Richard Harrington MP: Avoiding tax through charitable donations denies money to institutions all of society benefits from

Richard Harrington is the Member of Parliament for Watford.

Tax avoidance has dominated the news in recent weeks and people are understandably outraged to read about the ways in which the wealthiest find ways in which not to contribute to the Exchequer. However, when avoidance comes under the umbrella of charitable donations, the mood changes and the general population would seem to support it. This raises the question, is tax avoidance acceptable as long as it’s for a good cause?

In my former role as Chairman of Fundraising for a large children’s charity, I was able to raise several millions of pounds for the cause.  In my experience, the overwhelming motive for donations was to help the charity rather than receive tax relief as a result. Britain has a strong tradition on philanthropic giving. Indeed, amongst developed nations, we are the third highest in the world, after the USA and Israel, in terms of the amount per head of GNP that we give to charitable organisations.

Interestingly enough, the countries with the biggest tax breaks are not necessarily those with the largest donations per head. For example, France gives amongst the lowest donations in Europe, but has some of the best tax breaks.

In the early 1980s, there were many methods of tax deduction available to shelter income from tax. For example, employees could pay as much as they liked into a pension fund. Whilst these measures were legal, successive governments have decided that caps on tax deductibility were needed to increase government revenue. I would argue that it is right that we continue with these steps, and the current deductions for charitable giving should be scrutinised and capped in the same way. Everyone knows that the public sector is short of money, and needs it for many socially beneficial purposes such as the NHS, education and social services. It is also important to note that many charities themselves are predominantly dependant on state funding, and much taxpayers money is funnelled through them.

The charitable sector is very worthy, but is it right that a small percentage of the population are able to choose to give a higher portion of their money to an organisation of their choice, no matter how many people it will affect, rather than giving it to the public benefit as a whole through taxation, as the vast majority do? Capping tax avoidance measures means that the government has more money to spend on the issues that affect everybody in the country, and this must be a priority for the government in difficult financial times.

Whatever tax deductions are allowed through charitable giving, I believe that there needs to be greater scrutiny over the establishment and suitability of charities, which is very broad at the moment. Anybody is able to set up a charity, quickly and with very little scrutiny. Once a charity has the registration number it can do almost anything it wants, employing the highest paid executives, or channelling funds to causes in countries which have minimal regulation, providing the general charitable purpose is maintained. These changes would also benefit the vast majority or organisations who do good work and operate in a proper framework.

I welcome this Government's consultation on this matter and believe there are many ways to encourage donors to give, whilst providing some sort of cap to protect the public purse. The different ways in which donations are made, and therefore taxed, need to be taken into consideration; for example there is a big difference in somebody receiving a windfall of £1 million in one year that is donated to charity, to somebody who does it every year on every penny that they earn.

The tradition of philanthropy in this country is something that we should all be proud of, and something that I ultimately don’t believe will change with the introduction of caps on tax deductions. Fundamentally any cap will mean more money for the Exchequer, more money for the NHS, education and social services that the whole country can benefit from, and more money that the government can give to the organisations which receive government funding.

Society and government must ask itself whether it is acceptable, under any circumstances, for people obeying the law and earning money - a lot of money - to say, for what might be a perfectly good reason, “I’m opting out of paying tax on my income” in this case because they are giving to charity? In opposing the government’s proposals, the Labour Party, and those in the Coalition who have used the press to criticise the proposals should ask themselves two questions:

Is it right that the wealthiest should have the choice whether or not to pay tax at all, for whatever reason?

Should some people decide to use their tax money to subsidise a cause dear to the individuals heart, but not necessarily one that other taxpayers believe to be worthy, at the expense of health, education and other essential services?