Budget welcomed as genuine boost to philanthropy but with calls for government to do more

By: 

Cheryl Chapman

Managing Editor, Philanthropy UK

A ‘radical’ philanthropy-boosting Budget has been warmly welcomed across the sector for its measures to encourage more giving, including reforms to Gift Aid, the retention and promotion of the Community Interest Tax Relief (CITR) scheme designed to encourage investment in disadvantaged areas, greater tax breaks for legacy givers, an increase in the amounts that can be spent on thanking donors and encouraging the gifts of works of art.

However, there was disappointment that the much vaunted lifetime legacies (Charitable Remainder Trusts) scheme that offers tax breaks for those making irrevocable pledges to will shares, cash or property to charity, was not adopted despite enthusiastic lobbying for its introduction.

Chancellor for the Exchequer George Osborne began his Budget announcement on measures to increase giving by “noting that a society should not just be judged by the strength of its economy, but also the compassion of its people,” before introducing “a series of substantial reforms that will support giving, from the largest donations to the coins collected in the charity bucket”.

These include:

• Simplification of Gift Aid administration for the benefit of smaller charities
• A digital platform for Gift Aid collection by 2013, a move that the Charities Aid Foundation (CAF) says could release an extra £750m for charities 
• An increase in Gift Aid benefit limits from £500 to £2,500 so that charities and museums can say “thank-you” properly
• A consultation in the coming year on how to encourage donations of pre-eminent works of art and historical objects to the nation in return for a tax deduction (acceptance in lieu)
• Continuation of the CITR scheme which had been under threat, and the promise of a consultation on how the scheme can be made more effective. 
• A 10% cut in inheritance tax for those leaving 10% or more of their estate to charity to encourage this level of giving as a norm
• Changes to the substantial donors rule (anti avoidance) to be introduced in the Finance Bill 2011 “to make the legislation clearer and better targeted”
• An exploration on how to increase the take up of Payroll Giving

Osborne said charities would benefit to the tune of £300m through the measures and they represented the “most radical and most generous reforms to charitable giving for more than 20 years”.

The independent Philanthropy Review group chaired by Thomas Hughes-Hallett, chief executive of Marie Curie Cancer Care, which has pushed hard on simplifying guidelines for Gift Aid on small cash donations, welcomed the measures but said it was “disappointed” at the very modest level of cash income to which it would apply.

Hughes-Hallett, said: “We are encouraged to see some measures in the Budget that represent the first step to building an even stronger culture of philanthropy in the UK.  But we strongly encourage government to see this as the first in a series of initiatives to stimulate giving to be rolled out over the life of Parliament.”

Alana Lowe-Petraske of Withers LLP said the most important of all measures in the philanthropy sector is the announcement on inheritance tax which aims to encourage people to leave at least 10% of their estate to charity. It will be set out in the Finance Bill 2012 and will be designed in a way to route the benefit to the charity rather than to beneficiaries of the estate.

“Some in the sector responded cynically to the Giving Green Paper's consultation on whether the government could or should try to establish cultural giving norms directly. As always, the devil will be in the detail, but this is a very exciting change for charitable giving and should prove to be an extremely welcome development for UK philanthropy.  At a minimum it signifies that the government is committed to growing the UK giving culture at high and low-value donation levels and is not just interested in endless consultations,” said Lowe-Petraske.

Commenting on the Budget, Sir Stuart Etherington, chief executive of the National Council for Voluntary Organisations (NCVO), said: “We are pleased by the proposal to incentivise philanthropy among wealthy donors; this echoes recommendations made by the Funding Commission report last year and will be a quick way of channelling funds into the sector and encouraging a step change in giving.”

CITR retained

Bernie Morgan, chief executive of Community Development Finance Association (cdfa), the umbrella body for CDFIs, said the Budget announcement on CITR “is brilliant news”.

Cdfa has led a campaign for the retention of CITR which gives investors who invest through accredited Community Development Finance Institutions (CDFIs), tax relief on the equivalent of 5% of the amount invested per year, for up to five years.

Morgan says: “It shows what a concerted lobbying campaign can achieve and speaking with one voice is the most powerful way to influence policy debate and development.”

She thanked members and stakeholders for their support of the campaign. “We look forward to working with them to ensure that CITR fully realises its potential.”

Charity Bank is the biggest user of the CITR scheme and has raised £53.3m in deposits for lending since 2003. The loans made by Charity Bank with CITR funds have unlocked a social return of, on average, six times the level of investment.

Charity Bank’s chief investment officer Geoff Burnand said: “The Budget did not hold a lot of surprises, but contrary to last year’s emergency budget, this one is focused on promoting growth as well as supporting communities and small businesses.

“We are delighted that the government is continuing with the CITR programme as it is the only widely applicable tax relief available to the social investment market for both corporation tax and income tax payers. The CITR scheme has encouraged investment in disadvantaged areas, which would have been unlikely to take place without it.  Investment can often be more effective for a growing enterprise than grants that may come with strings attached.

“The Budget has given credence to its Big Society message in helping support the voluntary sector by promoting giving and charitable donations.” 
 

Lifetime legacies

Lowe-Petraske of Withers LLP said she was “disappointed” not to see a consultation opened on lifetime legacies. “We renew our call for the government to look seriously at enabling this hugely popular US giving mechanism to be introduced in the UK in a tax-efficient manner in order to grow both the size and value of UK philanthropy.”

Sue Daniels of the European Association of Philanthropy and Giving (EAPG) said: “While lifetime legacies were not mentioned in this year’s Budget, as EAPG and others had hoped, EAPG will continue to lobby for it and other mechanisms that encourage giving during one’s life with our members and other organisations.

“Only time will tell if any of the measures announced will substantially increase the amount donated to charity and/or help to create a culture of giving within the UK,” Daniels added.

Theresa LLoyd, a trustee of EAPG and independent voice on philanthropy, also called on the government to look seriously at enabling "this very effective giving mechanism", which originated in the US, to be introduced in the UK "in a tax-efficient manner in order to grow both the size and value of UK philanthropy, especially in relation to endowments. I really think this could be the defining and transformational philanthropic legacy for this government – like the establishment of the Arts Council, the launching of the Open University or the launch of the National Lottery."

Giving to the Arts

Sir Vernon Ellis, philanthropist and chairman of ENO, said the Budget was “helpful to the arts, particularly the encouragement of legacies and the relaxation of the benefits rules. I know that the DCMS and others have lobbied hard for these. Of course I would like to see more, particularly to ease gifts from people who are asset rich and cash poor. Offsetting gifts of works of art against tax and charitable remainder trusts would both help,” he added.

Arts Council England welcomed the Budget announcements aimed at cultural philanthropy. Chief executive Alan Davey said: “The necessary change to the Gift Aid regime is something the Arts Council highlighted in our report on endowments in the arts, so I am delighted to see this reflected in the Budget. It will make a real difference to arts organisations, large and small. Anything that improves the ability of the arts to attract income from legacies is also welcome.

“We look forward to playing our part in the consultation on Acceptance in Lieu, and we hope this will be extended to other tax proposals to encourage planned giving in one’s lifetime.”

Arts & Business, which works to connect culture and commerce, welcomed the added incentive on inheritance tax and said: “Overall, the steps outlined in the Budget are undoubtedly steps in the right direction."

It welcomed the increase in the Gift Aid benefit limit to £2,500 and is “particularly pleased” to see the government commit to better guidance on what constitutes a benefit.

“Confusion in this area has caused problems for both cultural charities and their donors.”  It said it hopes that the definition of a "work of art" includes a writer’s archive and that there is due recognition that the most appropriate final home for a work of art might not be in an established  museum.

Lowe-Petraske, of Withers LLP, said of the increased Gift Aid benefit limit: “This is clearly aimed to help foster a culture of giving. Whether this will achieve an increase in giving by value remains to be seen, but the move is definitely in line with the government's focus on enabling charities and society to thank and honour donors.”

Lloyd said she hoped the announced consultation on Acceptance in Lieu would not 'reinvent the wheel' - "why not just dust down and review the very comprehensive and clear set of recommendations that the Goodison review set out?"