Amendment of Finance Act 1990

New Clause 27 – in the House of Commons at 11:45 pm on 15th July 1991.

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'.—(1) The Finance Act 1990 shall be amended as follows: (2) In section 25(2)(g) leave out £600 and insert £250.".'.—[Mr. Alex Carlile.]

Brought up, and read the First time

Photo of Mr Alex Carlile Mr Alex Carlile , Montgomery

I beg to move, That the clause be read a Second time.

The new clause relates to gift aid. Gift aid has been a success. We were told in Committee that in the eight months to the end of May this year, tax repayments of more than £19 million had been made to charities. In Committee, the Economic Secretary promised to keep the minimum limit under careful review, having agreed and included in the Bill a provision that raised the maximum limit.

It is disappointing that, thus far at least, the Government remain determined to keep the minimum limit as high as £600. There must be many people who would be prepared to enter the gift aid scheme if it were possible to give £250 or a figure between £250 and £600, but who cannot give as much as £600. I appreciate, of course, that tax relief can be obtained for small donations given, for example, under deeds of covenant. However, many people find the gift aid scheme simpler, more attractive and more straightforward than giving under deeds of covenant, which they regard as a legal procedure involving a legal document which they feel binds them for a number of years in circumstances that may well change.

I suggest that the reduction of the limit from £600 to £250 would lead to a considerable increase in charitable giving while maintaining the threshold high enough so that the administrative costs are not disproportionate. We know that charities have had to absorb a real blow as a result of the 2·5 per cent. increase in VAT which was announced in the Budget. We know that the Government express support for the voluntary sector—indeed, we have heard many exhortations from the Government that people should be more self-reliant and that the voluntary sector, especially charities, should carry greater burdens. We know of the tremendous support which the public are prepared to give charities in relation not only to poverty and other domestic considerations, but to worldwide challenges which they see in their newspapers and on their television screens.

The total unreclaimable VAT bill met by charities in England and Wales this year will amount to as much as £250 million. That places not only a financial burden, but an administrative burden on the charities.

As I said in Committee, there is a strong case for the reform of charity law. I encourage the Government to consider whether that reform can be included in the next Gracious Speech. I hope that that will be the case. Perhaps the Government can give a commitment now that they will consider lowering the lower threshold for gift aid so that charities can enjoy, as we approach the general election, the double bonus of being able to receive far more under gift aid and to work in a less mysterious and hostile framework.

Photo of John Maples John Maples The Economic Secretary to the Treasury

The hon. and learned Member for Montgomery (Mr. Carlile) has had two bites at this cherry because exactly the same points were raised in Committee.I am afraid that I shall give him pretty much the same answer. This is an example of how, when a Government introduce what is universally acknowledged to be a good scheme, within a year people are saying that it is not generous enough. However, the charities are saying that they widely welcome it. This month's issue of Charity magazine states that it is universally acclaimed as being the best thing that a Chancellor could have done to unlock new money". By the end of May, charities had claimed tax repayments on some 17,000 gifts by both individuals and companies, which provided charities with income of £57 million, and a further £19 million in tax repayment claims. It is a pretty successful scheme.

The aim of gift aid is to encourage substantial gifts to charity. Tax relief is available for smaller gifts made under deeds of covenant or for gifts up to £600 a year made under the payroll giving scheme. Those are valuable assured sources of income and it is important not to undermine them. There is a danger that reducing the limit for gift aid to, say, £250 would undermine the payroll giving scheme and covenants and thereby remove an assured source of income—a flow of income over a period—from charities.

It is not practical to give relief for all small one-off gifts to charity. Covenants, which continue for a period and for which the tax paperwork can generally be processed by the donee, or payroll giving, where it can be done by the donor, are relatively easy things to administer. Enabling people to give individual gifts of about £250 would create an administrative problem. It is for a combination of those reasons that we decided to set a minimum limit of £600 net of basic rate tax to single gifts to charity under the gift aid scheme.

I understand why the hon. and learned Gentleman feels that it might be beneficial to charities to reduce the limit. However, the arguments are not all on one side and, as the scheme has been in existence for only one year, I am reluctant to concede any amendments now. I am giving him pretty much the same answer as I gave in Committee, but I can assure him that we shall keep the minimum limit in mind when we consider the results of the scheme and whether there are ways in which it can be improved.

Photo of Mr Alex Carlile Mr Alex Carlile , Montgomery

It is disappointing that, despite strong representations from many charities, the Government are unwilling to reduce the limit at this stage. However, it is welcome to hear that the Government will keep the matter under review. Many of us who take a close interest in charities are waiting and hoping for a much more substantial law reform in relation to charities very soon. Bearing in mind what has been said, for the time being I am content to beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.