Can Osborne undo the damage done by the charity tax?

With two-thirds of coalition backbenchers opposing the plan, the Chancellor is considering concessio

When George Osborne announced a cap on tax relief in the Budget last month, the so-called “tycoon tax” was supposed to be a populist measure. Under the plans, previously uncapped tax reliefs – including those on charitable donations – would be capped at £50,000 or 25 per cent of income, if higher. Supposed to be a way of clamping down on legal methods of tax avoidance, it clearly it hasn’t quite worked out as hoped, with the government under a hail of criticism for limiting charitable giving.

It appears that the storm is far from over, with a ComRes poll finding that two-thirds (65 per cent) of government backbenchers believe that tax relief on charitable donations should be exempt from the cap. The survey, commissioned by the Charities Aid Foundation, found that 68 per cent of the Conservative and Liberal Democrat MPs surveyed believed that the government should review its proposal to cap tax relief on charitable donations. It also showed that 93 per cent of coalition backbenchers believed that the government "should do all it can to use the tax system to encourage charitable donations from wealthy donors".

So what next for the policy? The government is still scrambling to regain some political points, with the Treasury releasing figures that reveal the extent of tax avoidance among the super-rich. The figures show that almost a thousand UK taxpayers earning over £1m a year are paying less than 30 per cent of their income in tax, while 12 of the 200 taxpayers earning over £10m are paying less than 10 per cent in tax. The figures are supposed to show how the super-rich are using tax reliefs and legal schemes to reduce the amount of tax they pay.

The numbers are certainly shocking, but at this point, probably not enough for the government to regain control of the message. Indeed, the Financial Times reports that Osborne is considering changes to the proposals, although as yet he is resisting pressure to exempt donations from the cap completely. Two proposals are reportedly under consideration. The first is to create a separate limit on charitable donations of 50 per cent of a person’s income, which would allow charities to claim tens of millions extra in tax relief than the current plan. Such a move would cost £40m, hugely reducing the amount saved by capping charitable donations, to just £20m. The second is to allow donors to roll over any unused tax reliefs into future years if they are used for donations.

Hot on the heels of the furores over pasties, granny tax, jerry cans, and email surveillance, this is yet another example of poor communication and media strategy from the very top of the coalition. With several papers this morning calling for David Cameron to improve his team, this latest incident only serves to cement the impression of a government that acts before it thinks.

George Osborne is considering concessions to his planned cap on charitable donations. Photograph: Getty Images

Samira Shackle is a freelance journalist, who tweets @samirashackle. She was formerly a staff writer for the New Statesman.

Photo: Getty
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The Liberal Democrats are back - and the Tories should be worried

A Liberal revival could do Theresa May real damage in the south.

There's life in the Liberal Democrats yet. The Conservative majority in Witney has been slashed, with lawyer and nominative determinism case study Robert Courts elected, but with a much reduced majority.

It's down in both absolute terms, from 25,155 to 5,702, but it's never wise to worry too much about raw numbers in by-elections. The percentages tell us a lot more, and there's considerable cause for alarm in the Tory camp as far as they are concerned: the Conservative vote down from 60 per cent to 45 per cent.

(On a side note, I wouldn’t read much of anything into the fact that Labour slipped to third. It has never been a happy hunting ground for them and their vote was squeezed less by the Liberal Democrats than you’d perhaps expect.)

And what about those Liberal Democrats, eh? They've surged from fourth place to second, a 23.5 per cent increase in their vote, a 19.3 swing from Conservative to Liberal, the biggest towards that party in two decades.

One thing is clear: the "Liberal Democrat fightback" is not just a hashtag. The party has been doing particularly well in affluent Conservative areas that voted to stay in the European Union. (It's worth noting that one seat that very much fits that profile is Theresa May's own stomping ground of Maidenhead.)

It means that if, as looks likely, Zac Goldsmith triggers a by-election over Heathrow, the Liberal Democrats will consider themselves favourites if they can find a top-tier candidate with decent local connections. They also start with their by-election machine having done very well indeed out of what you might call its “open beta” in Witney. The county council elections next year, too, should be low hanging fruit for 

As Sam Coates reports in the Times this morning, there are growing calls from MPs and ministers that May should go to the country while the going's good, calls that will only be intensified by the going-over that the PM got in Brussels last night. And now, for marginal Conservatives in the south-west especially, it's just just the pressure points of the Brexit talks that should worry them - it's that with every day between now and the next election, the Liberal Democrats may have another day to get their feet back under the table.

This originally appeared in Morning Call, my daily guide to what's going on in politics and the papers. It's free, and you can subscribe here. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.