Foot-shooting policy making

May 14, 2012 at 15:30

The tax relief cap policy is the latest example of charities (and their beneficiaries) suffering disproportionately as a consequence of badly thought through policies – in other words charity and our civil society being an after-thought and not the first thought.

Decisions are being made as a result of simplistic politically charged arguments, without considering the wider picture – in a time where society needs it most, fostering a strong civil society has become the last thought.   This is essentially an example of poor policy making, and poor policy making often has damaging results.  In the example of the tax relief cap (or specifically the fact that charitable giving is not exempt from the cap):

  • It runs counter to the fundamental principles of Gift Aid, using tax relief to incentivise giving, and allowing tax relief on income that has been given away.  If there is a desire to counter this principle this should have been subject to proper debate in advance (and a mechanism for this exists via the charity tax forum – and previously via the gift aid forum).  Personally, I think this is a well-established and positive principle.
  • There has been significant misunderstanding created by published ‘examples;’ in reality the donor has no personal benefit – there is a net cost to the donor as they are making the contribution to charity.
  • The damage, financial and otherwise, which will be done to charities is not justified by the revenue likely to be generated.  The same risk-based approach should be applied as was the case for reducing the top rate of tax.
  • The policy as it stood incentivised and celebrated giving at both the smaller end of the scale and the higher.  Aligning tax relief on giving with tax avoidance sends out a negative message about the value to society of giving to charity.
  • There are current rules to counteract individuals abusing the system by obtaining “kick-backs” from donations to legitimate charities, or from setting up bogus charities – the sector has grappled with the substantial donor rules, fit and proper persons test which were put in place for these exact reasons!  Suggesting that the policy was introduced to address levels of fraud damages public trust in the sector and undermines charitable law, regulation and professionalism.

Mixed messages

Government heralded a central role for the charity and voluntary sector when it outlined its big society idea.  We have been repeatedly told that there are three legs to this particular stool –

  • encouraging increased giving of time and money,
  • the opening up of public service delivery, and
  • the localism agenda.

When combined with the policy detail behind, these principles are inherently contradictory. Like the legs of a stool, they point in different directions.  However, that does not mean that together these policy aims cannot support a stronger society. The sector is broad and deep.  There is potential to accommodate charities and community groups of all shapes and sizes.

There are always winners and losers as a result of changes in the operating environment.  But it is concerning that our latest ‘Managing in a new normal’ report has shown that only 50% of respondents felt an impact directly from the government policies (aside from spending cuts) and of those, 82% said it was negative.

On the whole I am a positive person.  I do not see much point in expending energy gnashing teeth about spending cuts.  I would prefer we focus energies on being responsive and adaptive – seek out new and exciting opportunities to refocus and reshape to provide the best services to our beneficiaries (whether man or beast!).  Two years on, it is clear the government is not able to articulate the overall policy and seems to be falling into the trap of allowing inconsistencies between rhetoric and reality. This is giving rise to unintended and destructive consequences.  And how do we support our members and the wider sector to adapt to their new environment when we cannot yet perceive how it will look and feel.

The tax relief cap has left me shaking my head in disbelief.  I struggle to find a time where the government position on the importance of civil society has been so confused.  Is this a product of a Coalition Government?  Or was the Big Society always just a poorly formed policy initiative, playing second fiddle to the drive to cut spend?

Cans of worms

I am increasingly alarmed by the nature of the debate this has unleashed.  We have seen unhelpful discussions on the merit of causes backed by donors.  The questions raised cast a shadow over the very nature of ‘charity’.  Polly Toynbee bemoans the fact that money given to causes on “the whims of donors” carries no public accountability.  She asks why should tax be diverted to (a rich) someone’s favourite cause whether that be donkeys, opera or (seemingly more palatable and worthy) seeking a cure for cancer, when the rest of society has no say?  That argument applies equally to gift aid at basic rate. It’s not justification for capping higher rate relief.

Do we really want to say government shouldn’t divert tax paid to a charity because it might not be our chosen cause?  I agree with the principle that all parts of society should pay a fair share.  However, when we debate specific measures in isolation of the bigger picture we end up with perverse outcomes and polarised views.  Situations are rarely black and white.  Here we must acknowledge the complex weave of state and charity and how they produce benefit to society.

Is what Polly’s really saying that she doesn’t see why the rich should get higher rate relief when the rest don’t?  The losers in this scenario will be the charities and their beneficiaries, not the rich philanthropist.  And remember, HRR applies to all higher rate tax payers and not just the super-rich.  Some of us use that relief to increase the amount we can afford to give.

Contributing to society?

There is a great deal of hand wringing over philanthropists’ motivations. Personally I couldn’t give tuppence whether a philanthropist is motivated by a warm glow, a name placard or the ability to pay less tax.  I’d go even further and give more incentives if it would change attitudes to giving and increase private money into charities and community organisations. What I am more worried about is that a cornerstone for values in society is being threatened on all fronts.

The £100million or so extra which goes to Government as a result will be absorbed in the public spend, rather than go directly to strengthening civil society; and sadly some of the extra resources that that the £100m could leverage into new services in communities and the arts, which are badly hit by government cuts anyway, will be lost. As our chair at our recent 25th anniversary reception put it – ‘civil organisations, charities, voluntary groups are the glue which sticks society together’.

Increasing the cap for giving or other suggested compromises are not adequate and in reality will be extremely complex to administer.  The very message the policy gives off is damaging.  Giving should be exempt from a cap designed to improve people’s contribution to society.

Caron Bradshaw