Taxing question for donors

The Stage, 26/4/12
The tax relief cap for the wealthy could be a serious threat to the arts sector as philanthropists seek less expensive ways of dodging the Inland Revenue. Simon Tait investigates

George Osborne’s apparent mistake over how the new tax relief cap – under which anyone claiming more than £50,000 of tax relief in one year would be subject to a cap at 25% of their income, due to come into effect in a year’s time – would affect philanthropic giving is all the more inexplicable when you know that he was on the board of Arts & Business for the four years before he became Chancellor, and by all accounts was an assiduous attender of meetings. It was A&B that first saw the potential of philanthropy for arts funding, and he would have watched the figures for individual giving steadily rise until it was hit by the 2008 credit crunch. In 2011 individual giving appeared to be on he way back up again, according to A&B calculations.

The row over how charities would suffer from the new tax relief cap has been a slow burn since the Chancellor announced his plan to get the wealthy tax shirkers who abuse the charity channel, but it was A&B that had seen the danger straight away.

The day after the budget, A&B’s new director, Philip Spedding, said the new cap was “a matter of some concern” for three reasons: it could put off potential donors, it was sending out a message that the government does not value large donations, and it breaks the unwritten rule that you don’t tax money that has been given for the greater good. “This is a central philosophy to how the tax treatment should treat philanthropy and breaking it is a matter of grave concern to all,” he said.

It was another two weeks before Nicholas Hytner, artistic director of the National Theatre, and Arts Council chairman Dame Liz Forgan put some flesh on the fears. Hytner announced that a donor who had promised £250,000 for the NT’s development was likely to withdraw, and that £40m pledged to the cheme was at risk.

Even John Whittingale, the former shadow culture secretary and now chair of the culture select committee, stepped forward to say that the cap “just seems to me to send a very contrary signal to all the messages that the government has been putting out up to now”.

Forgan and the Arts Council reckoned that £80m might be lost to the arts directly because of the new cap. They arrived at the figure by taking a mean of the income from charitable giving of some of our largest arts organisations over three financial years.

It was devastating, not least because it came with no warning – Forgan was never consulted. “The whole of the arts sector has been putting its back into increasing the amount that’s raised from private giving alongside public subsidy, and this seems to have stopped it in its tracks”, she said on the BBC’s World at One.

She is worried that the Catalyst scheme, a fund set up with DCMS and HLF to create a £55m pot of money (£30m of it coming from the Arts Council) to lever matching philanthropic donations, was “up in the air” now, just as the first results of the scheme were about to be announced. “It’s very difficult for arts organisations to raise private money, it’s hard work, and seeing a concession from the tax man really does help, it’s a critical ingredient in the package,” she said. “So I’m afraid that unless something changes this will make a big difference.”

So will anything change? Not soon, it seems, because the Prime Minister has entered the row and said there will be consultations with the charities over the summer, effectively an attempt to kick the matter into the long grass. The signs are, though, that donors will not wait before deciding to assign their money elsewhere, possibly to overseas development.

The culture secretary, Jeremy Hunt, who has built his entire arts funding policy around the potential of philanthropy to offset the 30% cuts he has imposed on the Arts Council, has been resoundingly silent on Osbourne’s move so far. He would be expected to maintain cabinet collective responsibility binding him not come out and criticise the Treasury’s decision, but nor has he spoken up for it, and although he is said to be negotiating behind the scenes, inferences are already being drawn: that culture is simply not important enough to deflect the government’s thrust against the wealthy tax avoiders.

But culture is not that lightweight, according Coutts’ latest annual survey of £1m charitable donors, an dit shows that the money arts organisations do get is used gto keep them operating. It shows that in 2011 more than £60m was given to arts organisations in 2011 in packages of £1m or more – the cap, remember, will operate from tax relief claims of only £50,000.

More interestingly, it shows that almost 10% of this money was used for operational purposes – running theatres, concert halls, museums and galleries and the arts going on in them – rather going into endowments or development schemes, more than any other sector apart from higher education and international development.

The Coutts report says that arts and cultural causes saw a drop in donations, but predicts that his could change “as a result of the government’s £55 million matched funding scheme to build endowments in the cultural sector” – the Catalyst Fund that Liz Forgan believes is in danger of collapsing because of the new cap.