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Nigel Vinson: Pro-market visionary

Margaret Thatcher’s greatest disappointment as Prime Minister was failing to create a more philanthropic society. Shortly after leaving office she told Frank Field, the Labour MP: “I cut taxes because I thought we would get a giving society — and we haven’t.”

In fact the UK, while lagging behind the United States, is the fourth most philanthropic country in the world and much the most philanthropic in Europe. This is the finding of the Charities Aid Foundation in its authoritative study, Gross Domestic Philanthropy, published earlier this year. It compares the percentage of GDP donated by individuals to not-for-profit organisations in 24 major economies. In the US this accounts for just under 1.5 per cent of GDP. New Zealand and Canada come next with figures of almost 0.8 per cent. For the UK the figure is 0.54 per cent, way above its European neighbours; Germany and France come in at 0.17 and 0.11 per cent respectively. Spain and the Czech Republic are the European laggards, with rates of philanthropy less than half those of even France. As a percentage of GDP, Americans are 29 times more generous than Spaniards.

Although higher levels of employer social security charges do seem to reduce giving, the study also shows that there is little correlation between tax rates and and the level of philanthropy. Switzerland, for example, has very low rates of federal taxation yet gives only 0.09 per cent of GDP. 

The widespread notion that the US tax system is the major explanation for Americans’ generosity is very largely a myth. In any case, the UK tax system’s treatment of charitable giving is as generous as that of the US. For an additional-rate taxpayer, i.e. someone earning more than £150,000 per year, the cost of donating £10,000 to their chosen charity is £5,500. The donor makes a gift of £8,000 to the charity, which then reclaims £2,000 from HMRC via Gift Aid. By then declaring the donation on their tax return, the donor’s tax liability is reduced by £2,500.  The often-voiced cynical assumption that the rich give money to charity to avoid tax is nonsense. After all, with any charitable gift the donor is still worse off after making the gift than they would have been if they had not made it and just paid the tax. Nevertheless, while there is always room for simplification, the UK tax system is very favourable to charitable giving.

Mrs Thatcher was too tough on herself — Britain does better than nearly everybody.  The US is in a league of its own, but getting to that level of giving elsewhere will need more than cuts to tax rates or more generous treatment of charitable giving.

More specifically, Americans are much more generous in terms of broadly conservative or pro-market philanthropy. The UK has no equivalent to Charles and David Koch or the late Richard Mellon Scaife, who have dedicated billions of dollars to non-profits who share their limited-state, pro-market worldview. There are signs, however, that such giving is on the increase in the UK.

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