Growth plan benefits for wealthiest mean Philanthropy Champion ‘more important than ever’
- Wealthiest to benefit most from income tax and NI changes
- Top 1% of earners giving 21% less to charities, despite 10% income rise
- But Gift Aid transition period will save charity sector £90m a year
- Call for senior official in government dedicated to boosting philanthropy
The Chancellor’s new Growth Plan for the economy will disproportionately benefit the UK’s wealthiest and makes the need for a government ‘Philanthropy Champion’ greater than ever, according to a major commission.
The Law Family Commission on Civil Society, run by Pro Bono Economics, has reiterated its call for the appointment of a senior civil servant dedicated to boosting philanthropy in the UK in the wake of the Chancellor’s announcement.
Today’s measures come at a time in which average charity donations from the nation’s top 1% of earners – those with pre-tax personal incomes of £175,000-a-year or more – have declined significantly, despite soaring incomes in recent years.
Meanwhile, the UK’s charities are experiencing a second wave of financial challenges, as the current cost of living crisis strains budgets which have not yet recovered from the pandemic.
One in four charities experienced a dip in income of 40% or more during the pandemic, and rising inflation means people are expected to give less. Inflation is also stripping the value of donations – with the £5.7 billion of total donations made to charities in the first six months of 2022 estimated to be worth £500 million less by the end of the year.
Yet the highest earners benefit significantly from today’s measures – including the abolition of the 45% additional rate of tax for those earning £150,000 or more, the scrapping of the Health and Social Care Levy and the bankers’ bonus cap. With members of this group also likely to have built up savings during the pandemic lockdowns, they have the potential to be giving far more to charity than they are currently to help offset some of this decline.
Under the plans announced today, charities have been shielded temporarily from a hit to Gift Aid that would have resulted from the decision to cut the basic rate of income tax from 20% to 19% in 2023. As part of a transition period, Gift Aid will still be tied to a basic rate of 20% for the next five years. PBE estimates this will save the sector from missing out on roughly £90 million a year during that period.
However, the scrapping of the highest income tax bracket has not been given any Gift Aid protection, meaning there is a reduced incentive for higher earners to donate via Gift Aid. Currently, an individual earning over £150,000 would receive a tax rebate worth £312.50 for a donation worth £1,000. As of 2023, they will receive a rebate of just £250.
Last year, research for the Commission by PBE found that if every donor in the top 1% of earners, who donates below 1% of their income, raised their giving to that level, it could increase charity donations by £1.4 billion a year.
However, the research showed typical charity donations from the UK’s top earners dropped by 21% in real terms between 2011/12 and 2018/19, despite the typical annual income among this group rising by 10% over the same period.
While typical annual earnings in this group jumped from £247,000 to £271,000 over this period, the typical charitable donation declared on their tax returns fell from £680 a year to £538 a year, or £45 a month.
Earlier this year, the Commission, which is chaired by former Cabinet Secretary Lord Gus O’Donnell, called for the UK to follow the US example and appoint a senior civil servant dedicated to unlocking the full potential of charitable giving.
Currently, the UK government has only one-third of a single civil servant’s time dedicated to philanthropy policy, alongside a handful of civil servants responsible for relevant taxation. As a result, the government does not have the “coordination, resource and expertise” needed to make the most of philanthropy nationally, according to the Commission.
The Commission is calling for action to help close the “generosity gap” among the UK’s highest earners. Nationally, the Commission is recommending the government appoint a Philanthropy Champion to help to unlock the barriers to giving, allowing even more public good to be created by the nation’s charities and community groups.
Matt Whittaker, CEO of Pro Bono Economics and LFCCS Commissioner, said:
“The Chancellor has delivered a huge package of tax cuts that overwhelmingly favour the wealthiest in the name of promoting stronger economic growth. It will likely bring some short-term GDP gain but the medium-term picture is highly uncertain, with interest rates set to rise further and public service spending cuts coming back onto the agenda. The outlook for the majority of low- and middle-income households therefore remains extremely challenging.
“Those benefiting the most from today’s giveaway can both help to support those who remain vulnerable to the economy’s twists and turns and invest in stronger and more stable growth by giving more to the UK’s vital charities and community groups. Yet our research has shown that growing incomes among the top 1% of earners in recent years have coincided with a drop in giving.
“If the government wants its supply-side reforms to boost strong and sustainable growth that is good for all, it is more important than ever that it taps into the potential of philanthropy. A new Philanthropy Champion at the heart of government provides the opportunity to unlock greater, and more effective, giving in the UK.”
Notes to editors
Using OBR economy forecasts we have been able to forecast charitable income and donations (based on a number of factors, such as household income, government expenditure and equity prices). We used these forecasts to predict the expected value of Gift Aid donations and then calculated the amount that would be received by charities if the basic tax rate changed from 20 to 19%.
There is a second part to Gift Aid, which is the rebate. Higher rate taxpayers can claim the difference between the rate they pay and the basic rate on their donation. With the removal of the 45% rate, the difference between tax brackets is smaller, thus the rebate is smaller.