David Cameron's 'Big Society' Faces the Taxman

Coalition government almost invariably makes for bad government. This is because the need for compromise between coalition partners typically results in their adopting such a melange of mutually conflicting policies as precludes any of the more potentially beneficial ones from ever being able to achieve fruition.

Britain’s current coalition between David Cameron’s Conservatives and Nick Clegg’s Liberal Democrats is a case in point.

Essentially, at heart, the Conservatives remain a business-friendly party, favouring small government, low taxes and strong local communities. By contrast, their coalition partners the Liberal Democrats, formed themselves by a merger between a  breakaway group of former Labour MPs and the erstwhile Liberal Party, in many ways are now more interventionist and for the redistribution of wealth through fiscal policies than is the present Labour Party.

We might, therefore, have known two summers ago, when at a hastily convened press conference held in the Rose Garden at 10 Downing Street Nick Clegg stood alongside David Cameron to announce their decision to enter into coalition, that some pretty rum policy decisions were on their way.

The latest of these decisions was announced by Chancellor of the Exchequer George Osborne in his House of Commons budget speech last month. As part of a wider clamp-down on tax avoidance by the rich, he declared he was proposing to cap tax relief on charitable donations. From next year on, philanthropists in the UK will have to pay tax on any annual charitable donations they make above £50,000 or 20 per cent of annual income, whichever figure was higher.

The ostensible purpose of the tax reform is to prevent fraud, since a small minority of high rollers have been known to avoid tax by making large donations to bogus charities that they set up which then find ways to return these untaxed gifts to their donors.

Word in Westminster is that the real reason for the proposed cap on tax-free giving has less to do with any wish on the part of the Conservatives to beat tax evasion by the rich than it has with satisfying the long-held aspiration of the Lib-Dems to beat the rich themselves, by subjecting them to much higher levels of taxation. According to a report in the current issue of the Sunday Times:

Frustrated Conservative MPs… say that when Nick Clegg and  [Chief  Secretary to the Treasury] Danny Alexander failed to get a mansion tax included in the budget, the Lib Dem duo demanded other measures to clamp down on rich tax avoiders. Whitehall sources suggest that a back-of-the-envelope exercise to cut tax relief for the super-rich was cobbled together late in the day.

One thing is more than mere press-lobby speculation. Unless speedily withdrawn, the Chancellor’s proposed cap on tax-relief for charitable giving is bound to inflict irreparable damage on Britain’s innumerably many genuine charities. In doing so, the tax measure would also be driving a horse and coaches through one of David Cameron’s most cherished ambitions. This is to transform Britain into what he calls a Big Society. By this expression, he means a society in which voluntary groups and organisations, like charities and churches, increasingly take over useful functions from the State that, until now, it has been steadily arrogating to itself, not least by appropriating in taxes the funding needed to accomplish them.

As one of the chief architects of the idea of the Big Society put it back in September 2010, long before the Conservatives made their current U-turn on charitable giving:

Giving is… the foundation of relationships and… a fundamental principle of the good  life. We [now] have a Government that recognises this. Few would have predicted the prominence given to the Big Society before the election. Now it is a realisable reality, and the debate has moved on from whether the Government believes that civil society should be at the front and centre of a new social and economic settlement, to understanding how that very transformation can take place… In a democratic and free society, the state must encourage other powers besides itself. And crucial to this … [are] charities, one of the pillars of our civil society. [Phillip Blond, ‘Preface’ to Asheem Singh and Samuel Middleton, Digital Giving, London: ResPublica, 2010)]

How those words must today be haunting their author Phillip Blond, Director of the think-tank ResPublica!

Nearly half of all charitable donations by individuals in the UK today comes from a mere 7 per cent of donors. It is most unlikely that they will continue to remain nearly as philanthropic after the Chancellor’s proposed cap on tax relief on their donations has made their cost to them so much more prohibitively expensive.

Commenting in the Daily Telegraph last week on the likely effects of the proposal, the Chief Executive of the UK’s Charities Aid Foundation said:

Philanthropists who make large donations give away far, far more than they could ever claim in tax relief. That money goes to fund projects for the public good, such as medical research and help for the most vulnerable in society… [A] blanket cap on tax relief will cost charities millions of pounds by making it more difficult for philanthropists to make major donations and undermine the idea of the Big Society which the Government is trying to promote. We should recognise and celebrate today’s great philanthropists, not brand them as wealthy tax dodgers.

There is little reason to doubt that, at heart, all the Conservative members of David Cameron’s coalition government agree, including George Osborne. However, the decision to introduce the cap seems to have been foisted on them by their Lib Dem coalition partners.

At the time of Britain’s last general election in May 2010, it seemed that, by its result, which gave no single party an overall majority, the British voting public had indicated its reluctance to entrust their government to any single party. Rather than form a minority government, and then face a general election if brought down by a no-confidence vote in the Commons, David Cameron as leader of the party with more seats than any other, opted instead to enter into coalition government. The chickens hatched by that fateful decision are now beginning to come home to roost.

Unless the Chancellor quickly withdraws his proposed cap on what can be given free of tax to charities, his party’s commitment to turn Britain, from a country languishing under the pall of over-large government into a thriving Big Society, will lie in tatters.

Among the many philanthropists to have expressed strong public criticism of the Chancellor’s proposed cap is Scottish billionaire Sir Tom Hunter, knighted in 2005 for his services to entrepreneurship and philanthropy in Scotland. Urging the Chancellor in this week’s Sunday Times to reconsider his decision, he offers some timely advice to him by quoting a piece of practical wisdom from an earlier great Scottish-American businessman and philanthropist, Andrew Carnegie which runs:

He that cannot reason is a fool. He that will not is a bigot. He that dare not is a slave.

Should the Chancellor fail to withdraw his ill-judged tax proposal, then future audiences at the last night of the annual promenade concerts at London’s Albert Hall would be fully justified in adapting the lyrics of the old patriotic hymn Rule Brittania with whose customary vigorous rendition of which they each year bring the annual cycle of concerts to an end, so that henceforth what they sing is:

Ruled Britannia, Brittania’s ruled by slave

Thus ruled, from a big State, Britons never shall be saved