How the budget will hit charities

Last week’s controversial budget provided journalists with an ample supply of attention grabbing headlines. Buried beneath the granny tax, cut to the 50p tax rate and pasty-gate was a proposal to cap income tax relief. The proposed cap has major implications for fundraising and will significantly weaken philanthropy in the UK.

The proposals centred on the introduction of a new cap on income tax relief, at £50,000, or 25% of income, whichever is greater. It has emerged that this was a last minute introduction to the budget, rushed in before an impact assessment of its consequences could be carried out.

A cap on income tax relief is particularly damaging to charities that benefit from the generosity of individuals who make large donations. In the early days of the coalition government, David Cameron and his ministers spoke about the “big society”. The Tories had a vision of shrinking the state, with charities playing a more active role in service provision. They spoke of the need to replicate the USA’s culture of philanthropic giving. Perversely, this income tax cap achieves precisely the opposite.

Universities are particularly concerned about a new cap on income tax relief. The Conservative-Lib Dem government have made huge cuts to university teaching grants. This has forced institutions to urgently seek new sources of funding.

One of the unsung achievements of the previous Labour Government was the £200million matched funding scheme, which lead to an significant increase in donations to universities and the professionalise of higher education alumni relations and fundraising.

Labour fostered a cultural shift towards university philanthropy. The Conservative-Lib Dem government has set about reversing this. A cap on income tax relief makes charitable giving much less attractive to wealthy individuals. A number of universities are reporting that since the budget announcement, large benefactors are informing them that while they remain supportive, they will be scaling back the size of future donations.

The Conservative-led government is making dramatic and unprecedented cuts to public services. It would be unrealistic to expect charitable donations to plug the funding gaps at the best of times. You don’t grow a culture of philanthropy by simply saying that people should give more money to charity – the tax system needs to provide incentives for people to do this.

It is deeply worrying that the coalition is treating charitable giving as “tax avoidance.” Donating money to a good cause (or for that matter saving for a pension) is not the same as say, paying a £1.2billion dividend for your company to your Monaco-dwelling wife.

As a party, Labour could do with being more vocal about many of its achievements in government. Labour should be proud of its record in encouraging and growing philanthropy. Labour now has an opportunity to play a key role in championing philanthropy. Labour should be making the case for a tax system that recognises and values charitable giving.

After all, de we want a society that rewards kindness and generosity through incentives to give to charity, or one that simply rewards people who pay £250,000 for dinner with the Camerons?