It's as if he'd never been away... PM back as charity tax row rumbles on

Labour surges to biggest poll lead since election while new Coalition split on 'green deal' emerges

An attempt by ministers to end the war of words over their plan to curb tax relief on charitable donations failed yesterday when charities rejected their peace moves.

Downing Street announced that a formal consultation process would be held this summer to give the Government time to amend its controversial proposals before they are introduced in April next year.

Last month's Budget included a cap on tax relief of 25 per cent of an individual's income or £50,000, whichever is greater. Options for changing it include raising the cap to 50 per cent of income, as applies in the United States; allowing "lifetime gifts" to charities to reduce liability to inheritance tax and permitting donors to "carry forward" unused tax relief to later years, as is already allowed on pension contributions.

As MPs returned to Westminster after their Easter break, David Cameron's Government tried to steady Conservative nerves by sounding a conciliatory note. But its recent woes looked set to continue as:

l a split emerged between the Tories and Liberal Democrats over whether the Government is to water down its "green deal" to cut energy bills by encouraging home insulation

l Labour planned to force a Commons vote tomorrow over the curb on tax relief on charitable donations

l Tory MPs were ordered to stay at Westminster on Thursday to defeat threatened rebellions by some colleagues over the "pasty tax" and "granny tax" announced in the Budget

l Labour has opened up its biggest poll lead since the 2010 election, according to a Populus poll in The Times today. Labour is on 42 per cent, its highest figure since the election, and the Tories on 33 per cent, their joint lowest.

Mr Cameron hinted at a partial retreat over the so-called "charity tax" as he insisted there was plenty of time to consult over it. He insisted that he wanted donations to charity to increase and that "lots of things" could be done to sort out the issue."This was never going to be introduced until next year – plenty of time to get it right, plenty of time to consult and to listen," he said.

Danny Alexander, the Chief Treasury Secretary, said there "may be attractions" to the US approach to philanthropy, which caps relief on donations at 50 per cent of income. David Gauke,the Exchequer Secretary, admitted the planned cap would have an impact on charities: he estimated the move would raise between £50m and £100m a year for the Treasury.

But Sir Stuart Etherington, chief executive of National Council for Voluntary Organisations, said the Government had to act immediately to prevent charities losing income. "This consultation is old news, and will not happen early enough to stem the tide of alarm and uncertainty already hitting charities and donors. The Government needs to act now," he warned.

John Low, the chief executive of the Charities Aid Foundation, said the handling of the issue had descended into a "shambles". He protested: "The Government simply has not thought this through."

The Charity Finance Group released a survey which found that 93 per cent of fundraisers had found raising cash harder in the last year – and 94 per cent expected it to become even tougher in the next 12 months.

Caron Bradshaw, its chief executive officer, said: "In the light of these results, the relief cap is a frightening prospect, which will bring minimal benefit to the exchequer but blow a further hole in the sector's finances."

Labour will tomorrow call for the "charity tax" to be put on hold until ministers can prove it will be implemented in a way "which will not hit charities and which will genuinely tackle avoidance". The Opposition will make its move when the Commons debates the Finance Bill, which implements the Budget.

Liberal Democrats reacted angrily to suggestions from senior Tories that the "green deal" championed by Chris Huhne, the former Energy and Climate Change Secretary, would be scaled back following his resignation in February. One Liberal Democrat source said: "This is not going to happen."

But Tories said plans to force homeowners to spend money on "green" measures such as loft and cavity wall insulation when they improve their properties – dubbed a "conservatory tax" – may be "tweaked" after a consultation exercise.

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