Cambridge University weighs into 'charity tax' row

Michael Yoganayagam, Associate News Editor 13 April 2012

Cambridge Vice-Chancellor Sir Leszek Borysiewicz has written a private letter to Chancellor of the Exchequer George Osborne, expressing “deep concerns” over his plans to cap tax relief for charitable giving.

According to The Times newspaper, leading universities, including Oxford and Cambridge, are deeply concerned that the proposal, announced in last month’s Budget, will choke off the philanthropy which is so crucial to the funding of teaching and research in British universities.

At the moment, people do not have to pay income tax on money which they donate to charitable causes such as universities. So for instance, someone earning £1m a year and giving £300,000 to charity only pays income tax on the other £700,000 at the moment.

Although this does technically reduce a donor’s marginal tax rate, the philanthropist is not personally profiting from the scheme, but is simply choosing how the tax they would have paid on the income donated to charity is spent – unlike normal taxpayers.

However, the Treasury claims that wealthy people are using this tax relief scheme as a means of tax avoidance, by donating to foreign charities which they have established themselves that do little or no actual charitable work. George Osborne said in an interview with The Telegraph newspaper this week that he was “shocked to see that some of the very wealthiest people in the country have organised their tax affairs, and to be fair it’s within the tax laws, so that they were regularly paying virtually no income tax”, adding “I don’t think that’s right”. The government is therefore planning to cap tax relief on charitable giving at £50,000, or 25% of a person’s income – whichever is higher. The maximum that a donor earning £1m a year could therefore give tax-free to charity would be £250,000.

The plans have caused a revolt among leading charities and universities. In addition to the Cambridge Vice-Chancellor, Oxford Vice-Chancellor Andrew Hamilton has also written to George Osborne to express his concerns that the proposal “risks undermining the culture” of university philanthropy.

A spokesman for the University of Cambridge said of the proposals: “Philanthropy is the benchmark of what we do. It underpins our standing as a world-leading university. The implications will be significant.”

In the 2010-11 academic year, the Cambridge University 800th Anniversary Campaign raised £135mn in philanthropic donations – £72mn for the benefit of the University, and £63mn for the Colleges. Over the last 10 years, the Campaign has raised over £1bn in philanthropy, much of which has gone towards significantly expanding the endowment of the University and Colleges. The endowment is vital in enabling Cambridge to afford the costs of undergraduate education, which are not fully covered by tuitions fees and government grants – a shortfall which is likely to widen in coming years as severe cuts are made by the government to university teaching grants.

In total, British universities raised £564mn in donations last year, with Oxford and Cambridge accounting for 44.2% of that figure. Vince Cable, the Business Secretary, has expressed his worries that Osborne’s plans could damage an important source of income for Britain’s universities, with his spokeswoman confirming that while he fully supported “the need to clamp down on abusive tax avoidance”, “this should be separated from genuine charitable giving”. She went on: “Concerns have been raised with ministers, including Vince, by universities, and he is sympathetic to those concerns. We will make sure that what we are hearing from universities is fed back to the Treasury.”

Chief Secretary to the Treasury Danny Alexander insisted that the Government would work “to ensure the removal of the tax relief does not have a significant impact on charities which depend on large donations”. Meanwhile, Macmillan Cancer Support warned yesterday that limiting tax relief would undermine attempts to fund its new London cancer centre and global children’s charity Unicef reported that it had been unable to raise some money from a regular donor for emergency funds due to the government’s tax relief plans.

Michael Yoganayagam, Associate News Editor