Cover of MoneyWeek magazine issue no 584

Wonder drugs

13 April 2012 / Issue 584

Wonder drugs

PLUS:

  • Osborne's got it right on charity tax
  • Investing tips from JM Keynes
  • The SAS man who transformed the FTSE

Excerpt

Osborne’s charity tax raid is fair

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).

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.

• Read the full editor’s letter here: Osborne’s charity tax raid is fair.