UK Government Cracks Down on… Philanthropy?

The UK government’s mantra, in these times of high unemployment, inflation and low growth, is “We’re all In this together.” And as public-sector spending cuts begin to bite, the government has been keen to show that they expect the very wealthy to do their part.

Hence last month’s Budget included, alongside a modest reduction in the top rate of personal income tax, an emphasis on tightening tax loopholes available to wealthy people, particularly in relation to stamp duty on very expensive residential properties. It also included a new ceiling on tax relief for the wealthy: from next year, tax relief above £50,000 in any one year will be capped at 25 percent of income in that year. This would limit, say, a person earning $10 million from claiming tax reliefs of more than £2.5 million; or a person earning £500,000 from claiming tax reliefs of more than £125,000. At first glance, at least to those 99 percent of Britons who earn much less (the UK’s median income is £25,000 a year), this seemed to provide still generous room for tax relief to high-income earners.

However, in the past few weeks, a major campaign against the tax relief changes for the rich has come from a surprising quarter:  the UK’s non-profit sector. Leaders of the nation’s arts institutions, major health and children’s charities and umbrella bodies for the charitable sector have called on the government to exclude charitable donations from the ceiling or bear responsibility for a dramatic fall in large-scale private philanthropy. They have also pointed out that this outcome would sit very uneasily with the prime minister’s “Big Society” vision which promotes volunteerism and philanthropy. The tax relief ceiling, they say, is already leading wealthy donors to rethink and reduce planned major philanthropic gifts, thus undermining sustainable financing for many charities.

As members of his Conservative Party and coalition government joined the outcry, the prime minister has now signalled a possible rethink, through a “formal consultation” with charities and philanthropists. Following upon other political rows over various taxes in the Budget, and with Britain’s economy apparently entering a double-dip recession, “cracking down on philanthropy” is one more negative headline the prime minister could do without. There is considerable anger in some quarters at the government’s clumsy equation of wealthy philanthropists and tax avoidance. At the same time, there is unease that major philanthropic donations and the charities receiving them could be at such grave risk from even marginal changes in tax relief rules for the wealthy. The subliminal message of the charity sector’s campaign is that if tax relief for the wealthy is squeezed, philanthropy would be the first item on which wealthy people would cut back. And so far, few wealthy donors have spoken out on the issue. Maybe that’s why something seems lost in this debate – the joy of giving for its own sake perhaps, rather than as simply an accounting exercise.