12 April 2012 Last updated at 13:14 ET

Charity tax row: We will stick with policy, says Danny Alexander

 

John Low, Charities Aid Foundation: "It's not going to hurt the wealthy, it's going to hurt the poor and vulnerable"

The government will stick to its controversial plan to cap tax relief on charitable donations, the chief secretary to the Treasury has said.

Danny Alexander told the BBC there were "very good reasons" for the cap - to ensure the very wealthy were paying a slice of their income to the exchequer.

Charities say the cap will hit big donations and have urged a rethink.

Some Tory MPs and Vince Cable have concerns while Labour has accused the government of "incompetence".

Under current rules higher rate taxpayers can donate unlimited amounts of money to charity, and offset it against their tax bill to effectively bring the amount of tax they pay down, sometimes to zero.

Although they are not benefiting financially, they choose where their money is spent - unlike most taxpayers, whose cash goes to the government.

'Economic problems'

Last month Chancellor George Osborne said that, from 2013, previously uncapped tax reliefs - including those on charitable donations - would be capped at £50,000 or 25% of a person's income, whichever was higher, citing the US presumption "that all taxpayers should contribute to government costs".

Analysis

Adam Fleming BBC News Political Correspondent

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The fight-back starts here.

Treasury ministers are hitting the airwaves to defend their tax relief plan, saying they will engage with good causes to ensure they do not lose out as this goes from a proposal to a piece of legislation in the coming months.

But even the government's supporters agree they've taken their time.

Behind the scenes, Conservative backbenchers give various reasons for why this appeared to go so wrong.

Some say it is a good policy communicated badly.

Others that it is another "out-of-touch" initiative concocted in isolation by the coalition's Big Four - Cameron, Osborne, Clegg and Danny Alexander.

Touring the Far East, David Cameron must fear that a plan to prove that the government can get tough with the rich is endangering one of his most cherished aims - to make Britain a more charitable place.

Mr Alexander told BBC Radio 4's PM programme that the coalition was having to take difficult decisions to deal with the "enormous economic problems we inherited from the previous government", which were bound to prove controversial.

Asked if there would be a climbdown on tax relief on donations, he said: "We have put in place a cap on unlimited reliefs, we have done so for the very good reason that everyone should pay a decent proportion of their income in tax and that is a policy that we are going to stick to."

But he said the government would work with charities and philanthropists "to ensure the removal of the tax relief does not have a significant impact on charities which depend on large donations".

He added that he did not see philanthropists as "tax avoiders" and argued that most did not give money on the basis of tax relief.

Charities have been annoyed by suggestions that charitable giving is a loophole being exploited by tax avoiders - and point out that wealthy benefactors give away far more than they ever get back in tax relief.

Philanthropist Marcelle Speller, who set up the website localgiving.com, told the BBC she had put £2m into the project adding: "I think it's rather galling to feel that the last four years and that money has now been seen as a tax dodge."

The chair of Arts Council England, Dame Liz Forgan, said: "We think at least £80m worth of regular donations to some of our largest organisations could well be at risk."

Business Secretary Vince Cable's spokesman told the BBC that the Lib Dem cabinet minister "fully supports the need to clamp down on abusive tax avoidance but this should be separated from genuine charitable giving". Mr Cable was "sympathetic" to concerns raised by universities - his department has responsibility for higher education.

'Incompetence'

Nicola Dandridge, chief executive of Universities UK, said universities raised £560m from "philanthropic gifts" in the last year, which went towards bursaries, scholarships, facilities and research. They were the "preferred cause" of big donors, so expected to be hard hit, she said.

How changes will work

From April 2013 there will be a limit on the amount of income tax relief individuals can claim.

At the moment there is no limit so it is possible to donate enough money to charity to effectively bring a tax bill down to zero.

Although the donor does not personally profit from the arrangement, it means they are choosing where their money is spent - unlike normal taxpayers.

The cap will be set at £50,000 in any one year, or at 25% of an individual's income - whichever is greater.

That means an individual with an income of £4m could still give £1m to charity and get full tax relief for that £1m.

However, if they want to donate more , they will have to donate from their taxed income.

BBC political correspondent Ben Wright said ministers at the Department for Culture, Media and Sport were also understood to be lobbying the Treasury to amend the policy, by raising the cap or better targeting obvious cases of abuse.

Labour leader Ed Miliband said the plans marked a "new level of incompetence": "Only this government could be so out of touch, so failing to meet 'we're all in it together', that they cut taxes for all the most affluent people in our society, the top 1%, except for those who do the right thing, except for those who want to give money for charity."

A series of Conservative MPs have also questioned the policy. Backbencher Zac Goldsmith, a multi-millionaire environmentalist, wrote on the Twitter website: "The plans have to be amended. They make no sense and will massively harm charities."

Conor Burns, a ministerial aide to Northern Ireland Secretary Owen Paterson, told the Evening Standard the government should do "a very quick review and retreat on this" while Mark Pritchard, secretary of the influential backbench 1922 Committee, and Lord Hodgson, the Conservative peer reviewing the Charities Act for the government have also raised concerns.

But in a column for the Times, former Barnardo's chief executive Martin Narey - now the government's adviser on adoption - said it was "dubious to argue that the proposed tax changes will stifle philanthrophy" as charitable giving by the wealthy was much higher in the US, where it is subject to a cap.