David Cameron today gave a strong hint that he is ready to water down a controversial cap on tax relief for charitable giving, saying he was ready to listen to critics and take time to "get it right".
The Prime Minister said he wanted to see more philanthropic giving to charities - something which a Treasury minister conceded would fall under the plans announced by Chancellor George Osborne in the Budget.
Downing Street confirmed that a full consultation is to be held over the summer on Mr Osborne's policy, which would see a limit on a range of income tax reliefs of £50,000 or 25% of income, whichever is the greater.
The Treasury has said that the move, announced in the March Budget and due to be introduced through the 2013 Finance Bill, will crack down on wealthy individuals who use reliefs to minimise their tax contribution.
It released figures showing that 6% of £10 million-plus earners paid less than 10% in tax and another 3% came in below the basic 20% rate. Fewer than three-quarters paid more than 40%.
But charities denounced the Chancellor's policy as "a shambles" and warned it would hit good causes like medical research, education and help for the vulnerable, while raising "relatively small amounts" in additional tax.
Mr Cameron is expected to be among ministers who will talk to charities and philanthropists over the coming weeks about their concerns.
Speaking in Derbyshire, he said he wanted charitable giving to increase and that "lots of things" could be done to sort out the issue.
"This was never going to introduced until next year - plenty of time to get it right, plenty of time to consult and to listen," said the Prime Minister.
"But the key principle is - more for charities and philanthropic giving - yes.
"Allowing people to drive their tax rate down to 10% when they are some of the richest people in the country - no."
Exchequer secretary David Gauke fuelled charities' anxieties over the cap today when he confirmed the Treasury expected it to have an impact on their incomes.
Mr Gauke said the measure was expected to bring in £300 million of additional revenue across the range of reliefs, of which between £50 million and £100 million would come from the charities cap.
He told BBC Radio 4's Today programme: "At the moment people are able to give to charities and indeed make use of other reliefs within the tax system that gets their rate down and the concern that we have, we don't think it is fair that people are able to get the rate down that low even when the donations are to perfectly legitimate charities."
Mr Gauke said the Treasury accepts that there "will be an impact" on charities but insisted the Government believed the wealthiest should not be able to "opt out" of paying income tax.
Charities Aid Foundation chief executive John Low responded: "This has been a shambles. The Government simply has not thought this through.
"The Government admitted today that this policy will have an impact on charities. It is astonishing that the Treasury did not properly assess the impact on charities of their new tax relief cap before announcing this damaging measure in the Budget.
"Hundreds of charities large and small are united in opposition to this measure and generous philanthropists across the country are demoralised by being branded tax-dodgers.
"We are not asking the Government to drop caps on all tax relief. We are saying that ministers should think again about extending that cap on tax reliefs to include charitable donations."
The CAF released a poll of 71 Conservative and Liberal Democrat MPs, of whom 46 agreed that charity donations should not be subject to the new limit, against 15 supporting Mr Osborne's policy.
The latest to join the outcry was Labour's former prime minister Tony Blair, in a long-planned speech in the United States about the role of philanthropy.
"This is absolutely the right moment for government to do all it can to promote philanthropy; and certainly nothing to harm it," he said in a thinly-veiled swipe at the Government's plans.
Labour leader Ed Miliband made clear his intention to keep up the pressure on the Prime Minister on the budget, by forcing a series of votes in the Commons on controversial tax measures.
Speaking during a visit to a job support service in Stratford, east London, Mr Miliband said: "What we're seeing is a Government that is cutting taxes for millionaires through the Budget, and at the same time raising taxes on charities, pensioners and working families. I think that's the wrong thing to do.
"We've seen total incompetence from the Government. Four weeks after the Budget, they're ripping up their proposals on charity taxation. That is not the way tax policy should be conducted.
"They were desperate to cover up the 50p tax cut by having a hasty and ill thought-through measure which was apparently trying to counter tax avoidance.
"Of course we should counter tax avoidance but we must make sure it is done in a competent and fair way. The Government has failed that test."
Chief Secretary to the Treasury Danny Alexander said there were "attractions" in the US system, which caps relief on donations to some charities at 50%.
This was one of the options reported today to be under consideration by the Chancellor. The Financial Times said Mr Osborne was also looking at the possibility of allowing donors to roll over unused tax reliefs to future years if they are used for gifts to good causes.
Mr Alexander was challenged in the Commons by Tory MP David Ruffley, a member of the Treasury Select Committee, who said many charities estimate the cap could cost them 20% of their donations.
The Bury St Edmunds MP urged him to consider exempting donations to UK charities from the cap as a "comparatively inexpensive" yet "terribly important" step.
Mr Alexander responded: "We are going to talk to philanthropists and charities about this, those discussions are going on.
"There may be attractions to some of the features, for example, of the American system in this area which we will certainly examine and consider in the process of that.
"But I think the basic principle, that the wealthiest in the land should pay a fair proportion of their income in income tax, must be absolutely right."
A No 10 spokeswoman said the changes set out in the Budget Red Book, which are due to be implemented through the 2013 Finance Bill, remain Government policy.
"What is in the Red Book is Government policy. It is set out," she said.
"But there is a process in terms of how it might be implemented. That is the conversation we are now going to have with charities.
"We have yet to discuss how it will be implemented. There are various options on the table and we are going to discuss them. We have set out the broad policy and now we want to see how we are going to implement it."
Labour will seek to force a vote on what it terms the "charity tax" in the Commons on Wednesday, said shadow chief secretary Rachel Reeves.
Ms Reeves said: "The Government is in a complete mess over tax relief on charitable donations. The truth is, at a time when the average family is taking a £511-a-year hit as a result of the Government's policies, they have given the 300,000 wealthiest taxpayers in the country a £3 billion tax cut.
"A rushed-out cap on reliefs which will raise just £300 million, whilst hitting charities which help the most vulnerable, won't cover that up.
"Even this sham of a change is now unravelling as the Government is being forced to U-turn in the face of a predictable outcry from charities, for whom this change came completely out of the blue."
She added: "If the Government wanted to tackle avoidance, they could have worked with the Charity Commission and had a proper consultation with charities and philanthropists. It is clear that this wasn't a change made out of principle, this was a cobbled-together figleaf for a tax cut for millionaires and talk of consultation now is simply cover for a climbdown.
"That is why we will seek a vote to block these changes until the Government has done the work necessary to demonstrate they are being made in a way which will not hit charities and which will genuinely tackle avoidance.
"George Osborne has already failed on jobs and growth and getting the deficit down. The chaos and uncertainty created will already have hurt charities and will raise more serious questions about his competence."
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