Time for another look at tax relief on charitable giving

When George Osborne suggested that there should be a £50,000 cap on the tax relief permitted on charitable giving, we approved of the idea wholeheartedly. We even felt that this wasn’t going far enough.

As far as we can see, all tax relief does is allow donors to channel what is effectively public spending (with taxpayer cash) to their own pet causes – that’s undemocratic and open to wide abuse. You can read our original post on the matter here.

I finished my last post on this by saying that not only should all tax relief on charitable giving be instantly abolished, but that once this was done Osborne should take “a long look at charitable status and who should and shouldn’t have it, starting with pretty much every arts organisation in the country.” Nothing has happened in the last few months to make us feel any differently about this.

But an article in the Times today certainly brings the problem nicely into focus. It concentrates on the case of the Cup Trust – one of the UK’s bigger charities and also, says the Times, a front for tax avoidance.

In essence, it seems that wealthy “donors” were using the charity not to “improve the lives of young children and adults” (an aim so vague you might be surprised it ever got past the Charity Commission in the first place) but to trade in the gilt market in such a way that they got both tax relief on their money and most of their money back too. I say “their money” but given that it should have been money that ended up with HMRC, it would be more correct perhaps to say “our money”.

The point here, as the Times points out, is that those who opposed Osborne’s £50,000 cap suggestion can “now see what he was on about”. Hundreds of millions of pounds are claimed every year in gift aid and tax relief related to charities. This “is the equivalent of public spending and should be policed just as carefully as the money spent by the government on schools hospitals defence and benefits,” says the Times.

This is exactly the point we have been trying to make. Tax relief on charitable giving is effectively nothing but unaudited and uncontrolled public spending. And that is something we can all do without. Osborne needs to have another go at this.

31 Responses

  1. 31/01/2013, dr ray wrote

    “that’s undemocratic and open to wide abuse”

    Merryn, what is democratic in people who pay nothing into the system having as much right to vote and decide how the money is spent as people who pay into the system? If you want to make it fair, have a system whereby tax paid buys rights to vote. That would instantly stop politicians expanding the Welfare State and their voter base. As far as charitable giving goes, yes, stop the abuse. Why is BUPA or Eton a charity? However if I choose to give money away and not benefit from it why should I still be liable to tax on something I never had?

  2. 31/01/2013, Shinsei1967 wrote

    “what is democratic in people who pay nothing into the system having as much right to vote”

    Because every democratically elected government for the last 100 years has stood on a manifesto stating that all adults have the right to the vote regardless of their financial contribution to the state.

    You have every democratic right to form a party that would make voting conditional on generating a certain level of tax revenue but I guarantee you won’t be very successful.

  3. 31/01/2013, Boris MacDonut wrote

    #2 Shinsei. I’m afraid drray sees everything in pound notes.
    Merryn’s article is spot on. Even I can’t find a fault with this one.
    It is a horrible idea that the rich should get to decide how the money is spent,when the little people do not….is it because they cannot be trusted? Letting the wealthy play God while pretending to pay a bit less tax is a nonsense.

  4. 31/01/2013, Ellen wrote

    We gift aid money to our childrens schools also but only because they ask us for it. We also gift aid to the church we attend. We regard it as genuine ‘giving’ and do not care if it comes from our gross or net income.

    If giftaid is being used as tax avoidence, then I fully agree with you. If an individual wants to donate to something, the donation should be done from their net income and HMRC does not need to be involved.

    @Dr Ray. One person, one vote is a cornerstone of democracy. I think democracy is fiddled to prevent this enough, with parties carving up the electorate to create as few ‘marginals’ as possible. However we should at least aim to have everyone properly represented.

  5. 01/02/2013, Dr Ray wrote

    @2, 3 & 4
    Why is democracy so sacrosanct? It’s not as if it has worked. It has resulted in politicians using voters own money to keep themselves in power and divert wealth to their friends. Its not much better than an absolute monarchy in this respect.
    What I propose is an inprovement on universal sufferage (which is what I think Ellen means rather than democracy – most democracies in the past did not have universal sufferage). Basically you have to have skin in the game. No representation without taxation could be the slogan.

  6. 01/02/2013, Dr Ray wrote

    @ #2
    “You have every democratic right to form a party that would make voting conditional on generating a certain level of tax revenue but I guarantee you won’t be very successful”

    Dead right I wouldn’t be successful. If one the other hand I promised free healthcare, a pension at 45, free education until the age of 46, a free house and two overseas holidays a year I would win by a landslide. That is my point.

  7. 01/02/2013, Shinsei1967 wrote

    “Why is democracy so sacrosanct? “

    Well, your first complaint was “what is DEMOCRATIC about….”

    Rather answers your stupid and fatuous question. Please go away as you are really adding absolutely nothing to the debate.

  8. 01/02/2013, dr Ray wrote

    @ Shinei1967

    “The best argument against democracy is a five-minute conversation with the average voter.”

    Winston Churchill would probably have included reading your comment had he still been alive.

  9. 01/02/2013, Romford Dave wrote

    If tax is the yardstick you’re proposing to use dr ray, that pretty much includes everyone who is eligible to vote now, as there’s precious little in life that has escaped the grasping hand of the exchequer, when looking at the source of what pours into the treasury’s coffers.

    Or were you thinking of limiting it to income tax payers only?

    Maybe just higher rate payers, or even those suffering the top rate of tax in a novel misinterpretation of the term suffrage…..

    Was life that much better a hundred or so years ago, even when wearing the rosiest of spectacles?

    Inclusion is the secret of successful democracies and successful inclusion requires voters to understand exactly what their voting for, even when they’re voting to help themselves. Especially when they’re voting to help themselves.

  10. 01/02/2013, Romford_Dave wrote

    Hmmm, apologies for the excessive use of when and even.

    I really should read what I’ve written before hitting the submit button :(

  11. 01/02/2013, dr ray wrote

    @Romford Dave
    Even after taking VAT and other consumption taxes into account the net beneficiaries of the system are very near 50% – conveniently the sort of vote a politician would need to gain power even if every vote was equal (which they are not). Universal suffrage is essentially mob rule – the power of the majority to oppress the minority. I don’t think this occupies the moral high ground so securely that I am not permitted to offer an alternative form of democracy. After all shareholders in public companies have votes proportional to their shareholding. No one is suggesting we all have a vote on how Glaxo is run whether we own the shares or not. Contributing towards running the UK should give more entitlement to a vote than the random event of being born here.

  12. 01/02/2013, Romford Dave wrote

    But your original problem was with those who paid nothing into the system having a vote?

    Has that changed already to those who’ve only paid a certain amount?

    Smacks of the four leg good mantra popularised by some earlier land owners Doc, or maybe they were squatters, I’m sure they didn’t pay tax in any event.

    That ended badly too as I recall, for the majority anyway. Pretty much how it was a hundred or so years ago when the very system you propose existed.

  13. 02/02/2013, dr ray wrote

    @Romford Dave

    I think you will find that the “four legs good” quote is a satire on democracy and socialism from George Orwells Animal Farm where the dumber animals (ie the electorate) were sold tyrannical rule by a select elite under the banner of “democracy” George Orwell’s prediction turned out quite accurate. He also recognised there are different types of democracy – after all Adolf Hitler and Gordon Brown both claimed to have been democratically elected so there is obviously room for improvement.

  14. 02/02/2013, dr ray wrote

    cont…….

    What I am arguing is not a case against democracy but the selection of eligible voters or universal suffrage. Univeral suffrage doesn’t apply to running a school, darts club, listed company or village hall and yet we now assume it is the only valid way to elect a political leader whatever the motives of the electorate. Why so? Are “One Direction” a better pop group than “The Rolling Stones” because they were democratically elected rather than supported by people who used their own money to buy their records and gig tickets.

  15. 02/02/2013, Romford Dave wrote

    If you’re familiar with the piece, you should appreciate how stupid your suggestion is.

    An inability to answer the simplest of questions is usually a giveaway that the answer isn’t as easy as one first thought.

    Would it help if I asked it again?

    Who would be allowed to vote in this Utopia you’re proposing?

  16. 02/02/2013, Shinsei1967 wrote

    Dr Ray

    And as I am sure you know Churchill also said that democracy was the worst form of government, apart from all the others.

    Yes, many individual voters are complete twits but collectively democracies tend to come to the right decisions. Something to do with the wisdom of crowds.

  17. 02/02/2013, dr ray wrote

    @ RD and Shinsei
    Yes it is a difficult question with no easy answer and I haven’t had time since starting this thread to formulate the perfect form of government and work out all the details of implementation. If there was an easy answer Aristotle or Plato would have come up with it. What plato did say was “
    Dictatorship naturally arises out of democracy, and the most aggravated form of tyranny and slavery out of the most extreme liberty” so even at its origin the collective wisdom theory was shown to fail (because people vote for their own benefit rather than the benefit of the population). Certainly anyone doing National Service would qualify for a vote. I’m not sure about professional soldiers. We would have to vote about the other criteria.

  18. 02/02/2013, Boris MacDonut wrote

    drray is digging some deep holes again. Do you not realise that everybody pays taxes,even children? We all pay VAT, Excise duties, Council tax, air passenger duty,TV licences, road fuel duty and so on. I assume drray means unless you pay income tax you should not vote. So a parent who decided to stay at home and care properly for his kids would be disenfranchised. Laughable. As I say drray yopu see everything in pound notes.
    #17Dictatorship does often grow from infant democracies, but rarely if ever from mature ones. Dictatorship grows from monarchies and theocracies with more ease.

  19. 02/02/2013, Critic Al Rick wrote

    It seems to me that Totalitarianism is growing out of present mature Democracies.

  20. 02/02/2013, Critic Al Rick wrote

    @11. dr ray

    You make an interesting statement:
    “Universal suffrage is essentially mob rule – the power of the majority to oppress the minority.”

    I can’t dispute that BUT don’t you agree there are political forces at work which are far more powerful than universal suffrage and which enable a minorityto oppress the majority?

  21. 02/02/2013, dr ray wrote

    @CAR
    If democracy did work the poor would hold political power since there are more poor than rich and yet almost to a man the people in power are millionaires and they use their position to make even more money and that includes the Labour Toffs like Blair and Harman. The whole machine is designed to empower the rich elite and yet make the voters think they are voting citizens in a democratic system rather than the serfs they actually are.
    Regarding Boris’ observation that everyone pays taxes, there is still a large minority of net recipients and ironically the tax take is so high because the money is needed to give back to voters to buy their votes. Gordon Brown succeeded in making 50% of the voters benefit recipients. This is how democracy dies

  22. 02/02/2013, Critic Al Rick wrote

    @ dr ray

    I whole-heartedly agree with most of what you say @21. (that makes a change, I might respectfully add!)

    But when you say:
    “… the tax take is so high because the money is needed to give back to voters to buy their votes”
    I have thoughts parallel to those of mine @20.

    Low paid workers receiving tax credits, amongst your net recipients, are not so much being bribed as having to pay over the odds to live.

    Living costs are higher than they ought to be, to be consistent with the country living within its means, partly because most of the well-remunerated are too well remunerated; incidentally, there’s also far too much debt and far too many unemployed and far too many not usefully employed.

    But that most of the too well remunerated are such brings us back to the elite and their example. This, in my opinion, is how democracy dies.

  23. 02/02/2013, Ellen wrote

    @ 21 Dr Ray. You make a very compelling argument against how we perceive democracy.

    Have we got a realistic alternative?

  24. 03/02/2013, Romford Dave wrote

    Compelling argument Ellen?

    I’d diagnose it as compelling gibberish.

    The good Doctor started out bemoaning the fact that our democratic system allowed mob rule to dictate to an oppressed minority, only to do a volte face and bemoan that the poor majority, don’t actually hold political power and are oppressed by an even smaller minority!

    Add in his proposal that the only people qualified for voting in his dystopian vision are those doing National Service, suggests that he’s more quack than physician given that National Service ended in the UK over half a century ago.

    You’re welcome to a second opinion of course ;)

  25. 03/02/2013, Romford Dave wrote

    Compelling argument Ellen?

    I’d diagnose it as compelling gibberish.

    The good Doctor started out bemoaning the fact that our democratic system allowed mob rule to dictate to an oppressed minority, only to do a volte face and bemoan that the poor majority, don’t actually hold political power and are oppressed by an even smaller minority!

    Add in his proposal that the only people qualified for voting in his dystopian vision are those doing National Service, suggests that he’s more quack than physician given that National Service ended in the UK over half a century ago.

    You’re welcome to a second opinion of course ;)

  26. 03/02/2013, GFL wrote

    Dr Ray makes some very good points, although I do no agree with his solution.

    I have been saying for years, the current system is so shortsighted it slowly erodes the nations wealth for short term bubble inflation.

    There is only one solution in my opinion, we must have a constitution that dictates taxation, government size, government spending as a percentage of GDP, rules for when we can enter a war, governments role in the free market, etc.

    Then elected MP’s can argue over how the, limited, pot of money is spent!

    But for some reason I cannot see MP’s agreeing to give themselves less power!

  27. 03/02/2013, Boris MacDonut wrote

    #26 GFL. What have MP’s got to do with it? The UK is controlled by the CoLC.

  28. 03/02/2013, dr ray wrote

    Romford Dave
    I haven’t contradicted myself. We do have mob (or majority) rule but as usual the mob is manipulated (or enticed) to hand power to the elite with the large section of the population who actually contribute most to the wealth of the State being largely sidelined in the democratic process and, to add insult to injury, being forked over to pay for the mob to be bribed. At least in openly corrupt countries politicians use their own money to bribe the electorate.
    I wasn’t intending a full critique of democracy – just pointing out that participants should have skin in the game if they want to decide how the nations wealth is to be allocated. I mentioned National Service because someone who has fought for his country clearly has a stake in it. Someone claiming benefits throughout their life except while in prison or on the run isn’t contributing to the common wealth.

  29. 03/02/2013, Romford Dave wrote

    Doc I’m trying not to disagree with you as there are some aspects of our electoral process that can seem infuriatingly unfair or at least infuriatingly unfair from my perspective, but that is only from my perspective.

    Who amongst us is suitably impartial to decide what’s fair for society as a whole?

    Most seem to rail against anything that comes out of the ECHR, who supposedly are a professional yardstick of fairness as far as an individual is concerned, would it be any different for those decreed societal equitability?

    I go back to my original assertion, inclusion is the answer matched with better education on the implications of voting for those who seek to buy and destroy.

  30. 03/02/2013, Bayard wrote

    What we have in the UK is not a democracy. Apart from referendums, of which we have had two in my lifetime, “the people” have no direct part in running the country: they don’t rule anything and “democracy” is from the Greek “rule by the people”. All “the people” are able to do is choose those who choose who rules them, once every five years or so. That is an elective oligarchy and, since the elected members do not have to limit themselves to other elected members to be the executive power (ministers), what we have is part elective oligarchy, part dictatorship.

  31. 03/02/2013, Billmac wrote

    The ‘empty vessels’ have again successfully highjacked an article about one thing – charitable giving – to make a lot of noise about something else – democracy.
    I agree with Merryn that the charity area needs to be thoroughly rethought and revised. Too many charities seem to be pet hobbies of limited charitable value and should lose their status. Why should higher taxpayers actually get a refund into their own pockets rather than the money going to the designated charity?

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