News

Cap on tax relief is fairest way to tackle deficit, says Treasury Secretary3

Finance | Jonathan Last | 26 Apr 2012

The controversial cap on tax relief for charitable giving is part of a fair scheme to help ease the UK’s national debt, Economic Secretary to the Treasury Chloe Smith told an audience of charity representatives and tax specialists yesterday.

Speaking at the Charity Tax Group’s Tax Conference 2012 in London, Smith outlined the government’s justification for the move, and fielded questions from a keen audience.

“Tax reliefs exist for a good reason,” the minister began. “Around £3bn a year is donated through them per year. But a balance must be struck.

“The new cap means that large donations can make a contribution to public finances as well as the charitable cause. We are still facing a huge deficit in this country, and in this tough economic climate it is unfair that low wage earners pay tax whilst the richest get reliefs.

“Those who have the most should give the most.”

Smith added that the new legislation was not a policy designed to paint philanthropists as “tax dodgers”, and that any unlawful activity regarding tax is diligently dealt with by HRMC.

She also reminded delegates of other changes the coalition government have made or are planning that have, in general, been more warmly received by the sector. These include lowering the rate of inheritance tax from 40 to 30 per cent when over 10 per cent of assets are left to charity; introducing gift aid for small donations of up to £20 from 2013; a commitment to standardising payroll giving; exploring social impact bonds, and reducing charities' administration burdens, such as by planning online gift aid for 2013 and working with HMRC to create a gift aid database.

The minister concluded her speech by emphasising that the government and UK citizens should work together to make the new legislation work, and that ongoing discussion on the matter was welcome.

The audience responds

Such discussion came immediately in the form of questions from the floor.

Sara Osborne, head of policy development at Cancer Research UK, told Smith that her charity is relying on large donations for 60 per cent of its contribution to The Francis Crick Institute. “How will the government be supporting charities like us who will now be facing a loss in revenue?” she asked.

“We are seeking to work with the sector to see how we can best support charities in light of the tax relief cap,” Smith replied. “We urge you to engage with the government so we can work towards an understanding of how we can help.”

The chairman of the Wellcome Trust, Sir William Castell, told the minister that he saw a conflict between what she had just said and other government statements concerning ‘avoidance’.

“I have heard major donors express doubts that they will be able to contribute as much,” Sir William said. “This puts more money into the state sector, instead of the voluntary sector, which is where there are people who can use their expertise to actually tackle the root of society’s ills.

“In fact, there has already been disruption. With this cap we are just transferring wealth into the public sector – but isn’t the voluntary sector what this government’s Big Society initiative is supposed to be all about?”

This rhetorical question was greeted with applause, after which Sir William echoed Osborne’s enquiry about how the government is going to make up the loss that its new tax legislation will create in the voluntary sector.

“Taxation pays for services that we all use, and that people specifically want to see funded,” answered the minister. “My own personal philosophy – and the Prime Minister agrees with this – is that there is such a thing as society that is not the state. We need society to contribute, but we also still need the state to do its job, too. As I have said, it is all about working together to find a balance.”

Directory: Cancer Research UK | Wellcome Trust
Who's Who: Sir William Castell