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Has Gift Aid reform come any closer?

Some experts on giving and philanthropy have been wary about the idea of redirecting to charities the tax rebate that can be claimed by higher-rate taxpayers on Gift Aided donations. Such a move might have unpredictable effects on giving by the rich, they warn Рespecially in a continuing recession with a new 50 per cent tax rate looming for those earning more than £150,000.

But the recent research by a group of academics for Her Majesty’s Revenue and Customs indicates that most higher-rate taxpayers would not be too fussed by the loss of the rebate. Only a third of them claim the rebate, it says, and another third are not aware that they are entitled to it. A third of those who do not reclaim say that’s because it takes too much time and effort.

“Given a choice,” the research concludes, “most higher-rate donors would appear to prefer a system that channelled all higher rate relief to charities over the current system….A key theme from the qualitative interviews was that changing the system would make little difference to major donors.”

The research examines not only diverting higher-rate relief to charities, but also the idea of establishing a new composite rate that would allow charities to receive a fixed proportion of donations by both standard and higher-rate taxpayers. At a rate of 30p per £1 donated, the researchers reckon that giving might fall a fraction, the total received by charities (including the tax relief) would rise by 2.4 per cent, and there would be a 4.3 per cent cost saving to the Exchequer.

At a rate of 37p, there would be a slight rise in giving, a 10.3 per cent rise in the amount received by charities and a 21.5 per cent increase in the cost to the Exchequer.

No prizes, then† for guessing which of these the sector would prefer; nor, indeed, for predicting which the Government would go for – if, indeed, it went for anything. The research appears to settle many of the anxieties about the effect of changing the system on donors who are higher-rate taxpayers, but there is still no commitment by ministers to do anything more than look at Gift Aid reform. It has now researched one set of proposals, but there has been no such examination yet of another strongly-supported proposal: replacing an opt-in system with an opt-out one.

The best that can be said is that we are now a bit better informed. Whether that brings us closer to a commitment from politicians is debateable. The campaign by the sector is far from over.

  • cathy pharoah

    The sector would need to be very sure of its ground in supporting a major change to the current system of Gift Aid. The results of this research fall short of providing that firm ground, particularly in relation to major and tax-reclaiming donors – there is clear evidence that the gross value of gifts from tax-reclaiming donors could actually fall under the composite rate option. It would be a brave business which risked its relationships with its highest-value customers. Charities’ responses to the Gift Aid options put forward in the research may polarise around whether they depend most heavily on major donors or on a high volume of lower value donors – which means that the search for a ‘one-size fits all’ approach to Gift Aid change is like looking for the unicorn. So far, research has not tackled the issues of simplicity, accessibility and transaction costs in the current Gift Aid scheme – areas which loomed large in the government’s consultation with the sector on the Gift Aid scheme – the sector still needs to call for a thorough review of these. For a more detailed interpretation of the results see http://www.cgap.org.uk/uploads/CGAP Briefing Note.pdf