Will the government destroy charities?

Osborne and CameronPA/PA Archive/Press Association Images

If they're not careful George Osborne and David Cameron are going to lose their reputation as generous, charitable people in touch with the needs of the most vulnerable. Over the weekend there was an outburst from Number 10 backing the Treasury's plans to slash the tax breaks for charitable giving.

So why is the government hammering charities?

The cuts

This all blew up in the Budget. At the moment, a wealthy person can get tax relief of more than 50% of anything they give to charity. In the Budget George Osborne said that in future the total tax relief any person could take advantage of would be capped at 25% of income, or £50,000 - whichever is greater.

This drags in charitable giving, and basically sets a cap on the tax relief available on money given to charity. It will include Gift Aid claimed by charities, in addition to the personal tax relief available to higher rate taxpayers.

The reason

The government has been upping the rhetoric on this over the past few weeks. Osborne last week said he was "shocked" at the amount of tax being avoided through charitable giving.

The Treasury published a report featuring hypothetical examples, including someone earning £15 million a year who could avoid income tax by claiming £10 million in tax relief for charitable gifts and writing off another £5 million against losses.

Yesterday a spokesman for Cameron added "We don't think it is right that someone on a very high income is paying far less tax than the average family in this country."

He did not, of course, highlight how much more would have to be given away in order to get this charitable tax relief.

The problem

A spokesman for the Charities Aid Foundation told AOL that this is missing the point, that: "It is not tax avoidance, because these individuals have to give away far more than they would ever have paid in tax."

John Low, Chief Executive of the Charities Aid Foundation, added: "Whoever is advising the Chancellor is quite wrong to equate tax relief on major donations to charity with tax avoidance. This is not a ploy to save tax. Philanthropists who make large donations give away far far more than they could ever claim in tax relief. That money goes to fund projects for the public good, such as medical research and help for the most vulnerable in society."

Low adds: "Treasury officials just have not recognised that there is a world of difference between giving your money away for the public good, and trying to offset tax for private gain. Charities are facing a tough economic climate in the face of deep cuts in public spending and a squeeze on incomes while tackling increased demand for their services. We need to be encouraging philanthropists to support charities, not treating them as if they are shirking their public duty."

Charities suffer

Christian Guy, director of policy at the Centre for Social Policy added that the effect on charities could be devastating: "8% of donors give nearly half of all donations. With the limitations imposed by this cap, donors will either receive a higher tax bill or the prospect of giving less to charity in order maintain their current overall tax burden."

Given that Beth Breeze and Coutts estimate that there were 80 gifts of £1m or more from individuals worth £782 million in 2009/10, there's a great deal to be lost.

The Charities Aid Foundation has set up a petition at giveitbackgeorge.org which has so far been signed by 1,800 charities and individuals calling for a re-think on the policy.

But what do you think? is this the death knell for charitable giving, or a necessary step to cut back on tax avoidance? Let us know in the comments.

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Will the government destroy charities?

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