DONATIONS FROM COMPANIES AND INDIVIDUALS

HC Deb 12 May 1993 vol 224 cc857-76

Ms Harriet Harman (Peckham)

I beg to move amendment No. 46, in page 46, line 14, leave out '£250' and insert ' £200'.

The Temporary Chairman (Mr. John McWilliam)

With this, it will be convenient also to discuss amendment No. 47, in page 46, line 17, leave out '£250' and insert '£200'.

Ms Harman

We have chosen the question of the tax treatment of charities for this debate for three reasons. First, the demands on charities are growing. Secondly, donations to charities are falling. Thirdly, the effect of the tax changes in the Budget will be that the Government themselves take more money in tax away from charities.

The demands on charities are growing, first, because of the cuts in social services, which mean that more people are having to turn to charities for services previously provided by local authorities and the health service, and, secondly, because of the growth in unemployment and the growth in debt. There are also demographic reasons—in particular, the growing number of elderly people.

There is a pattern to the development of charitable services which shows that where the welfare state is being cut back and where it is failing to meet the growing demand resulting from demographic trends, including the growing number of elderly people, charities are increasingly expected to step in and provide the services that I think in general most people would agree should be a basic part of the welfare state.

7.15 pm

We support the work of charities and think that they are vital. That is why we have tabled amendments to this clause for debate. But what we do not think—and the charities are absolutely in agreement with us on this—is that the charities should replace the welfare state and take up basic services.

The role of the charities is very specific. I should like to give two examples of a particular role that they can play. In my constituency a club developed to provide day centre services for black elderly people. That was pioneering work. It was about developing a new way of providing services. It was a sort of gadfly role of the charities to show the social services that there was a different way in which they could provide such services.

There is also, for example, the work in relation to health services of organisations such as the Family Planning Association, where there has clearly been a need for services that have not been sufficiently provided by the mainstream health service.

So the demands on charities are growing, but increasingly the Government expect charities to step in and provide where the welfare state is retreating.

Sir Jim Spicer (Dorset, West)

May I pursue the hon. Lady's train of thought? Does she feel that, for example, the Macmillan nursing service and the hospice service—which we all know are a growth area, where so much is being poured in, because people want to do this work—should now be taken over by the state and administered by the state, or does she believe that they should go on? In Dorset we have just raised £3.5 million for our own hospice. That was a community effort; people wanted to do it on their own. Surely the hon. Lady is not suggesting that that should be taken over by the state.

Ms Harman

I think that the role that the hospice movement played was to show the national health service that there was a whole area of unmet need. The charities stepped in to meet that need. Increasingly, the demand has been that hospices, which are a vital service, should not simply be left to charities, but that the national health service should recognise that it has an important role in the care of the dying. That does not mean that the charities do not then have a role in relation to the terminally ill, because what they have done is provide services for the terminally ill at home; they have then moved their pioneering work into another area.

It seems to us that that is what the role of the charities should be—showing the way, developing new services, seeing what works. Then the social services and the national health service should learn from the work of the charities and move in. That is a very important role that the Macmillan nurses, the Crossroads care attendance scheme and the hospices, for example, have played.

If one talks to organisations such as the Crossroads care attendance scheme, they say "We've shown the need for these services. We have shown how they should be provided, but don't leave it to us to try to meet all this unmet need on a charitable basis."

At the same time as there is a growing demand for services, a demand that the social services and the health service are failing to meet, we have seen donations to charities falling, because of the recession. Because we are concerned about the work of charities, I was interested to hear the Chancellor say in his Budget statement on 16 March: Since 1979, the Government have done an enormous amount to help charities … I now have two further changes to propose. He announced proposals for increased tax relief on gift aid and payroll giving. He then said: Taken together, they will boost tax relief on donations to charities by some £30 million in a full year."—[Official Report, 16 March 1993; Vol. 221, c. 192.] Those of us who were listening carefully to hear about the new measures for charities took that to mean that there would be an overall increase from the Treasury in assistance to charities. I am sure that my hon. Friends took it to mean that there would be increased assistance for charities.

I therefore looked in detail at the figures in the Red Book and at the figures in Treasury press releases. I also asked further written questions. When I received the answers, I was horrified to discover that there would not be an increase in tax assistance to charities as a result of the Budget. Quite the opposite is the case. The effect of the Budget proposals on charities will be to take money away from them.

I hope that the Paymaster General will admit that the impression that the Chancellor clearly intended to create —that there was extra help for charities in the Budget—was wholly misleading. There is no extra help for charities in the Budget. In fact, the Government will take more money from charities to help them to fill the growing hole in public finances. That is the first point that I look to the Paymaster General to answer. I hope that he will admit that the tax changes in the Budget, taken together, take more money from charities than they give back.

On the one hand, charities will gain from payroll giving and from gift aid. That is on the plus side of the charities' balance sheet under the Budget. On the minus side are VAT on fuel bills for charities and the reduction in the tax credits on dividends which are affected by the changes in advance corporation tax. We need to consider the effects of the changes over a period of three years, which is the best way to consider the matter. Whichever set of years we take, we find that charities will lose more than they gain. I am not trying to do some numerical trick here. It is fair to consider the effects over three years because the Government will phase in the ACT changes and the changes in VAT.

On the Government's own estimates—I ask the Paymaster General to confirm the figures—the charities will gain £83 million over the next three years as a result of the changes in payroll giving and in gift aid. That is the plus side on the charities' balance sheet under the Budget. On the minus side, on the Government's estimate, VAT on fuel will cost charities £60 million over the next three years. I am grateful for an answer to a parliamentary question which said that, in the first year, VAT will be £10 million and that in the second year it will be £25 million. I presume that it will be £25 million in the following year as well.

On the minus side of the charities' balance sheet is the tax credit on dividends and the effect of the changes in advance corporation tax. According to the Government's own estimates—again, I am grateful for an answer to a parliamentary question which arrived on 11 May—the loss to charities as a result of the ACT changes over the next three years will be £45 million. Over the next three years, the Budget will give charities £83 million, but over the same period it will take away £105 million.

The Paymaster General should apologise to the House for the misleading impression, which the Chancellor clearly intended to create, that the Budget would help charities. The charities will lose on the Government's own figures. The charities believe that they will lost out by more than £22 million in the Government's figures. The charities estimate that they are likely to lose out by more than £62 million as a result of the Budget. They believe that their losses as a result of the changes in advance corporation tax will be more than the £45 million over the next three years in the Government's estimates.

I know that the Paymaster General had a meeting with the Wellcome Trust about the issue. The trust has told me that it told him last week that it would lose £10 million as a result of the ACT changes because of the effect on its dividend income. The trust said that that would be 200 jobs gone in British universities. There is an important point here about medical research, much of which depends on dividend income. We look to charities to provide pioneering medical research; they also provide nurses to back up clinical research. The changes will affect not only posts in universities, but nurses and hospital beds.

Mr. Nigel Evans (Ribble Valley)

I am the chairman of Marie Curie Cancer Care in my local area, so I am keen to ensure that the charity is encouraged to raise as much money as it can for the good work that the Marie Curie nurses do throughout Britain. Has the hon. Lady taken into account in the figures some of the money that will be distributed by the national lottery? It is estimated that more than £200 million will go to local charities. Has she also taken into account the changes since 1979? Despite the recession, which we all recognise, charities are in a far healthier state today than they were in 14 years ago.

Ms Harman

I hope that the Paymaster General will clarify for the House the point that the national lottery was supposed to be additional money. It was not supposed to be a national lottery that would finance charities which do the work that the welfare state should be doing but is no longer able to do. That is an important point.

The hon. Gentleman said that charities were now in a far healthier position. We and the charities do not think that they are in a healthy position. We do not want to move back to a time when basic welfare services were provided through individual donations because the Government had abdicated their responsibility to provide care for the vulnerable and the elderly in our society.

Miss Emma Nicholson (Torridge and Devon, West)

Is the hon. Lady misleading herself and, inadvertently, the Committee by not recognising the way in which funding from charities has been used over the years? With the readers of Woman's Own, I raised money for the bone marrow transplant unit at the Westminster children's hospital. That money came from individual, personal donations.

The national health service union at the time wanted to reject that £1.1 million because it was not public purse funding. That is the reality for charities that have endeavoured to step in. Because of the inbuilt horror of private funding, the NHS unions, for example, and others like them have tried to reject such funding. The Committee should think of how many children would have died if we had not managed to overcome that block.

Ms Harman

Whatever point the hon. Lady is making, it certainly has nothing to do with the point that I am making and bears no relationship to the case that I am arguing. I have been associated with many charitable appeals relating to social services and the health service. Appeals for extra cots for premature babies, extra research and so on have always asked people to help charities to raise money to plug the gap left by the Government's failure fully to fund our national health service.

7.30 pm

Ms Tessa Jowell (Dulwich)

My hon. Friend shares with me the privilege of being a patron of the elimination of leukaemia fund which is based at King's College hospital. That charity has recently raised more than £200,000 to open a state-of-the-art leukaemia treatment suite at King's College hospital—an integrated part of that hospital. The sting in the tail came when the fund had to pay about £25,000 to meet the VAT requirement of the conversion. It is absolutely clear, not that there is any reluctance to receive charitable giving, but that there will soon be a reluctance from people who stand on windy street corners with collecting cans to raise money to make good what this Government have failed to do. People do not shake collecting cans to raise money for the VAT man.

Ms Harman

A great army of charitable workers are prepared to give hours of their time to raise money. There is a sense of justifiable resentment on two grounds. Not only are they raising money—the position will be made worse as a result of the Budget changes—to pay net contributions to the tax man; they will need to raise money because the Government are cutting back on services that many people believe should be provided by the welfare state.

Ironically, this blow will mean that many charities will have to cut their services to meet the VAT bills and compensate for the drop in income as a result of the ACT changes. Many of those charities are in areas formerly controlled by Conservative county councils because those councils failed to develop the necessary welfare services —they simply left it to the charities in those areas.

Barnardos say that the changes in the tax dividends credit will cost them £200,000 in lost income, the Royal National Lifeboat Institute says that it will cost it £250,000 and the Royal National Institute for the Blind says that it will cost it more than £100,000. As I said, the Wellcome Trust says that it will cost it more than £100 million. There is no doubt that the cut in income will mean that charities will have to pay the Chancellor £105 million over three years, together with the VAT on fuel.

Miss Emma Nicholson

It is kind and generous of the hon. Lady to give way to me twice—I appreciate it. I suggest that the figures which she has quoted with compassion and thoughtfulness reflect the top 400 charities. The figures for those charities are published by the Charities Aid Foundation. There are 185,000 charities in the United Kingdom and, therefore, the picture of charities that has been put forward by the hon. Lady is limited.

The charities referred to by the hon. Lady receive substantial central and local government funding. In other words, to suppose that the totality of Barnardos' income—a wonderful charity—comes from people shaking tins on windy street corners is nonsense. For many years, it has received more than 50 per cent. of its income from the Government. That gives a different picture when we talk about that charity giving back in value added tax in terms of central funding.

Does the hon. Lady agree that the projected figures that she quoted will not be correct because they reflect a tiny minority of the charities in the United Kingdom" The Government's effort on lowering the threshold on gift aid and the tax on payroll giving will enable further fund-raising to take place and, therefore, the incomes of charities will probably increase.

Ms Harman

I will not give way to the hon. Lady again because she has completely missed my point for the third time. I mentioned Barnados, the Royal National Institute for the Blind and the Wellcome Trust as illustrations—I was illustrating the Government's figures. The Government have not plucked their figures from the top ten charities. The figures are the Government's estimate of the effect of the changes on all charities. I note that the hon. Member for Torridge and Devon, West (Miss Nicholson) did not dispute those figures, and I hope that the Paymaster General will not dispute them. I remind him that the figures come from the Red Book, the Inland Revenue press release and written answers to parliamentary questions that I tabled.

Let us be absolutely clear. The figures are not simply projections from charities in general or the top ten charities; they are the Government's estimate of the amount that charities will lose as a direct result of the Budget measures. Over the next three years, the Chancellor will receive from charities £600 million from the VAT on fuel and £45 million from the changes to tax credits on dividends. Overall, the Chancellor will gain £105 million from all charities over the next three years.

I should be grateful if the Paymaster General could confirm those Government figures, although the hon. Member for Torridge and Devon, West, who has not looked at them clearly, disputed them. Charities believe that the Government's figure for the amount that they will lose on the ACT changes had been under-estimated—they think that they will lose much more. Of course, I have taken into account the phasing over the next three years.

As for the amount that charities will allegedly gain as a result of the Budget—the plus side of their balance sheets —the Government's answer to a parliamentary question was that the tax change for payroll giving would mean that charities will benefit to the tune of an extra £1 million a year. We then examine the Government's estimate that charities will gain as a result of the change to gift aid.

The Government estimate that the additional income on the changes to gift aid and its taxation treatment will be £80 million every three years—first £20 million, then £30 million and then £30 million. Even if one accepts those figures, charities will still lose about £22 million over three years. Charities think that that figure for gift aid is wildly optimistic.

A survey carried out by the Charities Aid Foundation shows that, between January 1991 and December 1992, 64 per cent. of charities experienced a real decrease in total income because of the recession, 67 per cent. reported a fall in new donations, and 61 per cent. said that there had been a fall in corporate donations. The income for charities from individual and company donations has fallen, yet the Government say that an £80 million tax credit will be available to charities as a result of the Budget change for gift aid. How do they work out that figure? They have assumed that there will be a spectacular increase in donations to charities from individuals and companies. It simply cannot be right that the Government can assume such an increase. Where is the evidence to justify that assumption? The evidence simply does not exist.

The charities do not believe that there will be an upsurge in charitable donations. If they are to benefit to the extent that the Paymaster General and the Government say from gift aid changes in the Budget, they must attract 45 per cent. more donations than last year. They cannot see how they will do that. Charities will have to receive £60 million more in donations of between £250 and £400 to attract the £20 million of extra tax relief in the Government's first estimate. Thereafter, they would have to receive an extra £90 million per year to attract the £30 million of relief next year and the year after in the Government's estimate. So when receipts from donations to charities have fallen, the Government offer an estimated benefit from gift aid, which has at its heart an assumption of huge increases next year, the year after and the year after that.

I hope that the Paymaster General will tell us how on earth he justifies what we regard as wildly over-optimistic figures for gift aid. Even if he is not prepared to accept that he has made an over-optimistic assessment—we believe that he should—he must not wriggle out of the argument that, even on his own figures, charities will lose significantly as a result of the Budget.

The work of charities is important. I would be important in any circumstances, but it is even more important when the Government are drawing back the welfare state and increasingly people are having to rely on charities. I hope that the Paymaster General will at least have the courage to admit that the Budget makes charities worse off. I hope that he will explain how he justifies making charities worse off in the next three years. I hope that he will also justify saying that charities will benefit to the extent that he says when the figures assume an increase in donations which charities simply cannot envisage in the next and ensuing years.

The Paymaster General (Sir John Cope)

It might be helpful if I intervene now and respond to any points made later in the debate if that is necessary. I am not sure whether it is strictly necessary for me to declare an interest. In a formal capacity as the Paymaster General, I am a trustee of the Royal Hospital Chelsea and hence of some of the related chairities. I am also treasurer of the Royal Patriotic Fund Corporation. I am also, in a personal capacity, trustee of a small charity which helps a children's clinic in east Jerusalem and of a church restoration charity. I hold a non-executive office in several other local charities.

The hon. Member for Peckham (Ms Harman) did not speak much about the clause. She widened the debate considerably. I shall first say a word about the clause and the amendment and then deal with some of the general points that she made.

The clause reduces the minimum limit for gifts to charities which qualify for tax relief under the gift aid scheme from £400 to £250 for gifts made by individual donors and close companies on or after 16 March 1993. I emphasise that date for reasons which will become apparent a little later in my remarks.

7.45 pm

The gift aid scheme was widely welcomed when my right hon. Friend the Prime Minister introduced it in 1990 when he was Chancellor of the Exchequer. It has already given substantial help to charities. The figures for the latest quarter have been published today. They show that during the tax year 1992–93 charities claimed tax relief repayments of some £73 million on gift aid donations of £218 million. That means that, over the whole period from October 1990 to the end of 1992–93, charities claimed tax repayments of £138 million on donations of £414 million.

As the House will be aware, the minimum donation was originally £600. It was then reduced to £400 and is now £250.

Mr. David Hanson (Delyn)

Does the Paymaster General have a breakdown of the figures for gift aid donations between charities? We have heard about the top 400 charities. Before I was elected to this place I was the director of a small charity. We had limited gift aid resources simply because the infrastructure needed to generate gift aid and payroll giving cost the charity money. That expenditure would have been speculative because we might not have obtained a return from it. I should be interested to know whether the wealth generated by gift aid and payroll giving schemes goes to the largest charities, which often do not need the money as much as the smaller charities in order to survive.

Sir John Cope

That is arguable, to say the least. The figures that I gave were for all charities of all sizes. I am afraid that I do not have a breakdown of them. It is not known how the figures break down between charities of different sizes. However, gift aid goes to charities of all sizes. Some small charities as well as large ones benefit. It depends to an extent on how much charities seek gift aid donations as opposed to other types of donation. Every charity has a different pattern of giving which it has built up historically and by which it lives.

The figures which the hon. Member for Peckham kindly gave the House were an estimated cost to the Exchequer as a result of the changes that we propose in the clause of £20 million this year and £30 million next year. I readily accept that that is not a precise estimate. The cost depends on the take-up of the relief by donors from year to year and on other factors. However, I hope that donors will take full advantage of the relief.

The hon. Member for Peckham implied that charities would need to receive £60 million more in donations to attract £20 million this year and an equivalent figure next year. But the relief will also apply to existing donations of £250 to £400 which might have been made in any case. So they would not necessarily all have to be new donations. They would be new to tax relief, but not necessarily new donations. The figure is not entirely inexplicable. I readily accept that it is an estimate. No one can be sure. We shall not be sure even when we see the figures at the end of the year exactly how much came from the Budget change. But that is the best estimate that our officials were able to make.

Sir Jim Spicer

The hon. Member for Peckham (Ms Harman) delighted in painting a doom and gloom scenario that was completely unjustified. Our new hospice, the small charity that I mentioned, had great difficulty in obtaining £600 donations. We then had a second crack at obtaining £400 donations. Now we are going out for the third time to obtain donations of £250 and we expect an enormous amount to flow in during this year. I should love to know how many hon. Members contribute through the payroll giving scheme, because I should have thought that there was considerable scope for an increase on that front alone.

Sir John Cope

I am not sure about other hon. Members, but I make a small payroll donation to one charity. Payroll giving relief has not been exploited as fully as it might have been. I hope that it will be developed more by charities in future, as my hon. Friend suggests. That would be a good thing because, as has been made clear —we shall come to this upstairs on clause 68—it is a small scheme in comparison with gift aid or other areas of tax relief in the amount of tax relief that it gives to charities, so it is capable of development from charities' point of view.

That makes the point that gift aid is only one of a range of measures. The amendment suggests that we should have brought the relief down to £200 instead of £250. The hon. Member for Peckham did not specifically address that in her remarks. But part of the reason why we did not is that we were anxious not to undermine regular giving by covenants and by the payroll giving scheme.

Many of the smaller charities to which the hon. Member for Delyn (Mr. Hanson) referred, such as churches, rely quite heavily on covenanted income. It gives them the assurance of a regular income, which they like from a planning point of view. Too large a reduction in the gift aid minimum donation could have had a substantial impact by reducing that income. That point has been made to us by the Charities Tax Reform Group among others and it is one that we took seriously.

That is why, when we examined the level of the minimum donation, we took the figure of £250 as providing a balance between encouraging more donors to take advantage of the gift aid scheme while at the same time safeguarding the interests of those charities that depend heavily on covenant income. Therefore, we do not recommend the amendment. However, the hon. Lady did not press it strongly, so she may have some sympathy with that part of my remarks.

The hon. Lady said that the role of charities was basically pioneering. I do not agree. That is part of the role of charities and it is a perfectly legitimate element of the activities of some charities, but many charities also have a continuing basis.

Charities cover a wide range of activities and are tremendously different. Some charities are large with big staffs and operations at home and overseas. Others are extremely small and run entirely by volunteers and the arrangement of their income differs a great deal. It is difficult to talk sometimes about charities except in terms of averages, which can be considerably misleading.

The hon. Lady accused my right hon. Friend the Chancellor of the Exchequer of being inaccurate or misleading in what he said in his Budget speech. But he was entirely accurate in what he said specifically about what has turned into this clause and clause 68, which was the passage that she read out, and also in what he said about advance corporation tax and charities in another part of his speech when he was talking about the changes that were being made at that point.

The hon. Lady also attempted a calculation based primarily on our figures in the Red Book and in answer to parliamentary questions to show the possible effect on charities of the Budget as a whole, taking the first three years. I hope that she will forgive me for pointing out that she was slightly inaccurate in the way that she put the figures together. On the giving side, as I said earlier, the provisions for relief on gifts apply immediately from the time of the Budget. The hon. Lady was correct in saying that we do not expect that payroll giving will involve more than about £1 million a year from the Exchequer and gift aid will be £20 million, £30 million and £30 million. That calculation was correct at £83 million.

However, I immediately add he caveat that I gave earlier. These are broad-brush estimates. I entirely accept that they are not and cannot in their nature be precise estimates of exactly what will happen. They are the best estimates of the likely effect of which I and my right hon. Friend have been advised.

The hon. Lady correctly identified the items that cost charities money, but she seemed to forget that VAT on fuel and power does not apply until next year and does not apply in full for two years. Dividends have a small implication this year. We estimate that it will be about £5 million on charities in 1993–94, £15 million in 1994–95 and £20 million in 1995–96. Again, that is a broad estimate, not a precise figure. I am not sure that we shall ever be able to give a precise figure in that respect.

If one accepts the estimate of VAT, the cost of that for charities is nil this year, 1993–94, because it does not apply at all, approximately £10 million in 1994–95 and £25 million in 1995–96. Those, taken together, total £75 million. The net effect of the Budget on charities during the first three years is a positive benefit of about £8 million. Therefore, the hon. Lady's point is not nearly as strong as she made it out to be. However, of course it is correct that there are items in the Budget that cost charities money, or reduce their income. We readily accept that that is the case and have acknowledged that throughout.

In part, it is true, too, that when we have reduced income tax the relief goes down. That has always been true. The traditional reliefs, as well as the gift aid and the other new reliefs that we have introduced, are less valuable if there is less income tax to refund to a charity on its income.

Nevertheless, because of the extra giving that has been encouraged, in part because of the extra money that people have in their pockets when they pay less income tax, for example, and because of the changes over the years, in 1979–80 direct tax relief for charities amounted to £175 million. In 1992–93, the year just gone, despite the reductions in income tax, and hence the reductions in money going in reliefs in that kind of way, the total had risen to £779 million in direct tax reliefs alone. There are also some special reliefs on VAT, both those that have been more recently introduced and those of longer standing. I do not believe that the reduction in income tax rates has damaged the income of charities.

These arguments are relevant when trying to calculate what the effects might be of Budget changes, including these changes. I believe that my right hon. Friend was right to introduce into his Budget the provision that is embodied in this clause. It was right to set the limit at £250 for gift aid and to make the payroll giving improvements which come under another clause. It would not be right, therefore, to accept the amendment.

8 pm

Ms Liz Lynne (Rochdale)

I agree with the amendment. The Government have made certain concessions, but they do not go far enough. Furthermore, the amendments do not go far enough. The gift aid and payroll giving concessions do not make up for the present shortfall, especially after the implementation on 1 April of community care. Many charities and voluntary organisations will have to pick up the pieces, because local authorities will no longer be able to provide various services. They will be unable to do so because the Government have not provided them with sufficient money to meet their community care commitments.

Charities will face tremendous problems in the present economic climate. People are in difficulties over giving money to charities. The result of unemployment in Rochdale and elsewhere in the country is that people are cutting back on their charitable giving. If there is an increase in gift aid and payroll giving, there is bound to be a decrease in other charitable giving. People have only so much money that they can afford to give to charities.

Charities do a worthwhile job. I have been the sponsor and patron of various charities for a number of years and I welcome the work that they do, but they should not do what health authorities and local authorities ought to be doing. For charities to receive an additional £30 million in gift aid, as the Government have suggested, would mean a staggering 83 per cent. increase in giving. No hon. Member can imagine for one moment that anyone will increase their giving by 83 per cent.

The change in the tax system introduced by the Budget will lead to charities receiving only 20p in the pound on investments. The Chancellor has admitted that over a number of years that will lead to a reduction of £50 million a year in dividend income. I have not plucked that figure out of the air, but that is not what the charities say: they say that their dividend income will probably be reduced by £100 million.

The Government's concessions will not meet the present shortfall. Charities are extremely worried about the future. I spoke this evening to representatives of one charity who fear the effects of a decrease in charitable giving. The hospice movement, which does a very good job, is in great difficulties. It is competing against other charities. I support my local hospice, but I am told that it will be unable to attract the amount of money that it needs because VAT on fuel and power will hit so hard. The fact that there is no VAT exemption for charities is despicable.

The Government say that they want to help charities, but they have done nothing to help them in this Budget. I hope that they will do more in the autumn statement than the feeble attempt that they have made to help charities in this Budget.

Mr. Alan Howarth (Stratford-on-Avon)

I welcome clause 67, which will lower the minimum limit for gift aid from £400 to £250. This is the second time in the short history of gift aid that the Government have sought to lower the limit. As my right hon. Friend the Paymaster General has just told the Committee, gift aid has already proved itself to be a most valuable instrument for raising money on behalf of charities. This reform is a modest improvement to the scheme, but it needs to be seen in a larger context—the progressive development of fiscal support for charities throughout the life of this Government.

In 1980, Sir Geoffrey Howe doubled the capital transfer tax exemption on bequests to charities to £200,000. He also exempted charities from development land tax and reduced the minimum period for covenants from seven to four years. Year after year since then, in Budget after Budget, in Finance Bill after Finance Bill, we have seen the development of fiscal incentives and tax reliefs to encourage charitable giving and to support charities.

Mr. David Hanson (Delyn)

Did not Lord Howe also double VAT to 15 per cent. which, as the hon. Member for Rochdale (Ms Lynne) said, cannot be claimed back by charities and is a heavy burden upon them? Whatever the tax concessions given by the Government may be, was not the doubling of VAT to 15 per cent., and its extension to 17.5 per cent., a greater burden than any tax concessions by the Government could offset?

Mr. Howarth

It is true that VAT was raised substantially at that time, but the purpose was to enable income tax to be brought down. Lower levels of income tax have made a huge difference to people's capacity to make their own decisions as to how to spend their money. That is one of the reasons for the substantial growth in charitable giving in the past 14 years.

Sir Terence Higgins (Worthing)

Is it not the case that when value added tax was first introduced it proved impracticable to give complete VAT relief to charities and in the early 1970s concessions were made to charities which were sufficient to offset that tax? Subsequently, time and again there have been further reliefs for charities. There cannot be the slightest doubt that if one took away all the concessions that have been made to offset the effect of VAT and got rid of the VAT problem itself, charities would be a great deal worse off. Is it not a fact that the measures taken to offset VAT are far more beneficial to charities in relation to the impact of VAT?

Mr. Howarth

My right hon. Friend speaks with particular authority on these matters. He was, indeed, the father of VAT—a title of which he is justly proud. I acknowledge the force of my right hon. Friend's argument.

Ms Lynne

According to the Government's statistics, there will be a loss of £22 million over the next three years. The figures provided by charities suggest that the loss will be even greater than that, so I do not understand the point made by the right hon. Member for Worthing (Sir. T. Higgins).

Mr. Howarth

The hon. Lady diverts me from the development of my argument. If she will allow me to do so, I shall try to make progress. We shall no doubt return to this issue at a later stage of the debate.

What I hope to demonstrate is that the reforms, albeit modest, that the Budget makes in the interests of charities have to be set in the longer-term context. Under the 1983 Budget, the wages of staff seconded to work for charities were made allowable against tax for their employers. In 1984, tax relief on family cars which had been substantially adapted for use by disabled people was extended. In 1986, the tax treatment of close companies was reformed in the interests of charitable giving and payroll giving was introduced. The Bill marks the fifth occasion on which the Government have sought to develop and improve the payroll giving scheme. We have seen VAT concessions, such as that in 1989 on fund-raising events.

Taking all those measures and many others together, the value of charitable tax reliefs is now about £900 million. There is therefore no doubt whatever about the Government's commitment to support charities and the consistency with which the strategy has been developed. I know that my right hon. Friend the Minister's personal commitment and his sensitive awareness of the needs of charities are well appreciated in the charitable world.

The history that I have briefly related has made eminently good sense. It is appropriate that a Conservative Government should nurture a tradition of charitable giving which dates back at least to the Elizabethan Statute of Uses of 1601. Government have an indispensable, bedrock role in the relief of poverty and in the provision of care for people in need, but it is essential that we also build local and personal responsibility, that we mobilise the generosity of society and that we encourage the better parts of human nature.

In the words of Sir William Beveridge in 1942, what is needed is a comprehensive policy of social progress. Beveridge always preferred to talk in terms not of a welfare state but of a welfare society, and it is always necessary to improve both the welfare state and the welfare society. They are part of each other. It is always necessary to think anew about how we can better match the resources of society to the developing challenges that we face. I put it to the hon. Member for Peckham (Ms Harman) that state bureaucracies are a necessary but insufficient means to this end.

Let us recollect that the origins of the welfare state are twofold. It derives from 19th century paternalism and from 20th century egalitarianism. Its origins are political and its manner of operation is bureaucratic. It is magnificent, but it is limited. It is powerful, but it is inevitably crude. People's needs vary infinitely. No one's needs conform to any standard and the problems of individuals are not susceptible to remedy by standard means. The state must provide basic guarantees—indeed, it must provide more than basic guarantees—but charities are an essential complement to the state. I was sorry that the hon. Member for Peckham was unwilling to see charities in that role. She spoke of charities as gadflies and as pioneering. She is right on both points, of course, but I should like her to acknowledge that charities are indispensable and valuable permanent partners to the state in its undertakings.

Charities, after all, have qualities that I would term entrepreneurial. The hon. Lady may feel that that is a term imported from an alien culture and that it is inappropriate. But at their best, charities are motivated to find out and meet demand, and to respond to changing needs. They work from the bottom up, not from the top down. They have a depth of local knowledge and a sensitivity to local circumstances. They are animated by the enthusiasm of their staff and their voluntary workers and not by direction from on high in big organisations. They sit loosely to convention. They are willing to experiment and innovate. They are energetic. They have a delicacy and a precision that the broad brush of bureaucratic provision inevitably lacks. They respond to individual needs and not to the abstractions of policy.

I do not mean to idealise charities. Too many charities are hidebound, timid, amateur and incompetent, but the best are creative in the senses that I have described arid we need them more than ever. Clause 67 is right and necessary because it builds on the support that the Government have given to charities.

Charitable and voluntary work meets the needs not only of the recipients but of the givers. To help one's fellow men and women has a profound appeal to many people. I think, for example, of retired people looking for outlets for their energies and talents. I think of those for whom the ordinary routines of getting and spending are simply not sufficiently satisfying in their personal lives. I think, too, of unemployed people, and in this regard this week's Incomes Data Services report offers us all matter for reflection.

8.15 pm

It is, of course, very encouraging that unemployment among women had fallen to about 5.6 per cent. at the start of the year. But unemployment among men remains high at 14.1 per cent. We cannot realistically hope that the gap will quickly close, and the important challenge to policy makers is to help those men find a role in our society. Through voluntary work, many people can feel needed, they can contribute and they can recover a sense of belonging. Through voluntary work, their self-esteem and self-confidence can be restored. They can develop practical skills, after which they will find new opportunities for themselves.

I agree very much with my right hon. Friend the Prime Minister, who said in a speech at the beginning of February: I believe we must do more to recognise, support and encourage the habit of volunteering, which cements together our society and is one of the great glories of our national life. That means strengthening volunteer bureaux such as the excellent one in Stratford-on-Avon, and although it is a delicate and sensitive task for Government, they must do what they can to assist the development of neighbourhood networks of volunteering. If we can do that, we shall provide opportunity for many people for whom we ought to find opportunity, and we shall strengthen the bonds of our society. It is interesting to note that, a month after my right hon. Friend the Prime Minister's speech, President Clinton announced his scheme for national voluntary service in the United States.

On 2 March, I asked my right hon. Friend the Prime Minister whether the Government would look systematically to identify and eliminate obstacles which at present discourage voluntary work and charitable activity, including aspects of eligibility for both unemployment benefit and invalidity benefit". [Official Report, 2 March 1993; Vol. 220, c. 135] Shortly after that, I was glad to be one of the sponsors of an all-party early-day motion, No. 1597, which asks the Government to change the availability-for-work regulations to allow a volunteer seven days in which to give up a voluntary position, to alter the regulations for out-of-pocket expenses, to allow unemployed people to attend voluntary work camps throughout the European Community as well as in the United Kingdom, and to require those who advise benefits claimants to use discretion to encourage volunteering and not to limit it.

I do not have in mind—nor, I believe, do the other signatories to the motion—a scheme of compulsory workfare. What we are thinking of is encouraging those who want to give back to society in exchange for the support that they have received. I put it to my right hon. Friend the Minister that that is complementary in its spirit to the citizens charter, which properly insists on the rights of individuals. We need equally new emphasis on the obligations of the citizen.

In reality, we have no option but to proceed towards decentralisation, to diversification, to partnership and to enhancement of the role of voluntary work and charities. The age of centralised bureaucratic government is passing. We live in a society in which information is disseminated instantly and in which our citizens are educated, confident and insist on their independence. In any case, we are driven in this direction by a fiscal imperative: it is no longer possible, if ever it was, for Government simply to raise more and spend more.

We are all aware at the same time of the growing demands in our society for better quality services and for new varieties of services, such as the hospices that my hon. Friend the Member for Dorset, West (Sir J. Spicer) mentioned. We therefore have no option but to find new ways of meeting social need. The role of Government is to mobilise the resources of society, to empower and to provide incentives.

In that process, I have no doubt that local government must play a major part and must be welcomed in its role. If we ask for neighbourliness we must certainly respect and encourage the sense of local community. For the purposes of my argument it does not matter whether local government is controlled by the Conservative party, the Labour party or the Liberal Democratic party, but I am sure that we need flourishing local communities able to express themselves and to pursue their aspirations through the institutions of local government.

That sense of local community will be expressed not only through local government but through an abundance of local voluntary organisations and local enterprises all working in partnership. What I advocate certainly does not entail any abandonment of responsibility by central Government, who should use their leverage to shape local and private decisions so as to enable us better to pursue our social goals.

Much of what I have described is already happening. Care in the community is a conspicuous instance. The Government have been right to entrust the lead responsibility for care in the community to local authority social services departments, but it is also right that social services departments should not seek to do everything directly themselves through bureaucratic provision. Central and local government are taking charities into a new and much more formal partnership in social provision. That makes it incumbent upon us to think clearly about the role of charities and about what the impact on them of this new dispensation may be.

For example, before 1 April 1993, residential care was frequently provided by charities and paid for by residents subsidised by public funds from the Department of Social Security. Since that date, when funding was transferred from the Department to local authorities, charities have been contracted to become part of a publicly provided service. I accept that change, but let us be clear that it is a change of profound and far-reaching importance to charities. We will need to observe carefully the impact of the new dispensation on the nature of charitable activity and motivation.

That makes it all the more important to distinguish between funding charities through grant or fee to perform contractual functions, and supporting charities through fiscal relief to enable them to use their own initiative for the betterment of society. Both those roles for charities are essential. However, the latter—the encouragement of charities to use their own initiative and entrepreneurial energy for the betterment of society—needs sensitive consideration, given the difficult financial climate that they have had to face. The difficulties are well documented in the Charities Aid Four-illation report, "Charities in Recession".

As other hon. Members have said, during the recession there has been a decline in voluntary giving and a falling away of the income of charities. Public expenditure constraints have meant that local authorities are less well placed to direct funds towards charities. We must also consider what the impact of the Government's decision on the urban programme may be. There are further uncertainties about the future of city challenge. I hope that city challenge will have an important part to play in future policy because it seems to be one of the most creative means of mobilising the resources of the community that we have yet seen deployed in this country.

I welcome the clause, and the proposed improvements to the gift aid scheme and to payroll giving. There is an argument, to which my right hon. Friend the Paymaster General referred, that if the limit of gift aid is reduced there will probably be a falling off in the number of covenants made. That is a valid fear, but it is also fair to note that for many years charities lobbied for what was called the single-year covenant, so perhaps they do not have absolute grounds for complaint.

I have to say—and I say it with sadness—that on balance this Budget disadvantages charities. It might be said that that is no great surprise. Charities are a huge presence in our national life and in our economy. In 1990, there were 171,434 registered charities with income in the order of £17 billion or more than 3 per cent. of gross domestic product. Charities employ at least 200,000 paid staff and there are about 1 million charitable trustees in our society. Perhaps, therefore, it is inevitable that, in a year when the Government are bound to raise taxes, charities will have to bear some of the brunt. Indeed, it would be difficult to exempt them entirely. All the same, I greatly regret the fact that charities are being asked to face an increased VAT burden, and I regret that the impact of the change in advance corporation tax, notwithstanding the transitional relief, seem certain to be so detrimental.

I ask the Government to stand back and consider the overall, net impact of their policies. It is worth asking whether, even at a time when general taxation has to increase, it is appropriate to increase the burden of taxes on charities. Charities should not be compared with private individuals or companies. As I have said, the Government are asking them to play an increased role in social provision. For all the reasons that I have sought to explain, the Government need charities, and my right hon. Friends should consider carefully the consequences of simultaneously reducing the resources available to them.

We must contemplate not only the measures in the Bill but, for example, the impact of the council tax on certain charities. Most residential homes run by charities have in the past been exempt from rates, but charities are not entitled to an exemption from the property element which represents 50 per cent. of the council tax. Transitional relief is being provided, but the Leonard Cheshire Foundation estimates that after the transition the change will cost it £210,000 a year. That aspect of the council tax will also be a disincentive to charities to subdivide their larger homes into smaller, homelier residential units, which would otherwise be desirable for care in the community.

We must also bear in mind the impact of the national lottery, which will inevitably divert some money from charitable giving. Although it is not properly the subject of today's debate, I hope that my right hon. Friend will be willing to contemplate an amendment to the Bill so that instead of a 12 per cent. tax being imposed on lottery ticket sales, winnings would be taxed so as to enable a larger proportion of the money spent on the lottery to go to good causes.

It is important to examine the overall impact on the charitable sector of the policies simultaneously being pursued by the Government.

I would not vote for the amendment and I am not even sure whether the hon. Member for Peckham will invite me to do so. None the less, it has provided a useful opportunity for debate, although we all know that, if carried, its practical effect would be relatively trivial in the context of the larger issues that we have discussed.

I ask my right hon. Friends in government to develop in the range of their policy making a clearer and more consistent concept of what they are asking of charities, and to ensure that an appropriate range of supportive fiscal policies is in place.

8.30 pm

Miss Emma Nicholson

My hon. Friend the Member for Stratford-on-Avon (Mr. Howarth) made a splendid, wide-ranging speech about the impact of charities on people who give, on people who help and on people who receive help. That veritable tour de force by the chairman of the all-party group on charities was a wonderful speech to listen to and I am grateful to be allowed to follow it, although I shall employ a slightly different mode of thinking.

We are debating how charities are funded and where the funds are found. As a derivative of that discussion, we have strayed into the subject of what work charities perform. We have also talked a little about what we believe charities should contribute to our society's social welfare and educational structure. The two small planks on which the whole discussion has been built are the ways of giving to charity —gift aid and payroll giving. I refer to them as small planks because the enormity of charitable giving outstrips them by far.

I am glad that a number of hon. Members have commented on various ways of giving. I stress that payroll giving can never be the largest source of income for a charity. Opposition Members who have talked about payroll giving as if it were something that could transform a charity's income may have been misleading themselves. That was never the intention.

Payroll giving was started in 1947 by a Jewish charity called Children and Youth Aliyah—the British arm of a Zionist movement. The charity was set up to raise funds to settle Jewish children from various countries in Israel. It was formed by people who had small factories. In order to get their staff and their families—these were often family businesses—to contribute, payroll deductions were started.

There was a link-up with the Save the Children Fund at about that time and the two charities ran the scheme together. For many years they were the only charities to do this. It was a combined operation. Why only two charities? Because it is a very labour-intensive scheme to run. A very large number of people are being asked for small sums of money. To make payroll giving effective at that time, a factory's entire work force had to agree to give. Otherwise it would not have been worth the effort of the payroll clerks, cost accountants and finance directors. This was a very difficult type of fund-raising to run. It depended heavily on organisers going in and persuading people on the shop floor to give.

Now that the Government have stepped in, the situation is much easier. Payroll giving has been transformed into an eminently possible source of funding, albeit still on a relatively small scale. It is on a small scale because people are being invited to contribute regularly from their pay. They have to make a personal commitment. However, the system is infinitely easier now that the Government have stepped in and made it possible to do things which we in the Save the Children Fund did with such difficulty for so many years.

Gift aid is wonderful, but it will never be the largest source of charitable giving. By far the largest source of charitable giving in this country is events to raise money. Indeed, I hate to tell hon. Members that the preferred United Kingdom means of raising funds is jumble sales. People love to give a little while they enjoy some activity. British people give with a sense of fun and merriment to causes that meet needs which are sometimes of deep social and personal significance. This is particularly true of overseas causes.

Some years ago the classic model of a charitable giver was a middle-aged lady—a churchgoer or someone who attended the synagogue regularly or went to the mosque. One would encounter a high proportion of widowed people and quite a high proportion of professional people. Those who went to church tended to give to one special charity, with two runners-up; those who went to the synagogue gave regularly to 25 charities; those who went to the mosque were involved in quite a wide spread of charitable giving.

I do not wish to attribute to the Government a greater impact upon the charity world than has taken place, but, from my own substantial experience in this field, I have to suggest that the Government have transformed the donor profile. Consider Comic Relief and the way in which younger people are now contributing so much more. There is a wider variety of options for giving, and this year's Budget reflects two small but significant methods that the Government have pioneered. A much broader section of the population is now involved in charitable giving.

Contrary to what several Opposition Members have said, the United Kingdom is exceptionally generous in its giving. The generosity is shown both by individuals and by the Government. We are tenth in the league of donors internationally, and as individuals we are second or third. Britain has always been a profoundly generous nation. It has always been generous to people in need, both at home and overseas. In the recession the income of some charities has indeed gone down, but it should be borne in mind that the income of some has increased. That applies to many overseas aid organisations.

It is not too far-fetched to suggest that British givers put their money where they see the greatest need. Perhaps they have not been giving quite so generously to some charities that operate in the domestic field as they are aware of the greater state provision. Despite all the talk about cuts, I am aware that some national health service figures are going through the ceiling. The same thing applies to social services provision—what Opposition Members refer to as the welfare state. Is it possible that British donors believe that their money is better targeted to areas where there is little or no state provision? Is it possible that they wish to leave to the state those areas where the state is making full, rich and complex provision?

It is difficult for the Opposition—particularly for the Labour party, with its desire for total state provision—to accept that charities have a real and continuing part to play. I do not for one moment doubt the generosity of many individual Opposition Members. Indeed, some of them have assisted my own small initiatives to help the helpless. I know how tough the situation is. Opposition Members talk about a pioneering role for charities. A pioneering role is one thing, but the continuation of provision is surely also a proper function of charities in our most modern of welfare states. There are many actions in which the state should not get involved.

Take Relate as an example. People who are helped by that organisation do not say that the Government should take it over, that provision should be made by the state, and that the welfare state should be tampering with their marital breakdowns or personal-relationship difficulties. What the public ask is that the Government continue to fund Relate generously and regularly so that this voluntary, or quasi-voluntary, organisation may continue its work. I am referring not to its pioneering work but to its continuing work. Meals on Wheels is much more old-fashioned, but is still valuable. The Government fund it, but nobody suggests that they should take it over and deliver the meals, depriving people of the love and care that come with the service.

I suggest that charities have a continuing role, woven into the weft and warp of our social services and our health and education provision.

I am one of the two founders of a charity called Cities in Schools. It is an odd title which came about because Mrs. Carter read it back to front; it was meant to be "Schools in Cities". It is a new initiative, based on a United States model which we have converted to a United Kingdom perspective. It is non-political, as is proper for charitable efforts, and targets truancy.

I do not believe that we will have a pioneering role which will enable us to work ourselves out of a job. We are helping children back into mainstream education in Cardiff, Bethnal Green, Tower Hamlets and other places. Our uniqueness is that we are not a Government body but a voluntary organisation. Cities in Schools involves a mixture of volunteering, enthusiasm and professionalism, and is backed by the local community, the educational system and local businesses.

That brings me to another point about charitable giving. It is measurable not just in money, although that is a terrible thing to say with the Financial Secretary sitting in front of me. Cash is an enabler, but there are other forms of giving. Burger King assists Cities in Schools in the provision of buildings. Other companies give major gifts in expertise, management and work experience. The Opposition do not much like business involvement in charities, but that is the way to turn young lives away from truancy and bring them back into the main stream. Why do I think that our work will continue? Because I do not believe that truancy will stop tomorrow or that the heavy hand of the state can have the same effect on those youngsters as we can.

Charitable effort is a continuation of the work that so many of our forebears did historically before the welfare state came into existence. The United Kingdom has a wonderful inheritance of charitable work. We heard a reference to 171,000-plus registered charities, but there must be just as many which are not registered and which carry on a great deal of work. Many of them are very small and have no staff. Many are funded completely voluntarily and do not obtain money from Government.

How very different their perspective is from that of the larger charities, the top 400, which are so often quoted as the charitable world because the Charities Aid Foundation takes their income, expenditure and style of activity as the norm. It is not the norm. Their expenditure on advertising, salaries and cars, for example, is beyond the norm. Most charities are run very economically and are very much smaller. In most cases their efforts are overlooked.

We have strayed a long way in the debate from gift aid and payroll giving, but that straying has been thoughtful and should encourage the Government to continue thinking of ways to assist the work of voluntary organisation. I make no apology for talking around the profile of the giver and the way in which the work of charities enlarges the work of the state. Those points were raised by the hon. Member for Peckham (Ms Harman) in her criticism of the initiative by the Government. It is right and proper that we should respond to her.

I pay tribute to the great generosity of the British people in their giving. I thank the Government for the many ways in which they have made giving more attractive for donors in recent years. In the past couple of years, I have raised £3 million to £4 million and I never fail to be astonished at the imagination and sensitivity of people in recognising need and in giving time, professionalism, expertise and money. Again I thank the Government for making it easier for donors to be generous.

Amendment negatived.

Clause 67 ordered to stand part of the Bill.