Do charities have a right to Gift Aid?

By Lucy Heady 16 December 2009

Is tax relief on charitable giving a entitlement? Or is it something charities should have to earn? It’s a tough question and one I have been mulling over since it was raised at a seminar I went to yesterday at the Institute for Fiscal Studies.

The seminar was presenting the research of Kim Scharf and Sarah Smith into how changing Gift Aid tax relief would impact on donations. Kim and Sarah based their research on surveys of Charities Aid Foundation and JustGiving clients and interviews conducted by our very own NPCers.

One of the most surprising findings was that higher-rate taxpayers are not very sensitive to the amount of money that the government gave alongside their own donation (although the sensitivity did increase with donation size). What surprised me more though, was how many of those in the audience spoke of Gift Aid as if it as if it were an inalienable right of the charitable sector, that more government subsidy of charities based on individual donations was automatically a good thing. This seems far from obvious to me. It is, after all, taxpayers’ money.

Back in 1863 Gladstone proposed to repeal the income tax exemption in favour of charities, on the grounds that the exemption amounted to a grant of public money without public control, and a large number of charities were not beneficial to the community. I can’t help but think that Gladstone had a point. At a time when the government is strapped for cash it could be argued that the government needs all the money it can get to reduce the national debt or reduce unemployment.

On the other hand you could argue that many charities do excellent work tackling just those social problems that increase during a recession. For example, the Samaritans offering counselling to those in distress or Quaker Social Action helping families in poverty.

Professor Mirrlees (winner of the 1996 Nobel Prize in Economics) was sitting on the panel at yesterday’s seminar argued something similar. If a number of people are giving to a charity with the intention of improving lives then giving taxpayers’ money to those charities should improve lives too. But, as Mirrlees pointed out (and as NPC bangs on about all the time), people don’t give purely based on the good a charity does. They give out of guilt or esteem or habit or a million other reasons.

So, is the logical conclusion of all this that only charities that can demonstrate their impact should receive gift aid? I’m still confused, let me know what you think. Do you think charities have a right to Gift Aid or should they be forced to be accountable for all taxpayers’ money they receive?