I was intrigued by last week’s announcement of the £10 meal vouchers to stimulate our return to restaurants. I hope it works because so many livelihoods depend on the hospitality sector surviving. I do have a vested interest: my wife is a supplier.
I work as a supplier to the charity sector, so I’m also interested in it being saved. Fundraising has tanked, with some predicting income for the sector could be down by 24% this year or around £12 billion.
Many charities have already taken steps to scale back their operations but surveys suggest a huge number will be bust by Christmas. At the same time, the pandemic has already brought them increased demand for their services, which is only likely to grow as the furlough scheme is wound down. Remember, these are the organisations that fill the gaps the state can’t. And those gaps just became chasms. Saving this sector is not just about the jobs of those working in it, but the millions who depend on their services and have nowhere else to turn.
This is not a sector that can have rights issues or borrow from the banks to ride out the storm – most charities were effectively excluded from the Government-backed emergency loan schemes. Yes, we can have a debate another time about the potential for the capital markets to play a greater role in funding social purpose organisations. Right now though, we need to move fast to find ways of attracting donations from those who are still able to give and big.
Sadly, the Government’s response to the seismic impact on the charity sector has been timid. It really needs to ramp up its efforts. One solution could be a targeted stimulus for giving.
Last year, a report in The Times revealed that those earning more than £250,000 donated an average of only 1.7 per cent of their income compared with 3.1 per cent by those earning less than £50,000. An analysis of charity donations on self-assessment tax forms showed that nearly two thirds of people earning more than £250,000 gave nothing to good causes in the previous year. In total, almost one million people earning more than £100,000 made no donations.
Establishing a stronger culture of giving amongst those with greater means to do good is not going to come quickly. But we could light a fuse: a little stimulus for those paying higher rates of tax might just be the catalyst.
Under the current rules, a donor who pays 40% income tax choosing to Gift Aid a donation of a £1,000 enables the charity to claim back the 20% basic rate tax that they have paid, i.e. £250. So their donation brings the charity £1,250. (Apparently around £600m each year doesn’t reach charities because donors forget to tick the Gift Aid declaration.)
The 40% rate taxpayer can then reclaim a further 20% of the total £1,250 received by the charity, i.e. £250 in their tax return. So, the donation costs them a net £750. It’s not a bad outcome but many say that the culture of giving is not the only thing that needs working on, it needs more financial incentive. They point to the USA which incentivises giving with much bigger tax breaks.
Well, there’s never been a better time to test whether increasing the tax incentive would really make a difference. What if it was increased in the above example so that the net cost to the donor was only £500? That’s quite an enticing fundraising pitch: give £1,250 to charity at a cost of only £500.
Like all the current fiscal interventions, there will be a cost to the Government but it could set parameters – for example, this extra tax rebate could only apply to donations made between 1 August 2020 and 5 April 2021 (the end of the tax year). And apart from the potential to increase donations from this largely untapped audience in the short-term, the Chancellor would be setting up the wonderful scenario of more donations in future years if the charities then nurture these donors. To paraphrase his colleague Grant Shapps, this might be the opportunity of a generation to deliver something good out of this crisis: a significant growth in charitable giving amongst those one million high earners currently making no donations.
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