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

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".

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.

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.