John Studzinski: Hitting charitable giving is a poor way to get tough on the rich

By limiting charitable giving the Government is getting tough on the very recipients of that charity

John Studzinski
Thursday 29 March 2012 22:25

Tax breaks can provide a major incentive when a philanthropist is considering making a substantial donation. But from April next year, once they have benefited from an initial £50,000 of tax relief, they will only receive further tax relief on 25 per cent of their income. The move stands to discourage many philanthropists from giving away more than £200,000 a year. The result will be a squeeze on charities' fundraising potential.

Ironically, in last year's Budget, Mr Osborne committed to reforming the gift aid tax relief scheme by reducing bureaucracy to encourage charitable giving. This was an unnerving moment for charities, and within days, several bodies representing them wrote to the Chancellor, stating: "There is a clear danger that this measure could have the unintended consequence of disincentivising the donation of large gifts to charity. Any reduction in giving could be devastating for the many vulnerable people who rely upon our services."

According to research by the Charities Aid Foundation and the National Council for Voluntary Organisations, in 2010-11 £11bn was given to charity in the UK by individuals. Meanwhile, a University of Kent report concluded that, in 2009-10, 174 charitable donations of £1m or more were made in the UK and 80 of these were made by individual donors, contributing 60 per cent of a total value of £1.3bn.

As someone very much involved in charitable activities – and as someone who grew up in the US, the land of the philanthropist's tax break – I am deeply disturbed by the Budget proposals. The UK has a long and laudable tradition of helping the poor and disenfranchised. With his vision of the Big Society, David Cameron is supposedly sustaining that tradition, emphasising outreach and giving; but now, with this apparent volte-face on tax relief, he has destabilised philanthropists and charities.

In the US, a society with much less of a governmental safety net for the disadvantaged, philanthropy has been consistently promoted for many years through tax incentives. Here, the Coalition has vacillated in this crucial area. Is it now aiming to make a political point by supposedly targeting (and milking) the richest people in society? If so, discouraging charitable giving is not the way to go about it.

I believe there are four main types of philanthropist. At the heart of the community is the Passionate Philanthropist, who gives on a consistent basis to a particular cause or causes and acts as a kind of ambassador of philanthropy. A tax-relievable sum representing 25 per cent of this person's income will still be substantial and well worth any charity's attention. The New Philanthropist is the successful entrepreneur wanting to make a mark on society by setting up a foundation or a charity, and who deserves to be encouraged. Then there is the Year-End Tax Planner, who might well have spent time in the US, and believes in doing some good while managing their personal taxes astutely. Finally, the Aspirational Donor likes to network and wants to be seen as a do-gooder.

The future of philanthropy will always lie with the Passionate and New Philanthropists; they have made a commitment to giving. But with the Exchequer giving unclear signals, I feel less certain that the other species of philanthropist will keep giving generously unless there are other reasons, beyond altruism, for giving.

The Government must remain aware of the need to sustain a working relationship with the many charities now providing services which, when Britain was run explicitly as a welfare state, were funded directly by the taxpayer. By limiting tax relief for philanthropists, the Government wants to look as if it is tough on the rich – perhaps to court future votes. But by limiting charitable giving it is getting tough on a much larger body of people: the very recipients of that charity. More than that, it is stunting philanthropic learning and failing to endorse individuals who, whatever their motivation, feel their money could benefit society.

Now is not the time for the Chancellor to be making crafty moves in this area. There is a need for clarity, for faith in the generosity of at least a proportion of the affluent population, and for an understanding of the real importance of philanthropy in our economy and our society.

John Studzinski is senior managing director of the Blackstone Group, works with many charities and is founder and chairman of the Genesis Foundation. A version of this article appears in the current issue of 'The Tablet'

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