13 January 1999
SPEECH GIVEN BY THE ECONOMIC SECRETARY PATRICIA HEWITT MP TO THE CHARITIES' TAX REFORM GROUP
Introduction
I am delighted to have this opportunity to address such a key group from the voluntary sector.
As many of you know, I feel very much part of the sector, having had a long involvement in a number of organisations including Age Concern and the Liberty. I now find that experience invaluable in my position as Treasury Minister responsible for charity taxation.
The Government's vision of its relationship with the voluntary sector.
Voluntary organisations make an enormous contribution to the life of the nation: 2 million employees; 3 million volunteers; and £12 billion of economic activity.
But in the past, the voluntary, not for profit sector, has been caught in the middle of a false conflict. People believed that a thriving voluntary sector would relieve government of its own responsibilities. The difference was that some thought that was a good thing. And others didn't.
I remember those old attitudes very clearly. 20 years ago, I worked on a campaign in west London to help re-house homeless people living in a 19th century hostel that was to be demolished to make way for the Hammersmith fly-over. As we became more involved with local charities that ran sheltered homes for people with severe mental health and addiction problems, some local activists became increasingly hostile to the idea that voluntary provision of this kind would somehow let the local council off the hook of providing everything itself.
This Government has rejected these old, false dichotomies: private good, public bad and the view from the other end of the spectrum private bad, public good. We rejected the idea that the state could do almost nothing, and its equivalent, that the state had to do almost everything.
Instead, we understand that in order to achieve real change, we need to mobilize the different strengths of every part of society. We need government: national, regional and local or, increasingly, the private sector. And we need you, the voluntary sector.
That is why Jack Straw and Paul Boateng recently launched a Compact, "Getting It Right Together" a framework for a new, practical partnership between Government and the voluntary and community sector.
Partnership
That is why we are creating new partnerships for change. In Education Action Zones. In Employment Action Zones. In the most disadvantaged communities, through the New Deal for Communities and, coming later this year, the Sure Start programme.
The Giving Age
Two years ago, the Prime Minister called for the millennium to be a Giving Age. We want to see a step change in personal involvement in community life, to increase the quantity and quality of voluntary and community activity.
We want to see new ways of motivating people to become involved. New programmes for volunteering, across all age groups and across different types of issue. Millennium volunteers. Make a Difference Day, Volunteers Week - will all contribute to bringing about this step change in community involvement.
Government action is no substitute for the personal response of millions of individuals. But Government action can help to create that individual response, to generate new opportunities for people to give their time and money.
The Government is currently looking at a number of issues relating to charities, including aspects of the legal framework. We understand and accept in principle the case for reform of the Trustee Investments Act, and are seeking to make progress at the earliest opportunity. And the Charity Commission have begun a systematic review of what is and what is not charitable under current law.
These reforms will take time. But within this framework we are currently working on the charities taxation review. I know this is the main interest of those here today.
Charity Taxation Review
You will have heard new Labour Ministers say, often enough, that it is not government's job to run business. Government's responsibility is to help create an environment in which businesses can succeed. The same is true for charities and the voluntary sector. It is not our job to fund you, or to raise money for you, or to tell you how to do your work. But it is our responsibility to help create an environment in which charities can flourish.
You need a tax system which is as fair, simple and transparent as possible. And which offers real incentives to individuals and companies to donate some of their money to charities. We currently spend £2 billion a year on tax reliefs for charities, and several billion pounds a year in grants to the voluntary sector. And in addition, we are providing a generous five year scheme to compensate charities for the loss of tax credits, worth £¾ billion.
What concerns me, however, is the steady decline in charitable giving. In the fifteen years from 1978, the proportion of households donating to charity fell by 10%, despite a rise in total amount of charitable donations. The fall amongst the younger generation was even larger - 25% - with only 21% of young people giving to charity.
Tax relief by itself won't persuade someone to give. But it should help to create a dynamic environment in which you can persuade more people to give more. And that's one of the reasons we are conducting this review of charities taxation.
We received over 3000 responses to the Review, including very comprehensive and constructive comments from the Charities Tax Reform Group The responses of the sector reflect a wide range of views and suggestions, which is not at all surprising given its diverse nature: from the small local charity run by one or two people with turnover of a few thousand pounds a year and a focus on a local community, to the large national charities employing thousands of people with a turnover of many tens of millions of pounds a year.
We have had to evaluate all the responses carefully, and look at the impact of the proposals on different parts of the sector. Another important requirement is that any proposals taken forward are viable in practical terms.
You will not have to wait beyond the Budget for the launch of the consultation document, but I am able to share with you now a couple of the issues which have come out of the Review.
It has become increasingly apparent during the course of the Review how little we know about attitudes to charitable giving, whether tax efficient or not: what motivates people to give, what effects tax reliefs have on people's giving patterns. I have already referred to the fall in giving by the younger generation. So we want to find out more about what makes people want to give. One way of doing this is to set in place further research on a range of issues around giving. And we hope that the Millennium Gift Aid awareness campaign "Gift Aid 2000",a about which I will have more to say later, will give us some valuable insights especially on young donors.
But we know that charities themselves, especially the larger ones, carry out research into donors and their motivation. We would like to invite you to share some of your research with us, because we feel that it would really help us to make tax efficient giving more effective.
I know that many of you made representations during the first phase of the Review about the VAT which some charities cannot recover on the goods and services they buy. Your responses made a clear case for additional Government assistance, which I fully understand. This is one of the significant VAT issues that we have been carefully considering. I certainly do not intend to pre-empt the outcome of the Review, but this is not an easy issue.
The problem is that providing a refund mechanism through the VAT system would be contrary to current EC law - VAT can only be recovered on goods and services bought for taxable business activities. We would therefore have to turn to a UK grant mechanism if we were to assist charities on this. You will know how difficult such a grant scheme would be when there are so many other pressures on Government funding, and we have only a limited amount of money available.
We have already acted on one issue. Following a VAT tribunal, we are extending the definition of charitable welfare services that are VAT exempt. This welcome sensible step forward offers charities further support in helping those who most need it. Customs are presently consulting on the detail and the results will be announced in February.
Another issue emerging from the Review concerns Payroll Giving. There is concern, which we share, that the performance of this relief has been rather disappointing, and has failed to live up to the expectations for it when it was first launched back in the late 1980s. We want to revitalise Payroll Giving and are focusing our attention on the best ways to do this.
So I am delighted to see a nationwide scheme encouraging employees and employers to make a contribution to benefit children's charities. Known as "A Children's Promise", the scheme encourages people to give their final hour's salary of 1999 to benefit our youngest generation. The scheme is being funded by Marks and Spencer, who are running it in conjunction with the New Millennium Experience Company.
The Children's Promise has the full support of the Prime Minister who will be donating his final hour's salary of 1999. And I am delighted to be taking part myself. The Government will also be playing its part through the tax system as donations under the Children's Promise can be made within the Payroll Giving scheme.
Millennium Gift Aid
I argued earlier that Government's role must be one of a facilitator, creating a suitable environment so that the charitable sector can maximise its opportunities. With Millennium Gift Aid, we are putting our new approach into practice.
Under Millennium Gift Aid, we have reduced the minimum donation qualifying for tax relief to £100, which can be paid by installments. The scheme is available for donations to UK charities for education and anti-poverty projects in the world's poorest countries. And already over 260 charities are taking part in Millennium Gift Aid and receiving donations which they are putting to immediate use.
To help Millennium Gift Aid on to further success, the Chancellor and I are today announcing the awarding of a contract for a major media campaign - Gift Aid 2000. This will raise public awareness of the tax relief available under the Millennium Gift Aid scheme and provide a central contact point for donors wishing to give to eligible projects. It will achieve a high public profile through a £4 million advertising campaign, in which the Inland Revenue will be working closely with the advertising agency Rainey Kelly Campbell Roalfe.
Gift Aid 2000 marks a major step forward in delivering the benefits of Millennium Gift Aid. It logo will not only brand the Inland Revenue advertising campaign, but will be available for charities to use on their own messages to potential donors.
Gift Aid 2000 will be targeted, especially on potential 18 to 34 year old donors. It will also provide a telephone contact point so that donors responding to the campaign can easily make donations and, where necessary, help them to identify particular projects or countries which they wish their donations to assist if they do not already have one in mind.
The campaign will begin in the spring, so those who wish to give an affordable £5 per month can reach the Millennium Gift Aid qualifying figure of £100 by the end of the qualifying period, 31 December 2000. It will include TV advertisements and national press inserts designed to appeal primarily to younger donors, but it should raise awareness of the MGA tax relief provisions among all potential donors. The Inland Revenue will be writing in the next few days to each of the charitable organisations that have registered an interest in Millennium Gift Aid to let them know more about Gift Aid 2000.
Gift Aid 2000 will help to create the environment in which charities can flourish. It offers tax reliefs, of course - simpler and more generous tax relief. It will give you a new generation of young givers with whom you can build a relationship for the future.
Conclusion
Since coming into Government, I believe we have embarked on a new era in our relationship with the voluntary sector. We have a new partnership, outlined in the Compact, where we are working together to meet shared aims and objectives. And in doing so, we have consulted you in how we can help you.
Of course, partnership means that the Government and voluntary sector each have their own responsibilities. The Government to create the right dynamic environment as well as being responsible with the public purse. And the voluntary sector to secure its future through being creative and resourceful.
As we race towards the Millennium, it seems right to look at what we can do to improve the fabric of our society: to make a real difference to people's lives. It is only through our partnership that we can succeed. And so we look forward to working with you to take this agenda forward into the 21st century.
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