Clause 41 - Gift aid: increase of limits on total value of benefits associated with gifts

Part of Finance (No. 3) Bill – in a Public Bill Committee at 3:15 pm on 24 May 2011.

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Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury) 3:15, 24 May 2011

Clause 41 introduces the first of the gift aid measures that were announced in the Budget, which was presented by the Chancellor as

“a big help for the big society”—[Official Report, 23 March 2011; Vol. 525, c. 962.]

to use his words. It increases the limit on gift aid benefit from £500 to £2,500. As we all know, the Government are placing special emphasis on the role of charities as part of their big society agenda, with the voluntary sector expected to fill the void left by the Government’s cuts. That will not be an easy task, not least because charities themselves are being so drastically affected by the cuts, particularly with the loss of local authority grant funding. That loss is difficult to quantify, because the information has to be collated from all the local authorities across the country and the impact must be assessed on charities large and small.

The Association of Chief Executives of Voluntary Organisations has estimated that charities will lose £900 million in public sector cuts this year and £2.85 billion a year by 2014-15. The association established a commission on the big society and published a report, “Powerful People, Responsible Society”, which warned:

“If the big society is to be a success, the Government will need to ensure that it protects and promotes this sector—and does not allow over-rapid and poorly-managed public spending cuts to damage it disproportionately and irrevocably.”

In addition, Sue Ryder, among other organisations, is leading a campaign against irrecoverable VAT, which we shall discuss when we debate new clause 2. The Charity Tax Group has estimated that the new 20% rate will cost the charity sector an additional £150 million a year in irrecoverable VAT. This year, charities have lost the transitional relief for gift aid, which provided an additional 3p per pound to help them adjust to the reduction in the basic rate of income tax. That loss is estimated to cost them approximately £100 million. Moreover, many charities and groups, such as the National Council for Voluntary Organisations, have called for an extension to the transitional relief fund, arguing that the £100 million was not sufficient to help them adapt to the big society agenda and that it is dwarfed by the additional £250 million that the Government will receive from charities.

Meanwhile, the National Council for Voluntary Organisations reports that charitable giving remains at £700 million below pre-recession levels. In total, taking into account the consequences of all the tax and spending changes, plus the decline in charitable donations, ACEVO has identified a £4.5 billion funding gap. Clearly, that gap will make the charitable sector even more dependent on private donations. Presumably that is why the Government are so anxious to promote charitable giving.

Announcing the change that is proposed in clause 41, the Chancellor stated that the Government would

“encourage wealthy people in our society to give more.”

It is worth noting that recently published Cabinet Office figures show that the poorest 10% of society gives 3.2% of its income to charity, whereas the richest 10% gives only 0.8%, although the amounts that are given by the richest 10% are obviously higher. They could, however, be encouraged to give, as a proportion, a fair bit more.

Will the Minister elaborate on why she thinks that the measures in the clause will encourage people to give more? What estimate has she made of the impact? Will she clarify why the Government have chosen to introduce this measure first, which prioritises wealthy donors, while the new gift aid scheme to enable charities to claim gift aid on small donations more easily is being delayed until 2013? The focus on small donations might be more relevant to small local charities, which rely on lots of people in their community donating small amounts. That would have fitted well with the Government’s big society agenda. So often, the local small charities are hardest hit by cuts to the voluntary sector grant funding, because they are less likely to attract the substantial donations from the big donors.

The ACEVO commission on the big society concluded that the Government lacked “a credible plan” to make the big society a success in deprived areas, finding that nearly 60% of the public did not think it would work in  the most deprived areas. I would appreciate the Minister’s comments. Is there a concern that the big society agenda, with what seems to be a focus—if the clause is an example—on wealthy donors, to the exclusion of smaller but more generous donors, will act to the detriment of communities to which the big society could be of the greatest benefit?

A research study by the South West Foundation into issues currently affecting small voluntary and community organisations, “Crisis and contradiction”, warned:

“The future for community groups is looking very uncertain. 56% of the small community groups who took part in this research have less than 6 months’ running costs in reserves, 49% are experiencing difficulties in raising funds for this year, 78% are having difficulties in raising funds for next year.”

In the light of such reports, does the Minister not think that the Government ought to have gone further to help small community groups, rather than introducing provisions such as clause 41?

The gift aid scheme for small donations is projected to cost the Treasury £50 million in its first year and £85 million in 2014-15, while the changes to inheritance tax to promote philanthropy are estimated to cost £25 million in 2012-13. It is unclear, however, how much clause 41 is estimated to cost the Treasury. Can the Minister tell us the estimated gain for charities’ incomes and how much it will cost the Treasury in gift aid if the measure works as a greater incentive to donate?

Undoubtedly, any additional donations or gift aid will be gratefully received by charities, but they do not seem sufficient to offset the increased bills this year, let alone the funding cuts. As ACEVO said in response to the Budget:

“We will also be making clear that in addition to the positive measures in the Budget, we need action now from the Government to get a grip on local cuts to the voluntary sector.”

According to a recent National Council for Voluntary Organisations survey, 55% of charity chief executives plan to cut staff and 35% plan to decrease the extent of their services by June this year. I would be grateful for the Minister’s comments, and to know to what extent the Treasury thinks clause 41 will help to mitigate the impact of charities’ reduced income from the Government.