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Dec

Gift Aid: the spirit of Christmas PUBLISHED IN VAT

The Fanning report from the gift aid consultation, and even the government's response of partial acceptance of its recommendations, contain many worthy promises of change and improvement, and it seems akin to crying "Humbug!" to disagree with any of it, but unfortunately I feel more inclined in that direction than to sing a verse of “Hark the Herald”.

There are pages and pages of worthy detail, but two aspects stick with me as representing dubious propositions.

The first is a strong characterisation of the debate being about whether gift aid has been any kind of success rather than whether it is capable of significant improvement. Its author feels that the press has condemned gift aid as a failure. Perhaps some such reports have been made but unless there is statistical evidence that this has damaged the public’s willingness to give that seems pretty irrelevant. Jumping from that to rhetoric of "it ain't broke so don't fix it" (which I feel the report comes too close to saying) seems to miss the point that competently handled programmes of reform are usually incremental or evolutionary. I feel that the evolution process in this particular case has been curtailed from what it might have been by fear of appearing to condemn the status quo too severely.
 
The second relates to the old 'public expenditure v tax reduction' hot potato. Fanning sets his face firmly against anything that is deemed an increase in public expenditure. All reform must be classified as a reduction to taxation if it is to be accepted. No doubt this is politically wise. And the basis of such a notion is, at first consideration, sensible. The idea is that increasing taxation and expenditure simply shifts the power of deciding on the use of money from citizen to State, which is usually unwelcome per se. But this point only makes sense where that is the precise effect. If it resolves simply into a case of classification for the sake of classification the point loses its importance. This, in my view, is the problem with the analysis here.
 
For example, one of declared downsides of applying a single blended rate of gift aid, to reflect proportions of higher rate tax payers to basic rate, to non-taxpayers, and abolishing the higher rate relief, is that it turns gift aid into public spending, not a tax rebate. Why? Because each matching payment against each donation is not exactly the same as the tax paid by the donor within that donation. This creates a specious distinction. There is nothing in this that passes money from the citizen's effective control to the decision making control of the State. The State still directs its payment in accordance and in proportion with a decision made by the citizen. Additionally, if the blended rate value is accurately appraised, the payments to charities in aggregate will match the tax payments of the donors in aggregate.
 
Of course there is indeed a very reasonable but different objection. This is that charities which can attract donations from higher rate taxpayers are able to use the higher rate relief advantage to persuade its donors to increase donations at no extra cost. This increases such a charity's receipts. A blended gift aid rate will reduce its income and increase that of the charities whose donors are more confined to basic rate tax payers and non-taxpayers. There will be charities that lose and charities that, arbitrarily, win. The impact of this on family foundations will be significant and could disincentivise philanthropy from the wealthy. Whether you believe this to be likely, or whether you prefer an equal rebate notwithstanding, is down to you. But it is important to see the issue for what it is. The report describes this effect as allowing the State to decide to which charities people should donate. But, plainly, the State exercises no such decision. It will always send the money where the donor's behaviour indicates. The only thing the State decides on is the blended rate, which should be objectively based on taxation yields.   In such circumstances a manufactured distinction between public spending and tax reduction is not a valid reason.
 
 
Finally, one of the recommendations of the report is to disband the gift aid forum. No doubt there will be other mechanisms in the future for keeping the position under review, but it seems an inward looking point to make as a specific recommendation concerning reforming a taxation based process. It reminded me too much of Cromwell dissolving the Rump Parliament: "You have sat here too long for any good you do".
 
It is a Cromwellian impression of the Christmas spirit that this report leaves with me. 
 
The views expressed here are my own and not those of haysmacintyre
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