Cameron may backtrack on charity tax clampdown

The Prime Minister said he wanted to see more philanthropic giving to charities – something which a Treasury Minister conceded would fall under the plans announced by Chancellor George Osborne in the Budget.

Downing Street confirmed that a full consultation is to be held over the summer on Mr Osborne’s policy, which would see a limit on a range of income tax reliefs of £50,000 or 25 per cent of income, whichever is the greater.

The Treasury has said that the move, announced in the March Budget and due to be introduced through the 2013 Finance Bill, will crack down on wealthy individuals who use reliefs to minimise their tax contribution.

It released figures showing that six per cent of £10m-plus earners paid less than 10 per cent in tax and another three per cent came in below the basic 20 per cent rate. Fewer than three-quarters paid more than 40 per cent.

But charities denounced the Chancellor’s policy as “a shambles” and warned it would hit good causes like medical research, education and help for the vulnerable, while raising “relatively small amounts” in additional tax.

Mr Cameron is expected to be among Ministers who will talk to charities and philanthropists over the coming weeks.

Speaking in Alfreton, Derbyshire, he said he wanted charitable giving to increase and “lots of things” could be done to sort out the issue. “This was never going to introduced until next year – plenty of time to get it right, plenty of time to consult and to listen,” said the Prime Minister.

“But the key principle is – more for charities and philanthropic giving – yes. Allowing people to drive their tax rate down to 10 per cent when they are some of the richest people in the country – no.”

Exchequer secretary David Gauke fuelled charities’ anxieties over the cap yesterday when he confirmed the Treasury expected it to have an impact on their incomes.

Mr Gauke said the measure was expected to bring in £300m of additional revenue across the range of reliefs, of which between £50m and £100m would come from the charities cap.

He said: “At the moment people are able to give to charities and indeed make use of other reliefs within the tax system that gets their rate down and the concern that we have, we don’t think it is fair that people are able to get the rate down that low even when the donations are to perfectly legitimate charities.”

Mr Gauke said the Treasury accepts there would be “an impact” on charities but the wealthiest should not be able to opt out of paying income tax.

Charities Aid Foundation chief executive John Low responded: “This has been a shambles. The Government simply has not thought this through.”