Only charities which opted to become non-profit making service providers, competing for state contracts, would receive government money for carrying out the work.
Charities were in uproar after the report was published by the Home Office yesterday. Called Voluntary Action, it was produced after three years research largely funded by the Home Office, Scottish Office and Northern Ireland Office together with grants from the private and voluntary sector.
Under the revolutionary proposals charities would either work for the state, and thus lose their campaigning voice and ability to criticise government policy, or become crusaders for social change.
The service providers would lose government grants and tax relief but could apply to reclaim VAT or other taxes depending on an annual evaluation of their performance.
The campaigners would lose all tax concessions and government grants, and also be unregulated. The Charity Commission, established in 1853, would be abolished. Only service providers would be regulated by a new body.
Most charities which attended the launch of the report were angry and confused about how the proposals would work in practice. Most now act as service providers and also campaign to influence policy.
Charities which concentrate on research, such as the Imperial Cancer Research Fund, pointed out they did not fit into either category. The author, Barry Knight, admitted this was a grey area.
The report also suggests that independent schools should be stripped of charitable status.
Many questions at the press conference related to how the campaigning groups would be financed and to the loss of tax breaks. Mr Knight said: 'This report is not about money or about tax. It is about a vision. I am disappointed that all you people want to talk about is tax.'
The National Council for Voluntary Organisations said some of the recommendations were fundamentally flawed. 'The great strength of voluntary organisations is combining the provision of services and campaigning. This is vital to ensuring that the real problems and concerns of those in need are heard.'
The Royal Society for the Prevention of Cruelty to Animals, which receives no government grants, estimated the proposals would cost it pounds 2m in lost tax concessions. Jerry Lloyd, its director, said: 'In general the public want charities to speak out for their client groups. In our case we have a special responsibility because we are the voice of the voiceless.'
Oxfam's deputy director, John Whitaker, said: 'This is an insult to Oxfam's 30,000 volunteers who are among our fiercest guardians of efficiency. Oxfam manages both to provide a service to the poor overseas and to campaign on their behalf . . . the new service agencies would, in effect, be gagged.'
Leading article, page 17