The budget’s new tax relief cap will severely reduce charity income, and could prevent new charities setting up, handing even more of the third sector over to ‘social entrepreneurs’ and for-profit corporations.
On top of the hard-hitting 2011 VAT hike to 20%, charities are facing serious funding reductions from large-scale donations now subject to a 25% tax relief cap in the 2012 budget. This is bad news as major gifts play a vital role in the sector (for instance almost half of all donations last year came from just 8% of donors).
The detail in the budget is that currently unrestricted tax reliefs will now be subject to a cap, so that anyone trying to claim more than £50K will be limited to 25% of their income or £50K (whichever is greater). From the charity point of view, this will affect the relief available through Gift Aid. The problem might be even worse for those who want to set up a new charitable trust (either standalone, or housed within a larger organisation such as CAF or a Community Foundation). In these cases it is even more likely that a large, one-off gift will be involved, and many such donors rely on Gift Aid as a top up.
This lends further weight to the argument that the 'Big Society' is merely cover for another round of privatisation, affecting not only public services but also the Third Sector. Think tank nef has identified opportunities for "big corporations to take over state functions – by providing backroom support and running services. There are dangers that for-profit businesses will change the ethos, purpose and outcomes of services, with negative effects on the quality of life and opportunities of those who are most in need. There are also worries that big business will drive out smaller non-profit organisations, which could otherwise provide contracted-out services with more flexibility and local knowledge."