Leading medical research institute joins outcry at Osborne's charity tax crackdown

Risk of £100m shortfall in Budget piles pressure on Chancellor to revisit controversial decision

Lord Harris: The peer, who is a Tory donor, has set up a foundation which funds 15 academy schools (Andy Paradise/The Independent)

The country's premier medical research institute – supposed to be funded jointly by the Government and private charities – could be the most high-profile casualty of moves by George Osborne to limit tax relief on large donations by philanthropists.

The £650m Francis Crick Institute in London, which is scheduled to open in 2015, could find itself £100m short of the funds needed to finish building what will become Britain's biggest medical research centre.

The threat to the prestigious scheme emerged as anger continued to grow across all parts of the charitable sector over the Chancellor's surprise move.

Ominously for the Government, a major Tory donor who has also given tens of millions to charity, Lord Harris of Peckham, warned that the move would threaten work to improve failing schools. Universities and charities have protested that the Chancellor's proposal would undermine efforts to develop top-quality research sites in Britain.

The Francis Crick Institute, which is being built next to the British Library in London, will be one of Europe's leading biomedical research centres. Its scientists will investigate new treatments for a range of debilitating diseases, from cancer and cardiovascular disease to malaria and tuberculosis. It will employ 1,250 scientists split into 120 teams of researchers led by Sir Paul Nurse, a Nobel prize-winner and the current President of the Royal Society, who will become the institute's first director.

Cancer Research UK, one of the institute's six founding partners, said the proposed changes to the tax rules had now jeopardised its fund-raising plans.

A spokeswoman said it was running a campaign to raise £100m towards the project over the next four years while the construction takes place. She added: "We are the only partner fund-raising philanthropically for the project."

Harpal Kumar, the charity's chief executive, said: "Cancer Research UK receives no government funding for its scientific research and is completely reliant on the generosity of the public. People who donate substantial gifts to charity are likely to be deterred by this new measure. [It] is completely at odds with the Government's commitment to nurture a culture of philanthropy."

Britain's leading universities said they are also concerned about the tax changes because they are likely to affect whether some wealthy donors continue to fund new university buildings and bursaries, such as the £82m donated to Cambridge University by Lord Sainsbury for a new laboratory and the student bursaries funded by the wealthy businessman Naim Dangoor.

Wendy Piatt, director general of the Russell Group, said: "Our institutions are increasingly reliant on charitable giving as we strive to remain world-class. Anything that could reduce philanthropic donations would be of huge concern to us."

Four ministers – Vince Cable, the Business Secretary, David Willetts, the Universities minister, Jeremy Hunt, the Culture Secretary, and Ed Vaizey, the Arts minister – are understood to be anxious about the proposal's impact.

Michael Gove, the Education Secretary, could join their number following an attack on the measure by Lord Harris, who has set up a foundation supporting 15 academies.

The peer, who is a friend of David Cameron and bankrolled his leadership campaign, said: "If we give a school £100,000, they will now only get £80,000 – so they will lose a fifth.

"Schools run on very tight budgets. When you take over a failing school you have to put more teachers in there to make it work; you have to do a lot more maintenance. Of course it's going to affect them. I don't know why they have done it because it will cost the taxpayer a lot of money to get the same thing."

Mr Cameron has promised to look "sympathetically" at charities' complaints as the Government attempts to calm the furore over the move. But Downing Street faced fresh embarrassment last night over a spokesman's claim this week that some charities "don't do a great amount of charitable work".

The Charity Commission acknowledged that it had had "no relevant cases" of potential wrongdoing brought to its attention in recent weeks by HM Revenue and Customs.

Q&A: How the charity tax will affect giving

Q What is the proposal?

A To cap on all income tax reliefs at £50,000 or 25 per cent of income (whichever is greater). This includes tax breaks for charitable giving as well as other tax breaks, such as those for business losses and loan interest payments.

Q What kinds of donations will this affect?

A Not the average person who wants to give to charity. Someone earning £2m a year could still give £500,000 a year to charity tax free.

Q It affects a relatively small number of people then?

A Yes, to the extent that the millions of people who give smaller amounts to charities won't notice any difference. But roughly half of all charitable donations come from just 7 per cent of donors, and these are the people most likely to be hit. Also, many rich donors who have large assets (such as investments or property) rather than big pay packets currently give a lot more than 25 per cent of their income to charity.

Q What will the impact be on charities?

A Charities say it will be significant but at this stage it is hard to be sure. It could be that charities and individuals will find ways round the new rules – and the Treasury has already hinted that it will try to avoid penalising individuals who give large amounts for genuinely philanthropic reasons.

Q Was it necessary to include charities in the cap to crack down on tax avoidance though?

A The Treasury appears unable to explain exactly how the tax avoidance schemes cited by David Cameron this week would work. One example they gave would have been illegal, another would have resulted in the individual losing all the money which they had donated and the third would have been against charity rules. In addition, in order for a recipient to benefit from avoiding tax, they would somehow have to get their money back from the charity they had donated to – or get a benefit in kind. But no one can explain how this would work.

Cate Blanchett: 'It's about more than donating money'

The actress Cate Blanchett waded into the charity-tax row yesterday, warning that arts funding could suffer in the absence of a "culture of philanthropy".

Blanchett said the Government should instead be creating "an atmosphere of excitement" around philanthropists. "I think it's really important when it's increasingly hard to be seen to be justified giving money to the arts that a culture of philanthropy is really encouraged," Blanchett told BBC Radio 4.

She said a culture of giving could "ground" a work in society. The Government plans to cap tax relief on charitable donations at 25 per cent of the individual's income, or £50,000 a year. Referring to the proposals, Blanchett said: "I don't think it's just about the money. I think it's about creating an atmosphere of excitement around people who are connected to the work financially."

Earlier this week, the National Theatre's artistic director, Sir Nicholas Hytner, said the Treasury's plans were threatening £40m of gifts already committed to the theatre.