No 10 in full retreat on charity tax shambles
As the outcry intensifies, Cameron says: We’ll consult and listen
DOWNING Street was in headlong retreat on charity tax last night, as the plans were denounced as a ‘shambles’.
David Cameron gave his strongest hint yet that he will water down the proposals as the Treasury admitted that the Exchequer stands to lose a relatively small £100million at the very most.
There will now be a formal public consultation on the plans, giving ministers a dignified way to engineer a U-turn when it concludes over the summer.
But Labour announced that it will seek to force an amendment to the Government’s Finance Bill in the Commons tomorrow, which could still leave ministers with red faces.
Charities and philanthropists are in uproar over the plan to cap tax relief on donations at a quarter of a donor’s income or £50,000 – whichever is higher – warning that it will lead to a dramatic drop in funding.
But the Treasury says the change is necessary to stop wealthy people using the tax relief to drive their income tax rates down.
Mr Cameron yesterday appeared to overrule the Treasury, insisting that the plans should be changed so as not to cost charities money.
Speaking in Derbyshire, Mr Cameron said he wanted charitable giving to increase and that ‘lots of things’ could be done to help.
‘ This was never going to be introduced until next year – plenty of time to get it right, plenty of time to consult and to listen,’ he said. ‘But the key principle is: More for charities and philanthropic giving? Yes. Allowing people to drive their tax rate down to 10 per cent when they are some of the richest people in the country? No.’
Danny Alexander, the Chief Secretary to the Treasury, fuelled talk of a U-turn, saying there were ‘attractions’ in the U.S. system, where donations are capped at 50 per cent.
Two hours earlier, Treasury minister David Gauke had appeared to contradict the No.10 line, admitting the Treasury would only raise between £50million and £100million a year from the plan.
This is the first time officials have revealed the amount that charities stand to lose – though Treasury officials said it may be far less.
He was also forced to concede that the ‘vast majority’ of charitable giving was ‘not abusive in terms of dodgy charities’.
The Treasury then released figures showing that just 28 people earning over £5million a year have a tax rate in single figures. And they have not disclosed how many of them use charity tax relief to drive down their rates.
John Low, of the Charities Aid Foundation, said: ‘This has been a shambles. The Government simply has not thought this through.’
Tory MPS welcomed the rethink but said the Treasury should never have got into this position.
David Ruffley, a former Treasury official who sits on the Treasury Select Committee, said: ‘In the context of a general government spending of £700billion... when I worked at the Treasury you wouldn’t really want a row for between £50million and £100million.’
A Treasury spokesman said: ‘We have always said that we would consult with charities with a view to making sure charities that rely on large donations are not significantly impacted.’
IF the Coalition had a bugler, he would have been sounding a headlong retreat yesterday, as Downing Street signalled yet another embarrassing volte-face on one of George Osborne’s Budget proposals.
This time it was the planned cap on taxfree charity donations – vilified across the political spectrum as a brutal tax on philanthropy. Announced as a done deal just 26 days ago in a blaze of inflammatory rhetoric, the proposal will now be put out to ‘ consultation’ under the personal supervision of the Prime Minister. In other words it has been booted firmly into the long grass. A Government spokesman said ministers had now had time to reflect and were determined to ‘get the balance right’. There were ‘various options on the table’ and charitable donors would not be penalised simply for being generous. how their tone has changed. In his Budget speech, Mr Osborne implied that giving by the wealthy was little more than a ‘morally repugnant’ tax dodge. Taking his lead, Nick Clegg sneeringly referred to the cap as a ‘tycoon tax’.
Now Treasury officials have been forced to concede there is scant evidence that the tax break is being abused and that the cap would mainly affect perfectly legitimate donations to charity. They also admitted the reform would raise as little as £50million a year, chickenfeed to the exchequer but a loss that could stretch charities to breaking point.
So for a minute gain, the Coalition has alienated some of the most publicspirited people in Britain.
This whole witless farrago has the Lib Dem stamp all over it. Out of desperation to be seen as champions of the poor, they have no qualms about demonising the wealthy and successful. We have come to associate Mr Clegg and his cronies with this sort of futile vindictiveness, but why did Mr Osborne have to go along with them? Did no one at the Treasury consider the consequences?
Instead of punishing philanthropy – and squeezing every last penny from ordinary working people – shouldn’t the Revenue focus on pursuing the much larger numbers of rich individuals and companies who use batteries of lawyers and accountants to actively and aggressively evade tax? This is where the real ‘ moral repugnance’ lies.