Osborne's charity tax raid is fair

There's no doubt we need charities and the brilliant work they do, says Merryn Somerset Webb. But wouldn't we rather see our government services paid for first?

When George Osborne introduced his tycoon tax in his budget this year, the charity sector was outraged. Almost immediately charity organisers started pointing out that he can't have thought it through. He can't conceivably have meant to limit the income-tax relief to individuals giving to charity to £50,000 a year. Surely?

However, I suspect that was exactly what he meant to do. Our Gift Aid rules are remarkably generous to the charitable sector. For every pound contributed, the charity concerned can claim back basic-rate tax from the Treasury. Give a charity £100 and the state then has to chuck in another £25. Then, should you be a higher or top-rate payer, you get to claim back more for yourself via your self-assessment form: £25 if you are a 40% taxpayer and £37.50 if you are a 50% taxpayer.

That makes charitable giving very expensive for the government. It has vital functions it needs to perform. It's also running a huge deficit and financing a record national debt. Every penny of tax relief given to charities and higher-rate taxpayers is a penny removed from the Treasury (and in the end, from the pockets of other taxpayers).

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

I dare say Osborne approves of all sorts of charities, from opera societies to donkey sanctuaries. But he'd surely prefer that all the nation's tax money was used to pay for the NHS and to attempt to ensure that all British children can read by the age of ten and that more charitable donors operated their generosity post-tax.

As for the many charities that do the brilliant work of supplementing government services, we need them. But I suspect we'd all prefer the government services themselves were paid for and on an even keel than that the charities were.

I also wonder if Osborne isn't looking at the charities sector and thinking to himself that it reeks of the potential for abuse. There are in the region of 165,000 registered charities in Britain. That's more than one for every 420 members of the population. Around 10,000 have an income of more than £5m a year; 30,000 have one of over £100,000; 100,000 have an income of more than £10,000.

The sector's total turnover comes to around £50bn. The Charity Commission has recently published a strategic plan for 2012-2015 that includes a lot of fine words about maintaining the integrity of charity'. But it's taking a 33% real-terms hit to its budget (down to £20m) by 2014/2015.

I can't tell you how many people the Commission employs. But I think we can all be sure that on £20m a year, it can't be certain that all of them are spending the money on proper charitable work rather than on services to their donors. If I were Osborne, I think I too would be looking to divert some of the tax relief given to the sector as a whole back into tax revenue.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.