CAF and NCVO have warned that the new cap on income tax relief for those on higher income tax rates could damage major philanthropy. Sector commentators are also disappointed at the lack of measures around social investment in the Budget.

Karl Wilding, head of policy at NCVO, said: “We are worried about what we’ve heard so far about a cap on income tax relief on those on higher income rates.

“This could have an impact on donations from higher-rate taxpayers. A disproportionate amount of money is given to charity by a small number of people. They are more likely to be higher-rate taxpayers. We are worried about the unintended consequences.”

Charities Aid Foundation echoed these concerns, and said it has called for urgent talks with the Treasury to ensure the caps do not "strangle" major donations by wealthy philanthropists.

CAF chief executive John Low said: “Government can’t have a philanthropy agenda on the one hand and then introduce measures like this on the other. This change seems to run counter to the very idea of Big Society.

“Tax relief on major donations is not tax avoidance. It is supporting major donations by people who in some cases are donating the proceeds of a lifetime’s work to charity."

Chris Groves, partner in the wealth planning team at law firm Withers, said: “Charities may well come to regard the 2012 Budget as a significant attack on their funding.  One of Gordon Brown’s first actions as Chancellor in 1998 was to remove the cap on gift aid donations.  The introduction of the cap on tax reliefs to 25 per cent of an individual’s income effectively reinstates that cap.

"When coupled with the rules to be introduced that will reduce the rate of inheritance tax for estates where 10 per cent is left to charity, this is likely to have the effect of delaying donations to charities until death, creating a significant funding gap."

Acevo chief executive Sir Stephen Bubb pointed out that the cap "could end up hitting the poor more than the rich if they hit levels of donation to charity".

'Kicked social investment into the long grass'

NCVO also lamented the lack of attention on social investment. “We didn’t hear much about this," said Wilding. "Treasury will conduct an internal review of the financial barriers to social investment. It does not say much about government aspiration. The UK has the potential to be a world-leading social investment industry, and it feels like it’s been kicked into the long grass.”

Luke Fletcher, a solicitor at Bates Wells and Braithwaite, said there is some positive news on social investment, but on balance it is disappointing for the social investment market. “It’s been a missed opportunity,” he said.

“The sector called for reform through community interest tax relief (CITR). We had high hopes for it to be reformed to allow indirect investments via community development finance institutions to charities and social enterprise, to be eligible for CITR.”

Fletcher welcomed the internal review within Treasury around social investment, but said that there was still no commitment to try and create a level-playing field with other sectors.

“It’s good that the Treasury is taking ownership of the agenda. The sector will be hoping to engage with the Treasury on this,” he said.

Social enterprise

Cliff Prior, co-founder of UnLtd, said there was a great deal in the budget for enterprise start-ups and growth:

“The question was how much of it will be accessible to social enterprise,” he said. “The reforms on CITR don’t look as if they go very far.”

He also said he was worried about the cap on tax relief of £50,000:

“Government said it would be speaking with philanthropists to make sure it does not affect charitable giving. But this could also affect impact investors and angel investors, who aren’t mentioned.”

Prior added that there was a promising area in a pilot scheme for enterprise loans to young people.

Charity shops

Peter Hollins, CEO of the British Heart Foundation, welcomed the commitment to simplify gift aid for charity shops.  He said the current process for claiming gift aid on the sale of goods donated to charity shops is cumbersome to administer and costs the BHF approximately £150,000 a year in staff time and postage costs.

“Simplifying gift aid is a win-win for both charities and the government," Hollins said. "There will be cost savings all round."