Finance (No. 4) Bill

Debate between Lord Harrington of Watford and Lord Mann

Monday 16th April 2012 Commons Chamber

[Richard Harrington (Watford) (Con)]

I intend to address my remarks not to the Finance Bill generally, but to the part relating to charities. When I put in to speak, I did not realise that would become one of the great cause célèbres of the Budget debate. I feel I have some experience in this field, having in a previous life spent three years as chairman of fundraising for one of the country’s largest children’s charities. Indeed, it got to the stage where people whom I had known for years would cross to the other side of the street rather than say good morning to me, in the certain knowledge that I would get them for a philanthropic donation. In fact, it was very good experience for speaking in the Chamber, as I seem to have the same effect on people in this place.

There is a serious point to make, which is that I do not think this debate is about charities; rather, I think it is about whether, in a sophisticated society such as ours, where 40%-plus of gross national product is spent by the Government, certain individuals should have the freedom to decide, for whatever reason, quite legally, that they will not pay any tax at all. Although we are talking about charities—that is what the recent debate has been about—society has to make a decision on that question. Is it acceptable, under any circumstances, for people obeying the law and earning money—a lot of money—to say, for what might be a perfectly good reason, “I’m opting out of paying tax on my income,” in this case because they are giving to charity?

I think back to my 20s, when I started work. People had many different options to avoid paying tax. Pensions were uncapped, so self-employed people could go through their whole lives and pay as much as they wanted into pension funds, cutting their taxes on their salaries in exactly the same way. At one time, there were many investment schemes where the amount of money and the conditions attached were almost open-ended, so that people could legitimately avoid paying tax. There are quite a lot of schemes where Governments—not just this coalition Government, but previous Governments—have decided, for whatever reason, to cap the amount of tax deductibility that is allowed. I know that this is not a popular argument, but I would argue that charities, charitable donations and philanthropy should be no exception to the general rule that everybody earning money in a society such as ours should pay some tax.

[John Mann]

indicated assent.

[Richard Harrington]

I am delighted that the hon. Gentleman agrees with me. It had to happen sooner or later in my political career, and I am delighted that it should be today.

Most of us in this House and in the country generally regard the charitable sector as part of all the wonderful organisations that we deal with in our constituencies. In Watford we have the Peace Hospice, which is probably one of the most important hospices in the south of England, along with homeless charities and Mencap. Indeed, we have many good charities, so it is difficult to be the person standing here today and even putting the thought in donors’ minds that there may be circumstances where what they want to give cannot be a tax deductible donation. However, people should be aware that the tax aspect is not the predominant reason for philanthropy—that is my experience. If it is, there is something wrong.

[John Mann]

I totally support the hon. Gentleman and the Chancellor on this specific matter. Does he not find it rather disturbing that one or two individuals are saying that they will refuse to give to charity if the money has come out of their own pocket, rather than being tax deductible?

[Richard Harrington]

I agree very much with what the hon. Gentleman says, but when it comes to it, that aspect is not such a defining factor as those statements would suggest. We must remember that this country is very good at philanthropy. Among the developed nations, we are the third highest in the world, after the United States and Israel, in terms of the amount per head of GNP that we give to philanthropic organisations. I do not accept that that is just because of the tax breaks; I think it is because of a tradition in this country. Trade unions and working people are involved in it, wealthy people are involved in it, and business people are involved in it, just as Victorian philanthropists were once involved. All in all, we have a huge tradition of philanthropy.

We are very proud of that tradition, but we have to remember that it is very easy to set up a charity. Even today, the forms are simple to fill in. Within 24 hours it is possible to set up a charity, which is then basically a conduit for almost any form of tax-deductible donation. Many charities are very good organisations—I would be the last person to suggest that there was a predominance of fraud, negligence or dishonest behaviour. However, a lot of charities are charitable to some people, who might think the causes are excellent—for example, I could set up a charity to research the history of Watford, which I might think was an excellent cause, and it may well pass the Charity Commissioner’s barriers to becoming a registered charity, albeit not in any dishonest way, because it would be educational or whatever—whereas a lot of other people might not regard such organisations as very charitable at all. It strikes me as very strange that any such organisation can be set up and, provided it has proper directors and an office—it can also be somebody’s house—all of a sudden it can become a charity to which basically any amount of money can be donated. Such a charity could be based abroad, or it could be for a very narrow sector in this country.

It seems strange that there is a perception that giving money to a charity is a great thing almost by definition, but paying tax is not, yet after all, what does tax pay for? It pays for the NHS and education—indeed, it pays the majority of the money going to many organisations that are perceived as being charitable organisations. For example, many years ago, when my late father was chairman of Mencap—it was then called the National Society for Mentally Handicapped Children, although obviously the organisation has developed a lot since then—5% of its money came from Government sources and 95% came from sponsored walks, charitable donations, rich people, poor people, tins outside shops, or whatever it was. Now it is almost the other way round; in fact, many registered charities depend more on money from the taxpayer than on individuals giving. It seems strange that the media can say that if the Chancellor of the Exchequer wants money for the big public pot, some of which may come from philanthropic giving, one thing is automatically good, almost by definition, and one thing is automatically bad.

As we all know, there is a shortage of public funds, and we cannot—or we choose not to—borrow any more money. I shall not get into those arguments, but I think there is a consensus that public expenditure is fairly high by any traditional standards. The Chancellor is taking a lot of different measures to try to fill a gap. The gap was filled by borrowing, and perhaps it will now be filled rather less than it was by that means—that is what we think will happen. Nevertheless, there is always a gap between what a Government such as this —or, in fact, any Government in recent memory—want to spend and what they can raise. Before the public decide who to criticise, it is important that they should remember where the tax saved would have gone, because were those organisations private, it would be perfectly reasonable to regard many of them—be they schools or things like that—as charities. That point should not be forgotten.

It is perfectly reasonable to say that Governments have to think beyond comfortable, cuddly philanthropy, compared with nasty, horrible public expenditure. Governments have to decide on the balance. We have to remember the fundamental point: is it right that people should earn a lot of money and pay no tax at all? There are ways round this problem, and I am sure that the Government will be looking at that in the consultation on the details. Indeed, I would suggest that they might look at “lifelong gifts”—how much money people give in their lives. If someone has a windfall of £1 million, it might be wonderful for them to say for that year, “I’m going to give that £1 million to a charity—I won’t pay any tax, but it’s going to useful causes,” but should they be allowed to do that every year? Should that be their normal way of doing things? Some people may say, “It’s wonderful, because they’re very philanthropic.” Others, if they look it objectively, may say, “Well, each year the state is losing out on £450,000,” or whatever the marginal rate happens to be.

I believe that society has to make a decision on whether people should be able to opt out of the tax system, for whatever reason. I believe strongly in philanthropic giving, in charities and in tradition, but, as with everything else, there has to be a compromise. It is unacceptable that people, irrespective of their income, should be able to choose not to pay tax using a variety of avoidance methods, one of which might be charitable giving.

I found it strange to hear the hon. Member for Leeds West (Rachel Reeves) criticising the proposals on charitable donations. She should consider whether it is right that some multimillionaires pay no tax at all, and that some people should be able to choose what good causes to support. Should people be able to choose to support, say, the National Theatre, the opera and Christian Aid, while choosing not to support the national health service, education and social services? I ask the Opposition to consider that point before being so critical of the Government’s desire to make tax fair for all and to ensure that very wealthy people no longer pay no tax at all.