Race for Life

Team Helen will be Racing for Life this morning.  Please give generously.

U-turn on Charity Tax Relief

George Osborne's budget in March announced that tax reliefs for high earners, including on donations to charity, would be capped for each taxpayer at one quarter of their income.  I commented at the time on the implausibility of the reasons they gave for the cap. On Thursday, Osborne recanted: donations to charity will not after all be included in the cap.

I can confirm that we will proceed next year with a cap on income tax reliefs for wealthy people, but we won't be capping relief for giving money to charity.
It is clear from our conversations with charities that any kind cap could damage donations, and as I said at the Budget that's not what we want at all. So we've listened.

Osborne did not in fact say anything in his budget speech about not wanting to damage donations, but he may well have made some such remark to someone "at the Budget".

What's remarkable about this is that either Osborne is more stupid than I think he is (and I am not an admirer), or he knew from the first that restricting tax relief on donations to charity would mean that charities got less money.  Osborne's colleague, Treasury Secretary David Gauke said (in a radio interview) that the charity tax relief cap would bring in £50m-£100m a year and that money has to come from somewhere.  No one knows just what the effect will be on donors' behaviour: if they make the same net donations as before, £100m saved will cost the charities £100m; if as seems likely the cap acts to discourage donations the effect on charities will be amplified (though the estimate from Oxford Economics that it would cost the charities £500m is highly unconvincing).

So what's happened is that Osborne announced his plan, and the charities who would obviously be adversely affected by it protested.  There was nothing remotely unpredictable about that.  And if Osborne wasn't willing to stand up to the protests, why did he announce the plan in the first place?

I have a suspicion that he planned this all along.  The sums involved are small enough not to make much difference to the budget, so he was always in a position to change his mind.  And by starting the fight then withdrawing from the field, Osborne leaves tax reformers on the left who support the proposal in the line of fire. And most importantly it's handy for a government to have a popular announcement up its sleeve for release when it wants to deflect adverse publicity, say when the Culture Minister is in trouble for his extraordinary closeness to News Corp (it will be recalled that he was brought in to oversee News Corp's bid for BSkyB because Vince Cable was found to be insufficiently neutral).

Hanlon's (or Heinlein's) razor advises "Never attribute to malice that which is adequately explained by stupidity."  But is Osborne really that thick?  Perhaps his supporters would like to help me on that.

Uncharitable donations

The government says that it is concerned that rich people may be avoiding tax by giving money to charities which do not "do a great deal of charitable work".  This follows a report in the Telegraph of an interview George Osborne gave them in which he included charitable donations as one of three "aggressive avoidance schemes" he wants to crack down on, based on a confidential report prepared for him by HMRC.  "Mr Osborne insists that he wants to protect and encourage philanthropy, but Treasury sources say the system is open to abuse as people are giving money to foreign charities which they have often established themselves."

There is something very strange about this.  Tax relief on donations to a charity is available only if the charity is "formally recognised by HM Revenue & Customs (HMRC) for tax purposes."  If the HMRC is unhappy about the validity of a foreign charity all it has to decline to recognize it for tax purposes.

I think talk of fake charities is a smokescreen.  If the government were genuinely concerned about what charities are doing, it could instruct HMRC to check them more carefully, or, if it thinks that's too difficult for HMRC to do properly, it could allow tax relief only on donations to charities registered in the UK.  I think this is simply a tax grab from charities genuine or not, which the government doesn't have the courage to admit to.

It's only fair to point out that there is support from the left for Osborne's view of this.  In the face of such an alliance, I am on the side of the charities.