Charity tax relief cap will damage third sector warns Swinney

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Finance Secretary John Swinney has written to Chancellor George Osborne asking him to rethink his plans to cap income tax reliefs on charitable donations.

In his letter, Mr Swinney has warned Mr Osborne that the proposals will damage the third sector in Scotland and elsewhere by reducing the number and level of charitable and philanthropic gifts.

Mr Swinney said that the proposals, which have been criticised by high-profile philanthropists including Sir Tom Hunter, Sir Ian Wood and Willie Haughey, will have an impact on charities, universities and cultural organisations who all rely on philanthropic giving to fund some of their activities.

Chancellor George Osborne announced proposals to change the amount of tax relief donors can receive in respect of large donations to charities in his budget last month.  From April 6, 2013, the maximum will be 50,000 pounds per year, or 25 per cent of the donor’s income.  This will result
in a substantial reduction in the amount of tax philanthropists can claim back.

In his letter Mr Swinney said:

“The Scottish Government does not support a measure which may prove detrimental to charitable giving, and I have written to the Chancellor to express my concerns about these new measures.

“This Government recognises the valuable contribution charities make to Scottish society and we fully support the work of the charitable sector in Scotland. We will continue to work with the sector to improve the environment for charitable fundraising in Scotland.”

The plans faced criticism from charities and donors after it was claimed that those giving were doing so in order to avoid paying tax.

However Mr Swinney said: “Whilst I fully support the need to ensure wealthy individuals do not avoid their tax obligations, I believe that, as they currently stand, your proposals will damage the third sector in Scotland (and indeed elsewhere) by reducing the number and level of charitable and philanthropic donations. 

“The current financial climate is already proving very difficult for Scottish charities and third sector organisations without a further reduction in what is an important source of funding.  According to figures from the Scottish Council for Voluntary Organisations (SCVO), voluntary grants and donations made up 10.7 per cent of Scotland’s third sector income, equivalent to 470m pounds in 2010.”

Greg McCracken, policy officer at Age Scotland, said the proposal has the potential to turn people off the idea of charitable giving: “We feel that this flies in the face of the whole notion of the philanthropic society that the government has done so much to try to encourage at a time when budgets are being slashed.”

The full text of the letter is below:

I am writing to you regarding the proposal in your recent Budget to introduce a cap on income tax reliefs, and its likely impact on philanthropic donations.

Whilst I fully support the need to ensure wealthy individuals do not avoid their tax obligations, I believe that, as they currently stand, your proposals will damage the third sector in Scotland (and indeed elsewhere) by reducing the number and level of charitable and philanthropic donations.  The current financial climate is already proving very difficult for Scottish charities and third sector organisations without a further reduction in what is an important source of funding.  According to figures from the Scottish Council for Voluntary Organisations (SCVO), voluntary grants and donations made up 10.7 per cent of Scotland’s third sector income, equivalent to 470m pounds in 2010. 

These views are shared by Scottish businessman and philanthropist Sir Tom Hunter, who has given 50 million pounds through his charity The Hunter Foundation.  His spokesman has described the intention to cap tax relief on charitable donations as “an ill-thought-out and punitive policy which will undoubtedly have a negative impact on giving…and, in turn, a negative impact on charities.”  As the SCVO has pointed out, the cap is also at odds with your Government’s aim of creating the “Big Society” and encouraging philanthropy. 

I might add that these proposals will also have an impact beyond the third sector.  Philanthropic giving is seen as an increasingly important element in funding Scottish universities, particularly in the current financial climate.  Universities here have warned that your proposals are likely to have a detrimental impact on such donations.

I understand that a consultation document on your proposal will be published in the summer, and that the Treasury and the HMRC will be contacting representatives from the philanthropic and charity sectors to seek views.  However, the strength of feeling on this issue in Scotland – and I am sure elsewhere in the UK – is such that I would urge you now to rethink these proposals to avoid a reduction in the number of large charitable donations, and the consequent impact this would have on Scotland’s third sector.