By a Newsnet reporter
In its third budget U-turn in four days, the UK Coalition have announced that they will not be going ahead with plans to introduce a cap of £50,000 or 25% of income on tax-free donations to charity.
Earlier this week the Treasury announced the scrapping of plans to increase tax on hot snacks, and would not after all introduce a higher tax rate on static caravans. The UK government was also forced to backtrack on plans to permit secret trials and to water down plans to charge VAT on repairs to listed buildings.
The Treasury made the announcement that the so-called ‘charity tax’ would be scrapped at 1pm on Thursday as embattled Culture Secretary Jeremy Hunt was giving evidence to the Leveson Inquiry into press standards, and hours after the Prime Minister’s former press chief Andy Coulson had been charged with perjury.
Critics have claimed that the government made the announcement of its U-turn on the charitable donations tax break in an attempt to distract attention from Mr Hunt and damning evidence against senior ministers in the Murdoch affair, and the Prime Minister’s close association with figures who are central to the police investigation into phone hacking and corruption.
A spokesperson for the Treasury insisted that it was not a U-turn, saying that the change was as a result of the Treasury concluding its consultation with voluntary organisations, which had been promised in the March budget.
The Treasury said that it would go ahead with the introduction of a £50,000, or 25% of income, cap on tax relief, but that donations to charities would be exempt. The cap will instead target the amount of previous business losses that can be offset against future taxable profits.
Secretary to the Treasury, Conservative MP David Gauke, said: “We made the decision over the last few days. Having reached our conclusion I think it’s only fair that we announce it to the public as quickly as possible to end the uncertainty.
“This is not news that’s going to be buried and there’s no attempt by us to do that. Every day is a busy day this week.”
Despite the Treasury’s protestations that there was no U-turn, just two days ago the Treasury had said that charitable groups and others opposed to the cap would be able to make a case against it during the formal consultation to be held later this year.
Announcing his abandonment of what has been called the ‘charity tax’, Mr Osborne said: “We won’t be capping relief for giving money to charity.
“It is clear from our conversations with charities that any kind of cap could damage donations, and as I said at the Budget that’s not what we want at all. So we’ve listened.”
“Frankly, at a time like this, the government is going to focus on the big issues like the worsening eurozone crisis and Britain’s deficit, and not get distracted with unnecessary arguments.”
Voluntary organisations have welcomed the Treasury’s change of heart.
Sir Stuart Etherington, Chief Executive of the National Council for Voluntary Organisations, said: “We are delighted that the Chancellor has listened to reason and pledged to drop the charity tax.
“This is a victory for common sense and validates the strength of feeling from the thousands of organisations who lent their weight to the Give it Back, George campaign. This is a great day for philanthropy.”
John Low, chief executive of the Charities Aid Foundation, said: “We are delighted that the Government has responded to the challenging calls from philanthropists and charities across the country and taken the bold decision to exempt charitable donations from the cap on tax relief.”
Opposition parties cite the series of U-turns as evidence that the government has lost its way and become deeply unpopular, while Conservative MP and Chairman of the Commons Treasury select committee, Andrew Tyrie, suggested that the government was now paying the price for having leaked so much of the last Budget in advance.
Mr Tyrie said: “With so much pre-briefing and leaking of the major measures in the Budget, the Government lost the opportunity to explain a coherent package of tax reforms. The few measures not leaked attracted disproportionate attention, forcing one concession after another.”
Labour’s Shadow Chancellor Ed Balls claimed that the government’s economic strategy had become an embarrassing shambles.
Mr Balls said: “Another day, another Budget tax U-turn – three successive u-turns in four days, all when Parliament is not sitting and just a few weeks after Ministers were defending these measures, show just what an embarrassing shambles George Osborne’s Budget has become.”
The SNP’s Westminster Treasury spokesperson Stewart Hosie urged the Coalition government to rethink other unpopular and damaging policies, and said:
“After pasties, caravans and now charities, the U-turns are coming thick and fast from the Con-Dem government which realises how deeply unpopular and damaging their policies are.
“The charity tax was another ill-thought out policy which would have caused financial uncertainty to many worthwhile organisations. The UK government was forced to listen to reason, and now it needs to rethink other damaging policies as well.”