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Philanthropy (2)

There is an amusing graphic in yesterday’s Sunday Times:

The (full page) article is mainly about the presentation of policy. The thesis, based apparently on contacts with ministers and backbenchers, is that George Osborne was incompetent in dealing with Lib Dem demands. Facing electoral disaster, the Lib Dems have decided to be much less Tory-friendly in their behaviour. So Clegg demanded a package of soak-the-rick measures to balance the 5% cut in the top rate of income tax (50% to 45%). His preferred option was the “mansion tax” for which the Lib Dems lobbied hard. Osborne resisted that, but accepted a mish-mash of substitutes worked out on the “back-of-the-envelope” at the last minute, including the limit on tax relief for charitable donations by the rich. He failed to think through the political implications, and to make matters worse swanned off on an overseas trip just before the budget.

I am in no position to judge how factually accurate these kind of leaks/briefings are, but it sounds uncomfortably plausible. Certainly Osborne started with a terrific reputation for sound political judgment, but it has never been entirely clear what basis that had. Since he became Chancellor it seems to have been one fumble after another.

Much of the article is full of endless special pleading by the rich and their advocates. But it is hard to quarrel with the comment (emphasised in large type at the top right of the article) that

The government has made philanthropists out to be tax dodgers.

The problem is that objectively what Osborne did was thoroughly sensible. A well-known subset of the rich decide after making their pile that it would be nice if people liked them more. So they set about giving away money in return for a reputation as a philanthropist. The paradigm is wanting their name on a public building or a wing of a national art gallery in return for providing part of the funding.

So far so good. It is probably better for society at large for part of their fortune to be spent that way rather than the usual route of slow dissipation by their descendants.

But it is much less clear that the government should match their donations (as explained in the earlier article).

Moreover, the Osborne proposal was extremely modest: he wants to limit the tax relief to donations up to the higher of £50,000 and a quarter of your taxable income. The suggestion that

this debacle could cost the charitable sector £300M a year

made by David Bull, director of Unicef in the UK, sounds overblown – a classic lobbying tactic.

Osborne hedged his bets by announcing that the measure would not be implemented until after a consultation period. But that is certainly politically inept. The likely outcome is that after months of bad publicity he will cave in.

This is not an argument against consulting on government policy. Consulting on the right way of dealing with the banks after the 2007/8 banking crisis was clearly essential. The public may have been baying for blood, but investment banking is an important sector of the economy and probably the only sector in which the UK is a world leader. Hasty action would have been unwise.

The situation here is totally different. No one in government believes for a moment that either the 5% tax cut or the package of compensating measures will make much difference to how much tax the rich pay. It is all about assuaging public anger whilst not upsetting the rich too much. That kind of exercise derives no benefit from elaborate consultations. What is needed is astute political judgment and careful consideration of the details before it is announced as settled policy. This case seems to have had neither.

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{ 4 } Comments

  1. Tom Welsh | 16 April 2012 at 11:04 am | Permalink

    “No one in government believes for a moment that either the 5% tax cut or the package of compensating measures will make much difference to how much tax the rich pay. It is all about assuaging public anger whilst not upsetting the rich too much”.

    So, essentially, the government is wasting its valuable time trying to pass a law that will do no one any good, but is aimed only at deceiving some taxpayers. And they can’t even get that right.

    I don’t really follow your logic about the justification of the change, either. You say that £300 million is an “overblown” estimate of what charities will lose (although how can you tell?) But by the same token, £300 million is an upper limit to what the Treasury will gain; because, after all, no one is disputing that the new law will simply transfer money from the charities to the Treasury. But while £300 million means a great deal to the charities, it is pocket change to the Treasury. It is rather less than one twentieth of one percent of total government spending (£722 billion); two-thirds of one percent of the interest on the public debt; and one-sixtieth of the government’s own estimate of the cost of its interference in the internal affairs of Libya last year.

  2. Tom Welsh | 16 April 2012 at 11:37 am | Permalink

    Apologies for a factual error in my previous comment. The figure of £18 billion refers to the money wasted on the UK’s participation in the murderous and futile invasion of Afghanistan. The cost of the Libyan drive-by shootings was only £260 million – comparable to the amount the government’s proposed mugging of the charitable sector might be expected to yield.

    By refraining from both the attacks on Libya and the proposed tax measures, the UK government could have saved thousands of lives and made many more people’s lives substantially better. Regrettably, that is not what governments do.

  3. John Scholes | 17 April 2012 at 3:16 pm | Permalink

    @government is wasting its valuable time

    No. Keeping the voters happy is an important job for politicians. However, altruistic your motives, you cannot do achieve much as a politician unless you are in power. Unfortunately, there is sometimes a conflict between good policy and policy that the voters perceive as good.

    I am a firm believer that ultimately people are rational. So eventually you can persuade them that a good policy is good. But it can take a surprisingly long time to get things across. Often years, sometimes decades or longer.

    So if you happen to be in a position where the public do not accept the best policy, you have to compromise between what they want and want is sensible.

    I am not saying that politicians are always so noble or so well-informed or rational. Sometimes politicians’ motives are despicable and their competence laughable.

    But I do not think that the charities debate has been notable for clear thinking.

    In principle, sufficiently brilliant exposition can get things across much quicker. So one can always blame the politicians for insufficiently inspired explanations.

    Certainly, Osborne did not distinguish himself here. Many people claim he made out that it actually profits philanthropists financially to donate money to charities. I have heard/read many indignant rebuttals of that proposition.

    @£300 million is an upper limit to what the Treasury will gain

    Hmmm. 1/3 of a billion is quite a lot in government expenditure terms. Major Whitehall battles have been fought for less.

    Of course, there are obviously stupid examples of expenditure far larger than that – eg Trident. But politicians tend to measure things in terms of political cost. Trident might look completely stupid to me, but cutting it would mean huge internal fights in the Tory party which Cameron not unreasonably shies away from.

    But I still do not really follow your logic. Why should the government allow the rich to redirect some of the tax they pay from government to charities the rich favour?

    How far would you take that principle? Should everyone be allowed to donate money to charity as a simple alternative to paying tax? In other words, if you get a tax bill for £X, then instead of paying it you are allowed to donate £X to Oxfam or any other charity. [Or if the tax was deducted at source, then you could write to Oxfam authorising them to reclaim all the tax you had paid from HMRC.]

    The fact that governments spend some tax receipts foolishly or wastefully is not really a reason for allowing people to require the government to make matching contributions to charities of their choice.

  4. Tom Welsh | 19 April 2012 at 10:01 am | Permalink

    I believe that all modern governments spend (and thus tax) far too much. They go by what they think they can afford, not by what is necessary. As time goes by, they gradually tax more and more and more – and eke out their tax revenues by borrowing, running lotteries, privatizing government functions, mortgaging the future, and inflating the currency. No matter what happens, there is never a time when they find it possible to reduce their spending by the tiniest amount; it always increases. Like population increase, it cannot end well.

    I tend to think of national expenditure in terms of its value per citizen, or per taxpayer. On that basis, £300 million is about £5 per citizen, and perhaps £10 per taxpayer in very rough terms. It’s about the price of latte and Danish for two at a cafe, a paperback book, a small round of beers, or a train trip to somewhere quite close.

    As for the need to curry favour with voters and persuade them of the merits of government policies, there is less to this than meets the eye. After all, if voters become disenchanted with the party of government, what is the worst that can happen? Presently the other party gets a turn – which will happen anyway, as voters are largely motivated by sheer boredom and the contempt that familiarity breeds.

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