'Charity tax' scrapped in third Budget U-turn in four days

The failed policy was criticised by Sir Nicholas Hytner of the National Theatre (Getty Images)

The planned “charity tax” was scrapped today as George Osborne completed his third embarrassing Budget U-turn in four days.

Charities, universities, medical research centres and arts organisations had joined forces with MPs from all parties to condemn plans to limit tax relief on gifts to good causes to £50,000 or 25 per cent of income.

They protested that the cap would have a devastating impact on donations from philanthropists, undermining David Cameron’s commitment to the “big society”.

The retreat was announced as Jeremy Hunt, the Culture Secretary, came under pressure at the Leveson inquiry over his links to News Corporation.

The timing – three days after the Treasury denied a U-turn on the issue was imminent - provoked immediate accusations that the Chancellor was attempting to lessen the impact of yet another retreat on a tax measure.

Ministers promised to hold consultation on the contentious scheme after it was hit by a wave of anger from charities and philanthropists. It was expected to last over the summer, with concessions announced in the Autumn Statement, expected in November.

But Mr Osborne moved to scrap the plans entirely today – three days after he dropped moves to levy VAT on hot takeaway food and static caravans.

The Chancellor said: “It is clear from our conversations with charities that any kind of cap could damage donations, and as I said at the Budget that's not what we want at all. So we've listened.”

Aides said he had decided to lift the cloud of uncertainty that would have hung over charities over the summer, potentially costing them millions of pounds in lost donations.

The Chancellor's latest U-turn will cost the Treasury between £50m and £80m. One aide said: “He wanted to clear the decks so that we are not sidetracked. He wants us to focus on the big picture, not relatively small amounts of revenue,so we address the big challenges such as deficit-reduction, securing growth and the problems in the eurozone.“

But Ed Balls, the shadow Chancellor, said the succession of retreats proved the Budget had degenerated into a shambles.

Lord Oakeshott, the Liberal Democrats' former Treasury spokesman, said: “Exempting charities from the tax relief cap is the right decision after a monumental unforced error.

“It was deeply offensive to donors and damaging to charities to imply that people could be better off personally by giving to charity.”

John Low, Chief Executive of the Charities Aid Foundation, said Mr Osborne had “done the right thing”. He said: “We are delighted the Government has responded to the challenging calls from philanthropists and charities across the country and taken the bold decision to exempt charitable donations from the cap on tax relief.”

Sir Nicholas Hytner, artistic director of the National Theatre, said: “It’s pretty impressive to admit having made a 100 per cent mistake and to put it right.”

But the venture capitalist Jon Moulton, a major Conservative donor who announced he was withdrawing financial support from the party over the issue, said charities had already been hurt by the recent uncertainty.

“It was a bad decision,” he told BBC Radio 4. “I am pleased they have had the nerve to actually reverse it. It seems to reflect a lack of proper consideration before the stuff was put out. Nobody had thought through the implications of doing it.”

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The cost of the Budget climbdowns

Reimbursing VAT on alterations to listed church buildings – £30m

Dropping the “pasty tax” on hot takeaway food – £40m

Five per cent VAT rate on static caravans instead of the original 20 per cent – £30m

Scrapping the cap on tax relief for charitable donations – £50m-£80m