Westminster Blog

This morning the prime minister’s spokesman was grilled by the Westminster press pack on why exactly the government was putting in place a cap on tax reliefs when it could reduce charitable giving.

This is the explanation the spokesman gave:

The reason was that certain individuals in this country on very high incomes are exploiting some of these reliefs to reduce their tax burden.

But surely the whole point of offering tax reliefs on charitable donations is to encourage wealthy individuals to give donations by allowing them to reduce their tax burden? The PM’s spokesman explained that it was not just use, but abuse of these reliefs that was concerning the government:

The system as it stands can be and is being abused. We cannot be in a situation where very wealthy individuals are able to wipe out their tax bills by using these reliefs.

But again, reducing tax is surely the point of such reliefs in the first place. So where does the abuse come in? That question led to an intriguing answer:

In certain instances they may be giving money to charities and those charities don’t in all cases do a great amount of charitable work.

So it seems the real issue is bogus charities: ones that receive charitable status, allowing donors to reduce their tax but don’t do much, if any, actual charitable work.

But even if this is what ministers are concerned about, it is surely not for them to take action at all. The Charity Commission already polices whether organisations actually do any charitable work, and has the power to remove that status if not.

There was one other interesting response the spokesman gave, which hinted at why relying on the Charity Commission, which only polices UK charities, might not be enough:

The tax [relief] doesn’t necessarily just apply to charitable organisations that operate in this country.

And this seems to be the nub of the problem: rich people are giving to bogus offshore charities to reduce their tax bill. But if that is the problem, why is the solution a cap, which will simply reduce the amount of money going to such organisations, rather than stopping it altogether?