Budget 2012 does little to improve equality in the UK, according to Ruchir Shah.
Last Wednesday revealed a very tax neutral Budget. What it gives with one hand it takes with the other. But it is certainly not tax redistribution, as increases for lower and middle income groups appear to come from other lower and middle income groups. It’s not clear if the richest will really be forced to take their share of austerity. In the absence of redistributive tax measures, encouraging philanthropy becomes even more important.
From a Scottish charity perspective, the new 25 per cent cap on income tax reliefs is not good news. It means less tax efficiency which in part motivates wealthier people to give to charities. So much has been made about the impact this will have on philanthropic behaviour, but you can also look at it another way. Unless charity giving is excluded from this cap, the government will effectively be taking a slice of the largest donations to charities for the Treasury.
This will also interplay with another other key announcement on Wednesday, with the news that the Scottish government will back the provisions of the UK government’s Scotland Bill. The impact of the way the new tax powers for Scotland will work with gift aid for charities in Scotland will now need to be reviewed in light of the cap on tax relief for the wealthy. Will Scotland have a say over how the cap interacts with their new tax powers? Will Scotland be even more radical in its approach to stamp duty land tax, which the Chancellor has pushed up for wealthy property buyers, once the Bill comes into force? Will a Scottish approach be different?
Besides the Budget, welfare reform remains the biggest concern for many charities. The Chancellor has strongly suggested that he will be seeking a further £10bn in welfare cuts by 2016. This will hit some of the most vulnerable people and groups hard. Something tells me there will be even more pain in future Budgets once the public nerve has been tested with this. Expect more anti-benefits rhetoric over the course of the year.
Another important issue for the third sector is making the tax system easier to use for people. There has been a lot of rhetoric on simplifying the benefits and tax system. Yet the Budget has been marked by more means testing and increasing complexity for personal tax. Taking the pensioner allowance changes as an example - is the approach to simplification here about making it easier for the tax office or for the tax payer? The varying allowances for different pensioners will undoubtedly create confusion, as will the rules for child benefit tapers and eligibility for benefits that depend on take-home income. Expect calls to charity helplines to increase.
Most intriguingly there was a rumour whispered that the move to regional variation of public sector salaries might in the future be extended to benefits. If this were the case, then the existing support for the devolution of welfare and benefits in Scotland would become even stronger.
There were of course some specific tax measures for charities in the Budget, but most of them had either been announced previously or are simply tweaks to existing tax concessions; a tidying up job. For example, red tape for charity shops and community sports clubs will be streamlined while VAT burdens will be eased for charities sharing costs and those that transport goods for emergency relief.
The small donations scheme is more significant though. It is designed to make it easier for charities fundraising through smaller collections to benefit from a gift aid-like return on donations under £20. However this is not really a tax measure but a funding scheme. Scotland could push for using this new allocation differently in future if the system doesn’t work. For example, could Scotland create a more open funding scheme to support smaller charities and community groups?
Omissions prove interesting
Even more interesting for charities is what they didn’t get. Many of us were expecting significant announcements to improve payroll giving, an introduction of living legacies, and a move to tackle the £1bn subsidy charities give to the government through VAT lost on services. There has been a real missed opportunity here.
I was fascinated to hear an interview with a woman who was set to net gain from the tax proposals but was unhappy because of the net loss that would be suffered by her neighbours. It suggested a real sense of solidarity, something more akin to the real Big Society sentiment that Cameron has found so elusive. This doesn’t fit neatly into the theory of self-interested individualism that now seems to drive the government’s approach to taxation.
This has been a very constrained Budget, but marked by a philosophy which sees the poor and vulnerable as a burden to the economy. From a charity perspective, the UK's position as one of the most unequal countries in Europe seems secure.
Ruchir Shah is policy manager at the Scottish Council of Voluntary Organisations