar­eas that re­ally need ex­tra sup­port right now has in­stead gone to a char­ity that ex­ists for the well­be­ing of cats. That’s a lot of happy cats.

A fairer model would be to split char­i­ta­ble or­gan­i­sa­tions into two cat­e­gories: Those that ex­ist to al­le­vi­ate poverty and hard­ship and close so­cial gaps, and those that pro­vide and pro­mote a wider good. The first group should con­tinue to have un­lim­ited tax re­lief. The sec­ond group al­most def­i­nitely should not. This is not about mak­ing a value judg- ment re­gard­ing a char­ity’s im­por­tance, but about es­tab­lish­ing its rel­e­vance to the UK tax­payer.

Where this will hit the Jewish com­mu­nity hard­est is in over­seas aid, par­tic­u­larly in re­la­tion to Is­rael. For tax re­lief to be jus­ti­fied, it needs to be mon­i­tored for ef­fec­tive us­age. To im­ple­ment this suc­cess­fully, there needs to be far tighter reg­u­la­tion and gov­er­nance from the Char­ity Com­mis­sion.

Many in­ter­na­tional causes are des­per­ate for the funds and use them dili­gently. As was wit­nessed re­cently with Is­raeli anti-poverty char­ity Ha­zon Ye­shaya, this is not al­ways the case. Thank­fully, the trus­tees pulled the plug, but not be­fore hun­dreds of thou­sands of pounds of Gift Aid had been re­claimed. This sit­u­a­tion is un­ten­able. Self­ishly, I would love all our Is­rael char­i­ties to ben­e­fit from un­lim­ited re­lief. But can any­one hon­estly say that it is more im­por­tant for UK tax­payer’s money to go to an Is­raeli univer­sity when so many strug­gle with tuition fees here in the UK?

Fi­nally, tax re­lief should be limited to do­na­tions made for core char­i­ta­ble pur­poses. The idea of donors cov­er­ing, for ex­am­ple, le­gal fees through Gift Aided do­na­tions is not what the sys­tem was in­tro­duced for.

The im­pact this will have on the Jewish com­mu­nity can­not be over­es­ti­mated. But it should lead to an im­proved qual­ity of char­i­ta­ble or­gan­i­sa­tion with even bet­ter gov­er­nance, ef­fec­tive­ness and trans­parency. Work­ing harder for our do­na­tions but more im­por­tantly, work­ing harder with them. Barry Frank­furt is man­ag­ing di­rec­tor of Creative & Com­mer­cial and an ad­viser to the not-for­profit sec­tor

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