Why we should abolish tax relief on charitable giving

George Osborne shouldn't just limit tax relief on charitable donations. He should abolish it altogether.

I have just received a letter from my old university. It asks me to send money (as usual). And it adds "every £10 donated is worth £12.50 and the difference is paid by the Inland Revenue at no cost to you".

No cost to me? I don't think so.

Let's assume that I am a 40% taxpayer. I give £1,000 to a charity. The government is then obliged to hand over another £250 in Gift Aid, bringing it up to £1,250. I then make a claim for charitable giving tax relief on my tax return for another £250.

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The net result? The UK Treasury has £500 less in the coffers than it would have had had I not made my charitable donation. That's a cost not just to me but to all taxpayers. You might say that doesn't matter. The point, you might say, is that the charity now has £1,250. But I think it does matter.

I wrote an editorial on this last week (subscribers can read it here). The key point is that the government has core responsibilities that must be paid for out of tax revenues. Every penny that goes out in tax relief is a penny not being used to pay for the NHS, for education, for defence and so on.

You might think that your chosen charity is more important than anything the government spends money on. I don't think that should be your choice to make. The rest of us don't get to effectively hypothecate our tax payments (ie, decide what our tax money is spent on directly), so why should those who can afford to make large charity payments get to hypothecate theirs?

It makes no sense. If you want to give to charity, you can. Just pay your taxes first. Otherwise the rest of us end up having to pay them for you: every £500 the Treasury loses as a result of a £1,000 donation has to be made up by other taxpayers. That adds up.

According to the HMRC, "Gift Aid is worth nearly £1bn to charities and their donors." If we all made our charitable donations out of our post-tax income, that would be £1bn returned to the Treasury every year and £1bn every year off our hideous budget deficit.

George Osborne is right to be trying to limit tax relief on charitable giving. But to my mind, he should go further. He should abolish it. And when he has done that, he 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.

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.