Whether it was the “Granny Tax”, the “Pasty Tax” or the tax on caravans, the Westminster Government certainly went out of its way to antagonise a fair amount of the population with its budget. Last week the Finance Bill was passed and all of these unpopular measures will soon come into force.
Meanwhile, millionaires will benefit from the reduction of the top rate of income tax from 50p to 45p and charities will be hit by curtailing tax relief on charitable giving.
In my 11 years in the House of Commons I don’t think I have seen a Westminster budget unravel so quickly. The Chancellor had barely sat down when major questions were being asked about the direction of travel of this budget and the impact that his measures will have on the vast majority of the population of the UK.
Already it looks like the Government are paying for this unpopular budget and are experiencing depressed opinion polling, and the crunching sound of the reverse gear being engaged is now filling the airwaves.
Nowhere is this more clearly demonstrated than in the reform of tax relief on charitable giving. The Government at first seemed to have decided that this tax relief is no more than a means for philanthropists to avoid paying tax. They intended to cap the amount of tax relief an individual can claim in any year to a quarter of their income or £50,000, whichever is higher. This includes tax relief on charitable donations. Currently, higher-rate taxpayers donating to a charity can reclaim more than half of the income tax they paid on the money.
Charities responded furiously to this proposal claiming the move will deter philanthropists and will cost them millions of pounds. In Scotland, the Scottish Council for Voluntary Organisations estimated that voluntary grants and donations make up 10.7% of Scotland’s voluntary sector income, equivalent to £470m in 2010. There was even an admission by the Government that this will indeed have an impact on charities income.
In all of the furor it became clear that something had to be done. The Government now says that they will consult on the issue and there is talk of a compromise on the cap. But charities want the whole plan dropped now and insist that the indecision is already impacting on donations.
Whatever happens the Government have got themselves into a real mess and it’s sometimes best when you’re in that hole to just stop digging.