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By Ruchir Shah

This is a very tax neutral Budget. What it gives with one hand it takes with the other. But it is certainly not tax redistributive, as increases for lower- and middle-income groups appear to come from other lower- and middle-income groups.

It is not clear if the richest will really be forced take their share of austerity. In the absence of redistributive tax measures, encouraging philanthropy becomes even more important.

From a charity perspective, the new 25 per cent cap on income tax relief is not good news. It means less tax efficiency which partly motivates wealthier people to give to charities. Much has been made about the impact this will have on philanthropic behaviour, but you can look at it another way: unless charity giving is excluded from this cap, the government will effectively be taking a slice of the largest donations to charities for the Treasury.

Most of the specific tax measures for charities are simply tweaks to existing tax concessions ? a tidying-up job. For example, red tape for charity shops and community sports clubs will be streamlined, while VAT burdens will be eased for charities sharing costs and transporting goods for emergency relief.

The small donations scheme is more significant. It is designed to make it easier for charities fundraising through smaller collections to benefit from a Gift Aid-like return on donations under ?20. This is not really a tax measure but a funding scheme. Scotland could push for using this new allocation differently in future if the system doesn?t work. Could Scotland create a more open funding scheme to support smaller charities and community groups?

What is even more interesting for charities is what they didn?t get. Many of us were expecting significant announcements to improve payroll giving, an introduction of living legacies and a move to tackle the ?1 billion subsidy that charities give to the government through VAT lost on services. There has been a real missed opportunity here.

The other key announcement on Wednesday was that the Scotland Bill now has the backing of the SNP administration. The impact of this on Gift Aid for charities will now need to be reviewed in light of the cap on tax relief for the wealthy. Will Scotland have a say over how the cap interacts with the new tax powers? Will Scotland be even more radical in its approach to stamp duty land tax once the Bill comes into force? Will a Scottish approach be different?

Welfare reform remains the biggest concern for many charities. The Chancellor has made it clear that he will be seeking a further ?10bn in welfare cuts. This will hit some of the most vulnerable people and groups hard. Yet it remains a small contribution to the overall deficit of over ?100bn per year. Something tells me there will be even more pain in future budgets once the public nerve has been tested with this. Expect more anti-benefits rhetoric over the course of the year.

Another important issue for the third sector is making the tax system easier for people to use. There has been a lot of rhetoric on simplifying the benefits and tax system. Yet the Budget has been marked by more means testing and increasing complexity for personal tax. Taking the pensioner allowance changes as an example, is the approach to simplification here about making it easier for the tax office or for the taxpayer? The varying allowances for different pensioners will undoubtedly create confusion, as will the rules for child benefit tapers and eligibility for benefits that depend in take-home income. Expect calls to charity helplines to increase.

Most intriguingly, there has been a rumour that the move to regional variation of public sector salaries might in the future be extended to benefits. If this was to happen, then the case for devolution of welfare and benefits in Scotland would become virtually undeniable.

I was fascinated to hear an interview with a woman who was set to achieve a net gain from the tax proposals but was unhappy because of the net loss that would be suffered by her neighbours. It suggested a real sense of solidarity, something more akin to the real big society sentiment that David Cameron has found so elusive. This doesn?t fit neatly into the theory of self-interested individualism that now seems to drive the government?s approach to taxation.

This has been a very constrained Budget, but marked by a philosophy which sees the poor and vulnerable as a burden to the economy. From a charity perspective, the UK?s position as one of the most unequal countries in Europe seems secure.

? Ruchir Shah is policy manager with the Scottish Council for Voluntary Organisations.

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Filed under Economics ? Tagged with budget, Chancellor, charities, charity shops, child benefit, David Cameron, George Osborne, Gift Aid, income tax relief, living legacies, pensioners, philanthropy, Ruchir Shah, Scotland, Scotland Bill, SNP, tax redistribution, third sector, Treasury, VAT, welfare cuts, welfare reform

Source: http://biztech.caledonianmercury.com/2012/03/23/opinion-is-this-a-charitable-budget/

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