Philanthropists: Giving up giving?

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The Budget clampdown on tax relief for charitable donations has had a disastrous effect on philanthropy

While the post-Budget headlines were dominated by the cut in the top rate of income tax, the freeze on pensioners' allowances and the imposition of VAT on Cornish pasties, it was one brief announcement by George Osborne that sent a chill through the charity fundraising sector.

The Chancellor's decision to limit tax relief for the seriously wealthy might have seemed relatively uncontentious at the time. But it has provoked mutiny among charities, voluntary organisations, research institutes and universities which fear they could lose millions as an unintended consequence of Mr Osborne's crowd-pleasing move.

They warn that the practical impact will be to deter rich philanthropists – as well as more ordinary people who receive a once-in-a-lifetime cash windfall – from handing over money to the good causes that increasingly rely on their largesse. They are questioning how the move (which reportedly came as a surprise to the Arts minister, Ed Vaizey) fits in with David Cameron's commitment to foster the "Big Society".

Mr Osborne has a serious rebellion on his hands from a charitable sector already buffeted by the winds of economic downturn and the Government's austerity drive. Forty-five per cent of its income comes from large donations from the super-rich – and charities now fear that an essential source of funds could begin to dry up.

Their worries are underlined today by a survey of philanthropists by the Charities Aid Foundation. It has found that 83 per cent feared the move would cut gifts to charity, with more than a quarter saying they could even scale back their own donations as a result.

At the moment philanthropists can make unlimited donations to charity and qualify for full tax relief on their gifts. From April 2013 the amount of relief they can claim will be capped at £50,000 a year or, if it is higher, at one quarter of the donor's income.

Sources in the charity sector say there is already some evidence of wealthy supporters rethinking their donations. The Independent disclosed last week that one anonymous philanthropist had put plans on hold to inject £5m into a charitable foundation.

Britain's 100 most generous philanthropists handed over nearly £1.7bn last year – a fall of £800m on the previous 12 months but still an invaluable lifeline for charities.

There are the well-known names, such as the author JK Rowling, who gave £10m for a regenerative neurology clinic in Edinburgh, and Sir Elton John, who in recent years has handed more than £26m to good causes, including for HIV prevention work.

But there are also figures from the worlds of commerce and industry – as well as aristocrats with large inherited wealth – that have donated millions to a vast variety of educational, medical and humanitarian causes.

There is precious little detail yet in the Treasury's proposal, but charity leaders believe it will have the effect of limiting relief on any cash gift worth more than £200,000.

Their warning was echoed last night by major philanthropists.

Luke Johnson, who oversaw the rapid expansion of Pizza Express and has an estimated fortune of £120m, urged Mr Osborne to think again. He said: "It is against the spirit of this Government's views. They want to encourage philanthropy and to encourage charities and good causes to steer away from reliance on government.

"It might not stop people giving altogether, but it might limit how much they give – or give them pause for thought about their donations. This is sending out the wrong signal and I am surprised they have done it."

Sir Vernon Ellis, the chairman of the English National Opera, who donated £5m to help restore the London Coliseum, said: "This is a mystifying proposal that flies in the face of calls for an increase in philanthropy. It sets a tone that positions charitable giving as a form of tax dodge and it would undoubtedly undermine the ability of arts organisations and indeed all charities to raise money."

Critics also fear the move will discourage individuals who are not in the super-rich bracket but who want to use an inheritance or the proceeds of the sale of a company to set up a charitable institution.

Ministers have promised to "explore with philanthropists ways to ensure this new limit of uncapped reliefs will not impact significantly on charities that depend on large donations".

Talks are due to be held next Monday, but the Treasury will find charity leaders in mutinous mood.

John Low, the chief executive of the Charities Aid Foundation, said: "At a time when charities are under increasing pressure, due to funding cuts and greater need in society, the Government should be encouraging major donors to dig deep in their pockets, not changing the tax rules to put them off making donations."

UK giving philanthropy – and philanthropists

£11bn was donated to charity by individuals in 2010-11, according to research by the Charities Aid Foundation.

Lord Fink Penniless at the age of 21, he now has an estimated fortune of more than £3bn. Is giving £75m to Oxford University for a school of Government. His charitable interests are mainly health and education.

174 donations of more than £1m were made to charities in the UK in 2009/10, 80 of which were from individuals.

The Duke of Northumberland The 12th holder of the 450-year-old title, he has contributed £9m towards the charity refurbishing Alnwick Gardens next to his stately home. His eponymous charity made donations of more than £100,000 last year.

7% of UK donors gave more than £100 to charity in 2010-11, but they accounted for 45% of total donations.

Elton John Still one of the country's biggest concert draws, the rock star consistently donates millions of pounds to humanitarian causes and work on HIV prevention. He has supported more than 40 charities.

60% of the £1.3bn donated to charities in 2009-10 came from individual donors.

Sir Ronald Cohen An Egyptian-born financier with an estimated wealth of £200m, Sir Ronald is a prolific donor to educational, social and Jewish charities. He is a trustee of the British Museum and founded the Apax Foundation.

JK Rowling A struggling writer living in Edinburgh when the first Harry Potter book was published, Rowling is now thought to be worth more than £500m following the astronomical success of the franchise. She has given £10m to research into multiple sclerosis at the city's university, which claimed the life of her mother.

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