Speech by the Economic Secretary to the Treasury.
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Good morning and thank you for inviting me to speak here today about charities and philanthropy.
It’s a subject of deep interest to me in my role in the Treasury and one that is vital to realising the Government’s vision of a Big Society.
And I’m pleased to be speaking about this issue here at the Charity Tax Group annual conference.
Not only do the charities you represent provide critical support to millions of people across the UK and abroad.
But your advice has played an invaluable role in this Government’s ambition to support charities in the UK.
It’s an ambition we remain fully committed to.
Of course, since the budget there have been many column inches devoted to our changes on tax relief.
And I understand that many here today have raised their concerns.
So I want to talk about the new cap on income tax reliefs first.
Capping tax reliefs
As you are all aware, in the Budget we announced that we would introduce caps on tax reliefs that are currently uncapped.
It means from next year, anyone seeking to claim more than at £50,000 in reliefs, will have those reliefs capped at 25 per cent of their income.
Reliefs do exist for a good reason. They help promote investment, reflect genuine business losses, and support charitable giving.
And in the charitable sector these reliefs amount to around £3 billion a year.
The Government is committed to supporting giving through the tax system, and in many cases donations will still get tax relief.
But a balance has to be struck.
There has been a lot of discussion in the press, and I think some of this has led to a misunderstanding about the intention of the policy.
I would like to take this opportunity to clarify what we’re trying to achieve with the income tax reliefs cap.
First and foremost we whole heartedly support those who have and continue to give generously to charities, whose support is integral to the charitable sector.
We are eager to support that giving, and encourage ever more giving as I’ll come on to later in my speech.
Some of the coverage has suggested that we want to portray philanthropists as tax avoiders.
That is not our reasoning behind the cap.
This isn’t about people sitting down with their accountants and simply seeking the best way to minimise their contribution to society and maximise the gain to themselves.
We know some people abuse the system, and HMRC take steps to tackle that as they would any other instance on tax abuse.
But the cap on reliefs is something different altogether.
It is about a broader question of fairness.
To date, the reliefs we have on charitable giving have allowed some wealthy individuals to pay no tax on their income, sometimes year after year.
Where this is due to use of charitable reliefs, these people have clearly been generous - in the majority of cases they are giving to reputable causes and supporting valuable charitable work - there is no suggestion that these individuals are somehow keeping money back for themselves.
But neither are they contributing to the Exchequer.
And in effect this means that others in the system, nurses, teachers, indeed charity workers, have to pay more.
In the current environment, where families across the UK are coping with tough economic conditions, that cannot be fair.
This Government’s number one priority is tackling the deficit, and we cannot ask those on the lowest incomes to carry the bigger burden in that task.
In the same way that it’s fair to cap benefits, ensuring that we focus support where it is most needed, it is fair that we cap reliefs.
That’s why the reliefs cap puts a limit on the amount of tax relief that people can claim above a certain level.
But it does so by striking the right balance.
Yes, we want to support charity and philanthropy through the tax system, and yes we want people to continue to give.
But we also want people to make a contribution to the public finances.
The reliefs cap aims to ensure both can happen.
We are well aware that the cap will be of particular interest to the charity and philanthropy sector.
We set out on Budget day that we intended to talk to stakeholders to explore ways to ensure the cap did not have a significant impact on charities that depend on large donations.
This is already underway, my colleague the Exchequer Secretary has already started a series of discussions with key philanthropists and charity figures, and our officials are fully engaged with the sector.
It is vital that we continue to work together to understand the impact of the cap in specific situations, and what we might do to ensure valuable charitable work can continue whilst adhering to the principle that everyone should make a fair contribution through their income tax.
I know that people here in the audience today will have lots of questions and comments to make about the cap, and I am more than happy to discuss your concerns.
But I also hope that you will be willing to engage with us in this policy as we move forward in the weeks to come.
Tax reliefs and charity sector
I would like to turn now to other areas, and to take a moment to recap on the wider picture, and the significant steps that this Government has taken to support charitable giving.
For instance we are reducing the rate of inheritance tax from 40% to 36% for those individuals who leave 10% or more of their estate to charity.
This will reduce the cost of giving to charity through bequests. We consulted on the detail of this proposal last summer, and will put legislation into place through Finance Bill 2012.
We have also made changes to encourage greater lifetime giving of pre-eminent works of art to the nation in return for a tax reduction.
At the Autumn Statement we announced an increase in the annual limit for both tax reductions under the Gifts of Pre-eminent Object scheme and taxes offset under the existing Acceptance in Lieu Scheme, from £20 million to £30 million.
And more than that, companies as well as individuals will be able to access the new scheme.
We have also announced an increase in the Gift Aid benefit limit from £500 to £2,500 to enable charities to better recognise the generosity of their significant donors.
We have not forgotten smaller charities or donations from those less well off. We are introducing a new Gift Aid Small Donations Scheme from April 2013.
This will be a big help for those charities collecting so called ‘bucket donations’, allowing them to claim a Gift Aid style payment on small donations up to £20 without collecting Gift Aid declarations.
Qualifying charities will be able to claim up to £1,250 in repayments on total donations capped at £5,000 per year.
We are also exploring ways we might improve on payroll giving - a tax effective method for employees to make regular donations to charity.
Payroll giving provides a sustainable and predictable income stream for charities, and I have asked my officials to work with Cabinet Office to seek out ways to improve take-up.
We know that we have to do much more to raise awareness of the scheme, and ensure that awareness leads to action.
Together with the charity sector and with employers we need to change behavioural attitudes to embed giving, in this case payroll giving, as the social norm.
These measures come on top of the support that we have provided from the centre to support charities, voluntary groups and social enterprises affected by reductions as part of the Government’s Spending Review.
That included the £100 million Transition Fund.
Part of a £470 million support for the sector, demonstrating the Government’s commitment to building the resilience of voluntary sector organisations.
At the same time, we have taken significant steps to reduce the administrative burdens which can be a great weight on charities and distract them from their primary purpose and their primary love.
For instance we have committed to an online filing system for charities to claim Gift Aid, to be introduced during 2012/13. I know from feedback to the announcement that this will make a big difference across the sector.
And we have already delivered a significant first step with the introduction in April last year of intelligent forms for charities to apply for and claim Gift Aid.
These forms contain automatic checks so will considerably reduce the number of mistakes made, the need for manual checking and so speed up the claiming process.
HMRC will also be working with the sector to develop a Gift Aid database for charities. We have also taken steps to develop new fundraising opportunities for charities.
In particular, we have made some excellent progress towards realising our ambitions for growing the social investment market.
The launch of Big Society Capital earlier this month marks an important step to making sure that social enterprises and charities have access to affordable finance over the long term.
Big Society Capital will be capitalised over the next five years using England’s share of the £400 million of money in dormant bank accounts.
In addition, up to £200 million will be invested in it by HSBC, Barclays, Lloyds and RBS as part of their commitment under the Merlin Agreement to increase their contribution to society and economy recovery.
And in addition to this, we continue to support the development of the Social Impact Bond market.
These Bonds have the potential to offer huge benefits for Government, for service providers, and for investors.
For Government, social impact bonds share the risks and rewards of innovative social interventions with the private sector.
For the service providers, such bonds offer new sources of funding where and when it is needed most.
And for the commercial investor, social impact bonds offer the opportunity to seek returns and make investments in a wider range of activities than they currently do.
In these tough economic times, the charity sector, and the invaluable services it provides to millions of people across the country are as important as they ever have been.
And since coming to Government we have implemented significant changes to help support the sector in that role.
But facing the economic situation that we do, we have to take difficult and often unpopular decisions to safeguard our economic stability.
In the end, the best way that we can support the families, those on low incomes, and the most vulnerable in society is by ensuring that we restore our economic prosperity.
First and foremost that means tackling our deficit.
But even as we undertake that task we are committed to doing so in a fair way.
We will not let the poor and the vulnerable carry the burden of deficit reduction.
It is fair that those who have the most, contribute the most.
And that means ensuring people continue to contribute their fair share through tax revenues.
We will continue to encourage charitable giving through tax reliefs, but it is fair that we cap the amount of relief available.
It cannot be fair to have millionaires paying a lower rate of tax that those earning £20,000.
We can’t ask people at the bottom to pay a higher rate than those at the top who have means not to - even if that choice is to support a charitable cause instead.
This Government fully values and supports the charity sector, and the generous philanthropists that support it, and I hope together we can find the balance that we on the Government side think needs to be struck.