The Tories are discouraging high earners from giving their money away, tarring philanthropy with the brush of tax avoidance
The fallout from last month's budget has included much that is surreal, but nothing has been stranger than Downing Street's attempt to justify the reduction of tax relief on charitable donations by higher-rate taxpayers. The government has explicitly and frequently hymned the benefits of philanthropy, but George Osborne now declares himself shocked by how extensive tax avoidance is among the wealthy, and has explained that it has been therefore necessary to limit the tax they can claim back on the money they give to good causes.
As the chancellor is so keen to associate himself with the general distaste for the super-rich, let me – as a representative of what his party probably looks on as the leftwing arts establishment – spring to the defence of a significant number of them. There are many very wealthy people who are keenly aware of how fortunate they are. They consider it their responsibility to give away a large proportion of their wealth. I know some of them from their association with the National Theatre, and those who give to the National also – invariably – give to many other good causes: to charities concerned with foreign aid, social welfare, education and medical research. Many of them give a great deal more each year than the 25% of their income that will become the limit that qualifies for tax relief under the new budget.
It is frankly slanderous to suggest that any of them are involved in tax avoidance. It is also ridiculous. To qualify for tax relief of £2,500, a higher-rate (40%) taxpayer would have to give £10,000 to charity. In other words, the so-called tax avoider would be down £7,500. Call me a financial illiterate, but I can't see what's been avoided here – and many wealthy philanthropists give millions away each year.
Unsurprisingly, a number of donors are having to reconsider what they hoped to be able to give. Like all of us, they calculate what is going to be left behind after they've given, and they donate accordingly. After discovering that a lot less would be left behind than he'd assumed, one potential donor called the National Theatre's fund-raising department to let us know that he was no longer sure he would be able to make a £250,000 donation to the £50m capital campaign we are aiming to raise from private sources. Many other charities have reported similar conversations. Meanwhile, I'll be doing my best to persuade many existing donors who have pledged gifts over four years not to revise their donations downwards as they discover that they will cost more than they had anticipated.
So charities as diverse as Macmillan Cancer Support, the Royal Society for the Protection of Birds, and St Giles Trust face major losses; Vince Cable is reportedly concerned for university donations. And there are consequences that are possibly even more insidious. Through its actions and its rhetoric the government has tarred philanthropy with the brush of tax avoidance.
I have to assume that this wasn't the government's intention, and that we're all the victims of some kind of last-minute budgetary stitch-up. In any event, it's impossible to avoid the suspicion that ministers whose departments are directly involved with charities were blindsided by the budget – their recent silence has spoken volumes. A government that came into office promising to encourage philanthropy as a palliative for reductions in public spending has completely undermined its own position.
And if it is the case that some of the super-rich have been creating dodgy charities as a means of tax avoidance – as Downing Street has claimed – the logical response would be to crack down on dodgy charities. Instead, the government is cracking down on philanthropy.
I spoke at a dinner in New York on Tuesday to 40 of the National Theatre's most enthusiastic American supporters. We hope to raise $8m from them. And if they give, they will be able to offset their donation directly against tax. As a result, Americans give infinitely more to charitable causes than we do in Britain.
I am indebted to Jeremy Hunt, for the information that Americans who earn more than $150,000 a year give eight times more than their British equivalents do. This would be the same Jeremy Hunt who is currently secretary of state for culture and who has been eloquent in his determination to encourage us to be more generous – but who has had nothing so far to say about the budget.
The government unambiguously committed itself to encouraging philanthropy as part of the "big society" and is now doing the one thing that is likely to reverse it. It is surely naive to imagine, as Thursday's Guardian leader seems to imply, that the tax foregone by charitable giving would instead be devoted by the current government to the NHS.
In the absence of any political will to confiscate and redistribute in its entirety the wealth of high earners, it seems bizarre that a British Conservative government is actively discouraging them from giving their money away. A swift rethink would seem to be the least embarrassing option.
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