Never let it be said that I am an unquestioning partisan. George Osborne has attracted a lot of criticism in the past few days for his plans to cap tax relief for charitable donations. Tax relief allows wealthy individuals who donate to registered charities to claim back from the treasury. The Chancellor is proposing to cap the amount of tax-free giving at £50,000, or 25% of a person’s income, whichever figure is the greater. I agree with him.
It is an unusual situation where a Tory chancellor can consider myself as an ally (and the Daily Mail as an enemy). The official reason given by Osborne is that this is a means to reduce tax evasion. If you remember back to the budget, Osborne declared such evasion to be “morally reprehensible”. At the time I expressed deep cynicism about what actions if any would follow such fine words. The charity tax relief cut is a welcome start, even if the limit is still too generous.
What have I got against charity? Consider it like this – under normal circumstances an individual who has been fortunate enough to become a high earner will contribute back to society through taxation. A progressive tax system will endure that the tax rate collects most from those who can most afford it. Revenue raised then goes back into services from which we all individually or collectively benefit. An educated, healthy and contented society then feeds into the entrepreneurs and genuine wealth-creators of the future.
Now consider the tax relief route. The rich individual decides to reduce their tax bill by donating to a registered charity. This could be any such charity of their choice, regardless of size or activity. The charity would be run by its directors and trustees entirely by its own rules and priorities, with little oversight, and no accountability to the general public. Because the donor has claimed tax relief, the funds raised for the treasury are reduced – the state has less to spend on health, education, and other public services. The donor themselves, if wealthy, is probably not affected but the general public will suffer as a result.
The charity tax relief system is effectively a system for the subsidy of charities at the expense of public services. Public services face an immense amount of scrutiny, and they are always accountable to us through our elected representatives. Even the largest and best known charities carry out their activities in relative secrecy. Some charities do nominally “good” work, such as running hostels or after-school tuition. Yet what logic can there be in the treasury subsidising a charity to support a public service, when that same public service only needs support due to treasury spending cuts?
Philanthropy is also strongly anti-democratic. A donor decides which causes they believe are worthy. They also decide how much to donate and when. Where a charity has a few large donors it has to dance to their tune, to beg. To quote Toynbee and Walker in Unjust Rewards (2008):
we suggested to a major donor that paying more tax might be a better way for the wealthy to pay their dues than random gift-giving. He answered that the state could never spend his money as well as he could. If he gives he can direct it exactly where he wants and oversee what happens to it. Follow this recipe to its natural conclusion and anarchy and plutocracy result.
Charity tax relief allows the wealthy to take money from the tax system – from all of us – and spend it on their private causes; be they decent state substitutes, the idols of privilege, or just delusional make-believe. I applaud Osborne for cutting it.
Will the relief cut seriously reduce donations? That only depends on the true motives of the donors. From the Independent:
Why are charities so fearful that a limit on how much donors can offset against tax will reduce their income? This will only happen if the tax concessions of the past constituted a major – the major? – motivation to give. No limit is being placed on how much anyone may donate, only on what draws tax relief. If big donors are sufficiently committed to their cause, there is nothing to prevent them giving as before. If they don’t, does that not suggest that the tax break was, if not being abused, at least a persuasive consideration?
I am not against charity in itself, but it must never be a substitute for the consistent and equal provision of essential services. Services that only the state can provide fairly and free at point-of-use to all of its citizens. The welfare state was founded by Liberal and Labour governments precisely because the threadbare safety net of charitable provision was never good enough. Cutting the tax relief threshold could mean an actual spending increase for our public services, and in that I agree with George.