Charities U-turn deepens Osborne tax humiliation

The man IS for turning: Chancellor George Osborne (Getty Images)

George Osborne is preparing for a climb-down on his "charity tax" proposals amid claims from Labour that his March Budget has descended into "a total and utter shambles".

Tory MPs, emboldened by U-turns over Budget moves to impose VAT on pasties and static caravans, stepped up calls yesterday for the Chancellor to scrap plans to limit tax relief on large charity donations to £50,000 a year from next April.

Critics of the planned cap on donations to good causes have warned that the moves will deter philanthropic giving and drive charities to the wall, undermining David Cameron's repeated exhortations to create a "big society". Treasury sources confirmed that ministers were considering raising the proposed cap above £50,000 and allowing the tax relief to be rolled over between years.

They are also examining whether the proposed rules can be redrawn to protect legitimate UK charities by specifically outlawing donations to bogus foreign charities.

The senior Tory MP David Ruffley, a member of the Commons' treasury select committee, said ministers were "already preparing the ground" for a rethink of the proposals. He predicted the concessions could be announced in Mr Osborne's autumn statement, expected in November.

Mr Ruffley told The Independent: "There are plenty of ways of ensuring mainstream charities continue to get the benefit of full relief." He suggested ministers could "lift the cap or bear down on abuse by those trusts which don't provide tangible benefits for good causes in the UK".

Zac Goldsmith, the MP for Richmond Park, said: "The policy needs to be fundamentally rethought, and I'm sure it will be."

Mr Osborne has now completed three U-turns on Budget proposals. Two weeks ago he was forced to promise £30m to the Church of England in compensation for adding VAT for alterations to listed buildings.

The Chancellor was accused of waiting until the Commons was in recess to announce two more retreats in the face of widespread opposition on Coalition benches.

The retreat on hot food means that 20 per cent VAT will now be charged only on cooked pies and pasties that are kept hot, but not those still warm after coming from the oven. Under the original Budget plans, VAT would have been levied on savouries until they had cooled to "ambient" temperature.