Charity tax: Wanted - a solution

A cap on tax reliefs. It must have sounded like a winner. It would show that the coalition wasn't going soft on the rich and was applying the same principle to tax as it was to benefits.

Nick Clegg even had a populist name for it - the "tycoon tax".

Yet now look. The government is under attack by the great, the good and the worthy for pulling the rug from underneath the nation's charities.

The annual cap on the total amount of tax relief will, says everyone from charity chief executives to the Tories' wealthy Treasurer, cut the donations charities receive.

All this despite the fact that the Budget Red Book shows the Treasury knew they would be creating a problem and would have to:

"explore with philanthropists ways to ensure that this measure will not impact significantly on charities that depend on large donations".

The sums of money involved are massive for certain charities but trivial for the government. The Treasury estimate for the revenue raised from limiting tax reliefs to a quarter of annual income is £300m but the element coming from charities is between £50m and £100m.

Number 10 is now demanding that Number 11 finds "a solution".

Treasury ministers want to stand firm on the principle but be flexible on the practice - examining ideas to roll over unused tax relief from one year to the next or allowing tax free lifetime legacies.

There is one other possibility I can see - a separate higher cap for charitable giving. In the USA it's 50% of annual income for some causes and 30% for others.

The question is whether any of these ideas will be enough.

I am reminded of Alastair Darling's observation after he was forced to compensate the losers created by Gordon Brown's abolition of the 10p tax rate - "if it looks too good to be true, it probably is".

To put it charitably, this is is a mess.

PS: Having been away for a few days I am struck that I haven't seen anyone argue that it might be preferable for the rich to pay their taxes to contribute to the NHS, schools or tax credits rather than to make tax free donations to opera, theatre or, even, other charitable causes. Has anyone?