U.K. Exempts Charity Giving From Tax Cap in Budget U-Turn

U.K. Chancellor of the Exchequer George Osborne bowed to political pressure and scrapped proposals to include charitable donations in a cap on tax relief, his third U-turn over a budget measure this week.

The cap, limiting tax relief to 50,000 pounds ($77,000) or 25 percent of income, had sparked protests from charities that warned they could lose a significant part of their income.

The climbdown came three days after Osborne reversed a plan to levy value-added tax on hot takeaway snacks such as Cornish pasties and charge the full 20 percent rate on mobile homes. The reversals are a setback for Prime Minister David Cameron’s Conservative-led government, which is losing support as austerity measures intended to balance the budget hit voters.

Announcing the decision today, Osborne said that any kind of cap could have “potentially damaged” charitable giving. “We’re going to focus all our efforts on keeping Britain safe in the gathering storm” in the euro region, he told broadcasters. The cap on reliefs is due to begin in 2013.

Since the budget on March 21, the government has been in talks with charities and donors to discuss the proposal. More than 1,000 philanthropic groups backed a Charities Aid Foundation call for the government to rethink.

“We are delighted that the government has responded to the challenging calls from philanthropists and charities across the country and taken the bold decision,” CAF Chief Executive Officer John Low said in an e-mailed statement. “We realize government is responding to truly exceptional financial circumstances and is having to make tough decisions about public finances.”

‘Ashamed’

The cap was also opposed by academic institutions, including the University of Oxford, which raised more than 1.25 billion pounds in its most recent fundraising drive. Conservative lawmaker Zac Goldsmith said he was “ashamed” at the plan.

The restriction was introduced to stop wealthy individuals using unlimited reliefs to pay lower tax rates than ordinary workers. The decision to exempt charitable giving may cost the Treasury about 10 million pounds.

In other policy shifts this month, Justice Secretary Ken Clarke watered down proposals to have court evidence from security agencies heard in secret and the Defense Ministry ditched its plan to equip its aircraft carriers with a catapult and arrester-wire system, opting for a cheaper solution using jump jets.

Two weeks ago, Osborne pledged 30 million pounds to the Church of England in compensation for adding VAT to the cost of alterations to listing buildings.

‘Shambles’

Ed Balls, finance spokesman for the opposition Labour Party, condemned the budget as an “embarrassing shambles” and urged Osborne and Cameron to review their plan to cut the top rate of income tax.

“With Britain pushed into a double-dip recession by the government’s mistakes, we urgently need a change of course on economic policy,” Balls said in a statement. “David Cameron and George Osborne are not just out of touch -- their judgment is now increasingly in question.”

Labour expressed anger at the timing of the recent announcements, during a week when Parliament is not sitting. Today’s move also came as Culture Secretary Jeremy Hunt, who is facing pressure over his relationship with News Corp. at the time he was adjudicating on its bid for British Sky Broadcasting Group Plc, testified to a U.K. media-ethics inquiry. Television news channels broke off their live broadcasts of the hearing to cover the charity tax announcement.

Andrew Tyrie, the Conservative lawmaker who heads Parliament’s Treasury Committee, said the policy U-turns meant Osborne may find it harder to hold to future budget pledges.

“Whatever the measures, it will be more difficult next year, with vested interest groups now encouraged to press for concessions,” he said in a statement. “The chancellor will need to set out the principles underpinning his budget and make clear he will stick to them.”

To contact the reporter on this story: Andrew Atkinson in London at a.atkinson@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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