The Big Society — the idea that society as a whole and voluntary organisations and charities in particular can solve social problems much better than the state — is presented as being at the very core of David Cameron’s politics. Yet since the start of this financial year the amount of tax charities can reclaim has gone down.
If a UK taxpayer makes a donation to a charity under Gift Aid, the charity can reclaim the basic rate tax paid on that donation. When the basic rate of tax was cut from 22 per cent to 20 per cent in 2008, the Gordon Brown government introduced Gift Aid transitional relief — meaning that charities could effectively continue to claim relief at 22 per cent. In addition, higher-rate taxpayers — and additional-rate (50 per cent) taxpayers earning more than £150,000 — could through their annual return obtain relief on the full 20 per cent difference between the basic and higher rate, or 30 per cent if additional-rate taxpayers.
Since the start of the 2011-12 tax year transitional relief has ended. This means that on a donation of £100,000, charities can now claim only £25,000 from the Inland Revenue instead of £28,205. The total loss to charities has been estimated at £100 million a year.
The Chancellor, George Osborne, has declared that he wants the UK tax system to be among the most favourable in the world in terms of encouraging charitable giving. Ironicaly, this may well have been achieved through the introduction of the top 50 per cent rate in 2010 — probably nowhere else can high earners give charities £100,000 at an effective cost to themselves of £50,000. This is certainly more advantageous than in the US, usually lauded as the place where charitable giving is most tax advantageous, for the simple fact that federal income tax rates, at 35 per cent on incomes above $372,000, are lower than in the UK.
But if this government is so committed to strengthening the Big Society, surely it should have extended Gift Aid transitional relief. Would this not have sent the right message in terms of charitable giving? Osborne did send just this message with his move to 36 per cent for those who leave at least 10 per cent of their estate to charity. Surely what is good enough for the dead should also be good enough for the living.