John Healey: I had not expected such a rich debate, but I certainly welcome it because it draws attention to
Column Number: 402the importance of the provision. In general terms, I am glad to say, there was support throughout the Committee for the principle if not the detail of the approach, and I welcome and pay tribute to that.
I shall take the points that have been made in order, and then deal with new clauses 12 and 14. My hon. Friend the Member for Wimbledon, who is a veteran of Finance Bills, brought his experience to bear. I welcome his support for our proposed development of gift aid. He spoke in parables and in practical terms about the experience and importance of charitable giving, not just because it benefits charities but because it is an important act of citizenship. That was a telling point. He asked me to confirm that the matters he raised would be subject to continuous review; I can do so. He also asked whether he could discuss the issue further with officials from the Treasury and the Revenue, and I confirm that I would be delighted to ensure that that happens. I shall ask the appropriate officials to contact him to proceed with those discussions.
The hon. Member for Kingston and Surbiton raised several points, which I shall deal with and then return to his general proposition. First, he said that 10 per cent. of taxpayers do not qualify for gift aid. They do qualify, on the condition that the donor pays enough tax to cover the tax reclaimed by the charity. It does not matter what rate the tax is paid at. Despite his general warm words and support for gift aid, the hon. Gentleman took the scheme to task for its alleged complexity. The Inland Revenue is doing a great deal to help charities understand the tax system and the benefits that it can bring to their income streams. The Giving Campaign is heavily funded and strongly supported by the Government; it runs a series of well-received workshops. The Inland Revenue also works with charities to ensure that they properly understand the range of reliefs that may be available to them and potential donors. I have material from the Giving Campaign, which I would be delighted to give the hon. Gentleman after the Committee.
The hon. Gentleman was also concerned about recovery from poor widows. In practice, where the Inland Revenue finds that a non-taxpayer's donation has been included in a gift aid claim from a charity, it invites the charity to make good the shortfall rather than pursuing the individual taxpayer. The hon. Gentleman cited the opinions of the low income tax group. We will continue to look at the evidence that it produces, to keep the impact of our measures under scrutiny and to keep our provisions under constant review.
The questions asked by the right hon. Member for Fylde covered two areas: concern for taxpayers who may one year be basic taxpayers but subsequently become higher rate taxpayers and, as an extension of that, taxpayers whose earnings are somewhat erratic year on year. I reassure him that the carry-back provision that we are discussing is available to all taxpayers; the self-assessment return is simply a convenient mechanism for claiming it. The Government and the Inland Revenue will make
Column Number: 403available alternative routes to those who do not receive self-assessment returns.
The hon. Member for Fareham (Mr. Hoban) spoke in support of new clause 12, so perhaps he will allow me to deal with that. As the hon. Member for Arundel and South Downs explained, new clause 12 seeks to allow individuals to obtain higher rate relief on gift aid payments and relief on gifts of shares or real property to charity in later tax years if they cannot get the maximum relief in the year in which they make their payments or gift. Such a provision could lead to complications for donors. The hon. Gentleman may be a sophisticated tax player himself, but we should bear in mind the words of my hon. Friend the Member for Wimbledon when he urged us not to put people off making donations. New clause 12 would introduce complications in establishing tax liability from year to year, as additional relief for new donations augmented unused relief from earlier years. As a result of those complications, we may fall into the trap that my hon. Friend warned us against. It would be an unnecessary burden for the large numbers of gift aid donors who are not liable at higher rates. They would have to calculate the amount of unused relief every year, even though they might never be in a position to make the higher rate tax-paying band and use the accumulated relief that they were gathering. They would almost certainly have to make annual tax returns to the Inland Revenue, whereas at the moment they do not have to do so.
The present reliefs for gifts to charity are generous, as one or two Members acknowledged. Individuals can eliminate their entire higher rate liability through cash donations under gift aid or their entire income tax liability for the year with a gift of shares or real property. There is no evidence that the lack of a carry-forward facility, of the type put forward in new clause 12, is inhibiting the success of gift aid. In fact, the amount of tax repaid to charities by the Inland Revenue under gift aid is increasing year on year.
New clause 12 would also allow unused relief for gifts of shares or real property to be set against capital gains tax liability for the year. Such gifts have already enjoyed full relief from capital gains tax on the gift itself. We see no reason to allow further relief against capital gains liability on unconnected disposals.
On new clause 14, under the current gift aid provisions donations are treated as having been made after the deduction of income tax at basic rate. The charity is exempt from tax on that income and is therefore entitled to claim the basic rate tax from the Inland Revenue. If the donor has not paid sufficient income or capital gains tax to cover the amount of basic rate tax that the charity has reclaimed, the donor is liable to be assessed on the shortfall, although I explained how the Inland Revenue deals in practice with the problem of the poor widow, which the hon. Member for Kingston and Surbiton mentioned earlier. The changes proposed by the clause would allow only that shortfall to be assessed where it amounted to more than £520 in any year of assessment. That would mean that someone who had paid no tax in a year
Column Number: 404could make donations of over £1,800 per year under gift aid. The charity would still be able to reclaim the equivalent of basic rate tax on the grossed up value of the donations. However, we must consider a consequence of that. The amounts that the charity reclaimed would not be tax repaid, but would in effect be a grant from the Exchequer, although the hon. Member for Kingston and Surbiton tried to refer to them as a tax subsidy.
Gift aid is only one of the ways in which the Government support the charity sector. Another important form of support is targeted grants or subsidies for particular sectors. Changing gift aid to a grant scheme would lose its focus and mean that Government would have to revisit other spending priorities within the sector. There is no good reason to extend gift aid further through the new clause.
Mr. Davey: Could the Minister undertake to do some work in his Department on the administrative costs to the Inland Revenue that would result from the auditing of charities under the provisions? If the cost is significant, might not turning gift aid into a partial grant scheme actually save the Government money?
John Healey: The Government and the Revenue in particular work constantly on such costs. That work is going on. As I said, present reliefs in the system provide significant incentives for giving to charity. We are not persuaded that the potential additional incentive of a carry-forward facility is needed, or that the extension of gift aid to allow non-taxpayers to make donations is required. On that basis, I invite the Committee to reject both new clauses if they are not withdrawn.
Mr. Flight: I was not convinced by the Minister's response to new clause 12. Adding land has become more relevant. Where gift aid is in equated shares, it would be veritably straightforward to work out how much to give year by year in order to obtain the full income tax deductions. Land and property can be broken down into different parcels, but it is much more legally complex to do so. Clearly, people are not going to give in any one year more than they will receive from income tax offset. Not allowing a carry forward—always less generous than a carry back—will inhibit people who are asset rich but not so rich in income from giving more valuable blocks at one time.
I encountered a specific case of someone who wanted to donate to the London Business School the premises where a venture capital laboratory operated. Both needed the incentive to give property and the carry forward because of the size and value of the gift. If the Government do not address the point in some other way, they will not meet their own objectives. At the end of the day, if nothing is done, people who are asset rich but not so rich in income will not give as much as they would if, as in the States, they could use in one way or the other a full income tax offset.
Mr. Davey: I was pleased with much of the Minister's reply, particularly the fact that he is open to considering the matter again in future. When he does examine it in more detail, he may well find that the amount of money given by non-taxpayers will be small. Despite the issue of this turning into a partial
Column Number: 405tax subsidy, the amounts are absolutely tiny. If the Government were really worried, they could try to limit the provisions either as I propose in new clause 14 or in a slightly lesser way. That might prevent the danger of an explosion in Exchequer costs.
I am grateful for the Minister's response. I hope that the work will be carried out so that we can deal with a future Finance Bill in a way that meets all the
Column Number: 406Treasury's concerns while also meeting those of many hon. Members on both sides of the Committee.
Question put and agreed to.
Clause 97 ordered to stand part of the Bill.
Further consideration adjourned.—[Angela Smith.]
Adjourned accordingly at fourteen minutes past Five o'clock till Tuesday 18 June at half-past Ten o'clock.
The following Members attended the Committee:
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