Reassessing reform

Thursday, 01 April 2010
The background behind the UK Treasurys decision to abandon Gift Aid tax relief reform.

HM Treasury has abandoned its plans to reform Gift Aid, a system which provides tax incentives for donors, despite having recently commissioned research into the likely effects of possible changes to the system on donations to charities.

The Treasury’s December 2009 report: Gift Aid Donor Research: Exploring Options for Reforming Higher-Rate Relief, considered three possible scenarios for Gift Aid reform. It looked in detail at the effects of redirecting rebates from higher-rate taxpaying donors to charities, but with some tax retained by government, and of two different flat Gift Aid rates to cover donations by all taxpayers.

The report found that many people are not aware that they can reclaim higher-rate relief and many of the donors who are aware that they can, do not claim the rebate.

The research also found that for all possible changes to Gift Aid presented in the survey and for all three taxpayer groups, the majority of donors reported that they would not change their donations out of net-of-tax income if faced with changes to Gift Aid. Given a choice, most higher-rate donors appeared to prefer a system that channelled all higher-rate relief to charities, over the current system, with a match plus a rebate, according to the research.

The report was greeted with caution by leading academic Cathy Pharoah, co-director of the Centre for Charitable Giving and Philanthropy at the Cass Business School in London.

She did not think the case had been made for any of the scenarios outlined within the research. Speaking to Third Sector magazine in January she said: ‘We haven’t seen any evidence that any of these is the best solution. We haven’t even seen evidence that any of them is a good solution. We might be better off sticking with the status quo.’ Subsequently, following meetings with charities and other stakeholders, the Treasury decided to do just that.

These meetings had taken place over the past two years in the wake of the UK Government’s Gift Aid consultation, which began in 2007 and which examined measures aimed at driving up charitable giving through Gift Aid. Options such as removing income tax relief for higher-rate taxpayer donors and replacing it with an increase in tax relief for charities were discussed.

This decision by the UK Treasury may signal an end to discussions over the reform of Gift Aid in the near future as the UK Shadow Charities Minister has recently indicated that an incoming Conservative Government in the UK may initially focus on increasing giving, rather than on Gift Aid reform, to boost voluntary income to charities. 

Nick Hurd, Shadow Minister for Charities; Social Enterprises and Volunteering, told the Institute of Fundraising’s ‘Ready for the Recovery’ conference in London that while Gift Aid was ‘a priority’, ‘the question is whether taxpayer money is best spent on just maximising yield from existing donations or if taxpayer money is better spent bringing in a whole new [area of] philanthropy.’

He told the conference that in the short-term a Conservative UK Government would prioritise reducing the ‘bureaucratic burden’ of Gift Aid on charities. While the push for the opt-out system is ‘entirely plausible’, he said that opt-out would itself pose problems for donors and charities. Many charities have been campaigning hard for change to the Gift Aid system as its excessive bureaucracy and complexity is believed to have resulted in its low take-up. Whichever party or parties form the next government in the UK, they are likely to have to face this issue again in the future.

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Scott Devine

Scott Devine is Policy and Communications Executive for STEP.

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