TRANSITIONAL RELIEF FOR CHARITIES

HC Deb 10 July 1979 vol 970 cc391-415 (1) Where a charity (within the meaning of section 360 of the Taxes Act)—

1. (a) was entitled, by virtue of the exemption granted under subsection (1)(c)(ii) of that section, to repayment of tax under Schedule D for the year 1977–78 in respect of an annual payment received by it under a disposition (other than a disposition made for a consideration in money or money's worth) under which the amount actually payable did not vary with the standard rate of income tax; and
2. (b) is so entitled for the year 1979–80 or any of the three subsequent years of assessment in respect of any annual payment received by it under that or a similar disposition which was made before 12th June 1979 and not varied on or after that date;

' the charity may, in addition to making a claim under that section for any of the years mentioned in paragraph (b) above for which it is entitled as mentioned therein, claim relief under this section; and on a claim so made it shall be entitled to be paid by the Commissioners of Inland Revenue out of moneys provided by Parliament an amount equal—

1. (i) for the first of the years mentioned in paragraph (b) above, to the difference specified in subsection (2) below;
2. (ii) for the second of those years, to three-quarters of that difference;
3. (iii) for the third of those years, to one-half of that difference.

(2) The difference referred to in subsecion (1) above is the difference between—

1. (a) the aggregate amount of the repayments to which the charity was entitled as mentioned in paragraph (a) of that subsection; and
2. (b) the aggregate of what those repayments would have been if the standard rate for 1977–78 had been 33 per cent.

(3) A claim for relief under this section must be made not later than two years after the end of the year of assessment to which it relates and, if it relates to the year 1979–80, not earlier than 1st October 1979. (4) Where the activities of a charity which has ceased to exist are carried on by another charity, this section shall apply as if that other charity had been entitled to any repayment of tax for the year 1977–78 to which the charity which has ceased to exist was entitled.'. —[Mr. Paul Dean.]

Brought up, and read the First time.

10 p.m.

Mr. Paul Dean (Somerset, North)

I beg to move, That the clause be read a Second time.

The Temporary Chairman

It will be for the convenience of the Committee to discuss at the same time new clause 26 entitled " Donations to charities by companies ".

Mr. Dean

I realise that on the fifth day of the Committee stage hon. Members will hope that I shall be reasonably brief. However, this is the first occasion on which the important subject of charities has been debated, and I hope that the Committee will permit me to deploy the main arguments.

The object of the clause is to provide transitional relief for charities to help compensate for their expected loss of deed of covenant income as a consequence of the income tax reductions in the Bill.

This is a modest proposal. It has a precedent in the Finance Act 1973. It follows very closely an amendment which was eventually accepted during a discussion on that Bill. It asks for relief for charities which tapers off over a three-year period. In the first year there would be full recovery of income tax on the basis of a standard rate of 33 per cent. In the second year there would be recovery of three-quarters of that sum, and in the third year recovery of half.

We ought to consider what effect the Bill will have upon charities. Charities expect that they will lose about £3 million a year in deed of covenant income as a result of the welcome reductions in taxation now proposed. In addition, the increase in VAT will cost registered charities over £1 million a year. These figures have been provided by Ministers.

Further, there will be an unspecified sum for the 100 or so small charities which are not registered for VAT. We are therefore discussing here a reduction in income and higher costs for charities as a result of the Bill. It is almost bound to have an adverse effect on the range and scope of work done by charities.

In replying to the debate, the Minister will probably say that if income tax were to be increased charities would benefit. I hope that he will not use that argument, because we now have a Government who believe in reducing income tax. The result of this for charities is that worse will come next year when my right hon. and learned Friend the Chancellor reduces income tax still further in his next Budget. I therefore hope that the Minister tonight will recognise that the tax reductions which are so enthusiastically supported by my right hon. and hon. Friends will make the position more difficult for charities.

In earlier debates the Government turned down requests for charities to be exempt from VAT. I do not wish to argue that case again, but I suggest that having said that it is inappropriate to provide special relief from VAT for charities the Government are under a special obligation to find a more acceptable way in which charities can be helped.

Charities have a very strong case. Since the time of Queen Elizabeth I they have been given some relief from taxation, usually complete exemption. That policy has been carried on over the years by Governments of all political colours. There have been some exceptions with new taxes introduced in recent times by Labour Governments, but full relief is still the general rule. In other words, this policy has been hallowed by time, and the reasons for that relief are as valid today as ever they were.

Those reasons were put very succinctly by Lord Goodman in his report on charity law and volountary organisations. He said that charities' funds and assets have been voluntarily dedicated to purposes which are by definition of benefit to the community. To this must be added the immense amount of unpaid effort put into charitable work by trustees and voluntary workers. If this work were costed even on the most conservative basis, it would produce an enormous sum. Then there is the fact that much of the work is work which the state might feel it necessary to undertake itself normally at much greater expense, or which otherwise would never be undertaken. We are satsified that if a balance were drawn the advantages to the community derived from charitable funds and services would far outweigh the cost of the taxes and the rates forborne. We see therefore no valid ground for reducing the reliefs or for discontinuing the practice, when new imposts are introduced, of giving favourable treatment to charities. I believe that that conclusion is as valid today as when it was reached some years ago. The community as a whole gets a very good bargain in the devotion of charities to caring for human ills. The care, compassion and humanity provided by countless volnteers are beyond praise.

Furthermore, the need for charities has grown and will continue to grow. We live in days of cuts in Government expenditure, which we support, but it will mean that there will be greater scope and greater need for the work of charities. Furthermore, cuts in Government expenditure will mean that local authorities, for example, will find it more difficult to support charitable effort in their own counties and districts to the extent that they have done in the past. I am sure that we have all had examples already of charities which have written to us saying that, as a result of the cuts in public expenditure, their income from their local authorities has been reduced.

I suggest that these two factors mean that the importance of charitable work is growing. Will the Government look at the whole position of charities, not with the intention of subsidising them—that is not what they want—but with the intention of finding ways of strengthening their income position?

I should like to see companies and individuals having greater opportunities to make donations out of pre-tax profits or tax-free income. If he catches the eye of the Chair, my hon. Friend the Member for Liverpool, Wavertree (Mr. Steen) will expand on that with particular reference to new clause 26, but I wish at this point to commend the proposals made last year by a working party of the National Council of Social Service. It made a number of interesting suggestions, and I hope that my hon. and learned Friend the Minister of State will comment on them.

One proposal of the working party was that companies should be permitted to make donations to any charity up to a maximum of £1,000 per annum from pretax profits and that this should be in addition to their existing power to enter into deeds of covenant.

The second suggestion was that covenanted donations to charities by individuals should be allowed as deductions in the computing of their total income for higher rate tax purposes, subject to a maximum of 10 per cent. of tax-assessable income.

The third proposal was that individuals should be permitted to make donations to charities up to a maximum of £10 per annum from tax-free income.

The fourth and main proposal was that the seven-year period for deeds of covenant should be reduced to a maximum of four years.

I suggest to my hon. and learned Friend that all those proposals are worthy of serious attention, and I hope that he will give an assurance that Her Majesty's Government will consider them and in due course make a positive response to the House.

The second assurance that I seek from my hon. and learned Friend is that Her Majesty's Government will give serious consideration to the Goodman report on charity law and voluntary organisations. It has been gathering dust for about three years. It is time it was dusted off and that action was taken on it.

In conclusion, therefore, I ask for a response from my hon. and learned Friend to two requests. First, may we have an assurance that the whole position of charities will be considered? It is far more important now that we have in office a tax-reducing Government. May we have an assurance that consultations will take place with a view to proposals to assist charities being brought forward in the next Finance Bill, and that the valuable work done by the working party of the National Council of Social Service will be specifically considered? Secondly, will the Minister in the meantime, as we approach the closing stages of our Committee on the Bill, accept the modest new clause which I have moved?

Mr. Dalyell

I do not deny that some of us are a bit ambivalent and mixed up on this matter, and the reason is quite simple. There is a genuine question as to where charities should get that part of their income which comes directly or indirectly from the State. We are a bit short on facts, and I put the direct question to the Minister. Has he any figures available showing what the deed of covenant income loss will be in the new situation and precisely what sums we are talking about? The hon. Member for Somerset, North (Mr. Dean) mentioned £2 million or £3 million. It would be informative to know precisely what sums are involved.

10.15 p.m.

I am a member of the council of the National Trust for Scotland. As the Under-Secretary of State for Scotland, the hon. Member for Aberdeenshire, West (Mr. Fairgrieve) knows, above all else the National Trust for Scotland wants to ensure that the agencies have sufficient funds from Government, especially the historic building councils. It regards that as primary and various changes in the tax system as secondary. On the other hand, I concede to the hon. Member for Somerset, North that he may be right about the social service charities.

I ask what may be an unreal and difficult question but it is one that I think should be asked. If the public do not give money to charities because of the changes in the tax system, how many people and how much money will be involved? Are we talking about a real disincentive, or is it something that will not make much difference to the amount that is given to charity?

The Treasury may say " How can we tell? " If the answer to my question is " We cannot possibly know the answer ". I shall accept that and make no quibble. We are on difficult ground. My heart is with the hon. Gentleman, but I am not quite sure where to put my head.

Mr. Charles Morrison (Devizes)

I agree wholeheartedly with everything that my hon. Friend the Member for Somerset, North (Mr. Dean) has said. It has been almost a tenet of Conservative faith to give support to charities since time immemorial. There is no time more important than now to reinforce that attitude.

My hon. Friend has said that the need for charities has grown and is continuing to grow. Due to the state of the economy the Government have had to reduce public expenditure and are asking local authorites to do likewise. There is no doubt that many local authorities will feel bound to cut grant aid for voluntary organisations, most of which will have charitable status, in addition to the cuts that they will be making in their statutorily provided services.

There is equally no doubt that voluntary organisations are capable of making up some and perhaps the majority of the deficiencies that will be the consequence of cuts in public expenditure at a much lower cost than other organisations because of the immense amount of unpaid or low-paid work that is performed by staff and voluntary workers connected with voluntary organisations.

There is a strong case for giving voluntary organisations extra assistance at this juncture in our affairs. I understand and believe that it is the Government's intention to obtain a better return on the expenditure of taxpayers' money. Surely there is no better way of producing a better return than investing a reasonable amount in voluntary organisations. However, as a result of the Budget and the proposals in the Bill, we face a paradox. Most people have more than regained from the roundabout of income tax cuts what they will lose on the VAT increase swings. Charities are to lose in the Budget and in the Bill on both the swings and the roundabouts. Their covenanted income will be reduced, as their taxed repayment will be less.

Against that background, in a manner similar to that of the Finance Act 1973, following the tax cuts of the previous Conservative Government, new clause 18 sets out to reduce the loss of income to charities. The amount involved, in national terms, is small. When that sum is broken down for individual charities, there could be a serious effect on their budgets if the relief requested in the new clause is not provided.

In considering new clause 18, I ask the Government and my hon. and learned Friend the Minister of State not simply to be generous but to realise that the small relief that we propose is an excellent investment in which the dividends, in terms of extra work undertaken by voluntary organisations, may be considerable.

Finally, I emphasise and echo what was said about the Goodman report on charity law and voluntary organisations and on the National Council of Social Service working party. There has already been far too much delay in the consideration of these matters. I hope that by the time we consider the next Finance Bill the Government will have consulted the voluntary organisations and the NCSS and be able to come forward with proposals based on the reports of the working party and the Goodman committee.

Mr. Anthony Steen (Liverpool, Wavertree)

I do not believe it right to think that any one political party has the right to claim a monopoly on the welfare of people. The Labour Party tends to claim a monopoly on caring. Government sup- porters tend to claim a monopoly on charities. That dies hard. Members of the Labour Party seek to champion the poor as though they are the only people who care for them. Government supporters seem to champion the work of voluntary and charitable organisations as though we uniquely understand the work of such bodies.

An analysis of the past 10 years shows that the voluntary bodies did fairly well under the previous Administration. The Opposition appear to be at pains to destroy the myth that they did not approve of voluntary work. The Government are at pains to show that they care, by raising pensions, by caring for the handicapped and war widows and by spelling out that the Conservative Party cares very much for those groups of people.

The two new clauses are concerned with helping charities. That term embraces a wide spectrum of activity. There are the purely fund-raising bodies which raise considerable funds to help the poor and the unfortunate in this country and overseas. Compared with the funds that the Government provide, these charities can raise only a minuscule amount to send abroad. But it is important because it offers a way, even if it is a small way, for members of the public to make their contribution, to ease the misery of refugees abroad and to teach the people of developing countries how best to use. say, their agricultural land.

At home, charitable fund-raising goes some way to supplementing State provision, which will always be inadequate. There will always be more need than the State can hope to meet. The Health Service today cannot find enough money for sufficient kidney machines, so charitable organisations carry out fund-raising. In addition, money is raised to purchase guide dogs for the blind and to help disadvantaged groups.

Fund-raising is the tradition in this country to augment funds that the State provides. It is well known that the leagues of friends raise money for auxiliary equipment for hospitals which the welfare services cannot ever hope to raise. In that sense, charity has long been recognised as a way of obtaining money for those whom the State has not yet reached or whom the State has not felt able to put high on its list of priorities. The State is often slow and cumbersome. If equipment is urgently needed, charities take immediate action without going through bureaucratic channels. This is well observed in international disasters, where the Red Cross, Oxfam and other organisations are always first on the scene.

Nearly every school teaches its children the importance of giving. Every religion teaches that it is not just the giving of money but the giving of service to others and the giving of oneself that are of paramount importance.

What is the Government's role in all this? Should they be taking a back seat, exhorting and encouraging, or should they be dominating the scene and telling people how to do things? I believe that the Government's role and interference should be minimal. Positive encouragement, and not speeches at garden fêtes, is what is needed to help recognise the important contribution that charities are making to provide a back-up service for the Welfare State.

Yet fund-raising charities have been badly hit by the Budget. Just how badly they have been hit it is too early to say. In the case of those bodies which rely on covenant income, we are talking of tens of millions of pounds. The reduction in the rate of income tax will mean that charities will get less. The reduction in the standard rate of income tax will mean that charities will get less rebate. I ask the Government to tell us how much loss we shall see charities suffering in the next two financial years.

New clause 26 is aimed not just at continuing the traditional relief for charities, important though that is, but at trying to provide a long-term solution. While we welcome traditional relief, it is very much an interim clause which does not deal with the problems of charities getting less revenue from their covenanted income. When donors gave their covenanted money in the last five or six years, they calculated how much they would like to give, realising how much the charity would get by way of income tax rebate. By reducing the rate of income tax the Government have frustrated the wishes of the donor by making sure that every charity which received covenanted money will get less than he originally proposed.

Covenanted income is not the only source of money for charities, but larger and more established organisations are the ones which usually benefit from this method of giving. It will mean, though, that not only will they receive less money but that they will be able to give less money for the training of skills in developing countries. There will be less money available for Voluntary Service Overseas, in which I am involved, because it depends on covenanted income for the training of young people in developing countries. There will be less money for play schemes and adventure playgrounds for young children in this country. As a member of the National Playing Fields Association, which also relies on covenanted income, I know that that will be one result of the change.

Charity is not just a matter of money raising. There is a wealth of organisations which are service providers, set up by individuals or groups concerned to offer help in those areas where the State is either lacking in interest or has not recognised a common problem. In these cases, groups of people and individuals get together to provide community facilities, recognising that the State has not been able to help in such areas.

Voluntary organisations inevitably pioneer new ways of tackling newly discovered problems. The epitome of success for such groups is when the local authority takes over, providing either staff or cash. A good example is the meals-on-wheels service. Voluntary organisations, many of which are quite large, with national headquarters and local branches, see themselves not as competing with the State but as complementary to the State services, and they are increasingly dependent on public financial support to continue their work.

In the last decade, an increasing number of social service organisations have grown up and have found public bodies and public organisations to support them financially. More and more they employ full-time staff, and those connected with them are deeply committed and determined to see a service provided for the needs that they have uncovered. The problem with such organisations is that they rely not only on public funds but on volunteers. I am thinking of organizations such as Community Transport and Community Service Volunteers.

10.30 p.m.

The Government have always taken the view that our programme and policy will encourage private enterprise, and we wish to see the growth of an independent private sector in our society and a weakening of State controls. We say that people should he given far more latitude and scope, but the cuts in public expenditure that the Government are proposing are already being manipulated by local councils as a stick with which to beat the dog.

I wonder whether Socialist councils see voluntary work as something synonymous with Conservatism and are forcing through cuts in that sector in order to get back at the Government. One London borough council has already implemented far-reaching cuts in voluntary work. It has closed four neighbourhood centres in the past few weeks. It also intends to close one legal advice centre and to reduce grants to local voluntary organisations by 25 per cent. for 1980. Those are clear indications of how it proposes to proceed.

Mr. Dalyell

Where else should such a council make the cuts?

Mr. Steen

If the hon. Gentleman will allow me to develop my argument he will sec what I am proposing.

The damage that the cuts will cause will be cumulative, especially if the voluntary bodies match the cuts proposed by local authorities with cuts in the private funds that they bring in for their work. It will not save the local authority money, because it will need to set up the services that it has cut away—but it will cost two or three times as much because the local authority will not have volunteers or private money to bring in.

It seems inevitable that other local authorities, besides the London council to which I referred, will harass local voluntary service organisations by cutting grants and interfering with the way they work. As a result, volunteers will reduce in number and morale will deteriorate. If the grant to voluntary bodies—which is usually only modest—is cut, the argument will clearly be that the State will have to find more resources to fill the gap that has been created.

With increased leisure, early retirement and an ever-present number of unemployed, voluntary work meets a long-felt need for those who wish to engage in service to others. By reducing the number of voluntary bodies and community work organisations we shall create greater problems in the areas of need.

The whole thrust of the Government's social service programme must be to prevent the inevitable attempt by local authorities to close voluntary bodies or do it themselves. It is a question not just of local authority grants, over which the Minister of State has no control, but of the Government's spending programmes. Over the past decades, voluntary service organisations have increasingly turned to Government schemes, such as the urban aid programme, for financial support.

The Minister of State will remember that the urban aid programme was started in 1968 by the then Labour Administration when £30 million was given to help areas of great social need. The programme is now running at £125 million, of which local authorities give 25 per cent. and the Government give 75 per cent. towards approved projects.

My hon. and learned Friend the Minister will also bear in mind that when local authorities are short of money they inevitably put their own schemes high on the list of priorities. Therefore, whereas in previous years the voluntary organisations tended to have a good cut of the cake, they now find themselves at the bottom of the list of priorities, with the local authority asking for more and more and putting itself at the top of the list.

The Government could do something to see that the local authorities do not take the urban aid programme away from the voluntary organisations. There are a host of organisations that benefit from the programme. The scheme should continue to be supported by the Government, and the programme should not be used by local authorities that are short of cash, taking another source of money that the Government are providing.

It is against that background that we must view my new clause. Its underlying philosophy is to rebuild and give new status and new hope to voluntary and charitable work, by releasing potential new sources of income within each local community. I hope that my hon. and learned Friend wants to free our voluntary work from increasing dependence on public subscription. The new clause would release an entirely new source of finance. Every company, private or public, would be allowed to give the first £20,000 of its profits free of the 52 per cent. corporation tax each financial year, provided the money was given to charitable organisations. That would be the best form of encouragement the Government could give. It would back voluntary initiative with private enterprise money.

As the law stands, companies have no tax exemption unless they give covenanted income for at least six years, and usually seven. This is a cumbersome and highly bureaucratic administrative arrangement. I understand that if a company wishes to execute a covenant it must set aside the gross sum that it proposes to give to the organisation and deduct the income tax at the standard rate, putting it into a suspense account that it holds until it gives the money to the Inland Revenue, which then returns it to the charitable organisation. It is a highly artificial administrative device which gives no advantage to the charity and causes a great deal of administrative and organisational work for the company.

My hon. and learned Friend may well decide that the matter should be examined. He may well feel that far too many civil servants are involved in the Inland Revenue working on this cumbersome administrative procedure.

Mr. Peter Bottomley (Woolwich, West)

Would it not be simpler to have a system whereby all donations to charities carried a tax credit with them, which the charities could claim back from the Inland Revenue in one go at the end of the year? Then there would be tax relief not only on covenanted income but on all donations—in fact, all income for charities other than that from trading services or Government grants.

Mr. Steen

My hon. Friend is quite right. There are many ways in which the Government could improve the position, whether within the present system or within a new system. What is proposed by my hon. Friend would, at least in the short term, make matters better. What I am suggesting is a more radical solution, opening up an entirely new source of funds, which would not depend on a seven-year contract between a company and a charity but would allow every company in the country to make available up to £20,000 of its profits, if it wished, to support local charitable endeavour.

That would have an added effect. Instead of relying so much on the local authorities and being concerned about tax cuts, or relying on the urban aid programme, which more and more voluntary organisations do, charitable bodies and voluntary organisations would have released to them a new source of money within each community. I am most grateful to my hon. Friend for mentioning that point. I am sure that my hon. and learned Friend the Minister will have noted it as an important improvement.

Besides getting round the administrative nightmare of the present charitable laws, covenanted income has a further disincentive. It does not cope with inflation. When a donor gives money for a seven-year period, at the end of that time he is asked for a refresher. During that period his money has been eroded. In my experience it is unusual for donors to give a second covenant during the subsistence of the first. That is why there is a further advantage of a single gift payment system annually rather than a covenanted system.

The new clause might discourage the continuation of covenanted income. Companies will be able to get the same tax relief after one year and will therefore not enter into covenants. It will, however, release a tremendous new potential of money. Not every company will wish to spend £20,000, but the figure is flexible. The Minister may realise that that figure is plucked out of the air, because not every company will be able to afford that sum. It will, however, allow a company to give more or less if in one year it makes more profit and the next less.

We have a radical Government and we need some radical policies. Corporate philanthropy is a start. Once that is introduced, the Minister can consider whether we shall have individual philanthropy, with each individual getting an annual tax free allowance of up to, say, £100, provided that that money is given to charity. It could be deducted from income tax in the ordinary way.

For far too long we have come to expect the State to take on more and more. As a country we have become more and more dependent on the Welfare State. We have grown greedy. There are more interest groups after less and less cash, and we are not releasing a new source of funds. Public money will never solve the problem. On the contrary, it is already making things worse.

If local authorities are allowed to choose where they will cut spending, they will inevitably cut voluntary work. If that is the case, and if the Minister does not propose to support this clause or something similar, where does he believe that the charitable organisaions in the whole spectrum of service-giving will find a new income? The 25 per cent. cuts announced by one London borough towards voluntary work is happening in other areas. In Liverpool the youth service budget to voluntary organisations has been cut by £110,000 this year, which is about a quarter of its budget. If the Minister does not release a new source of funds, how will these organisations survive? They are the very organisations to which this Government are committed.

The Minister may ask about the voluntary service unit, which has £2.5 million from the Home Office. It give grants to national voluntary organisations and headquarter bodies where their work goes beyond the responsibility of one Department. I have made inquiries of that fund, and it is already totally committed. As the headquarter grants have been cut by the public organisations that normally support them they have increasingly turned to the Home Office and the voluntary service unit to fill the gap.

Already public funds are being spueezed to their maximum, and we must release a new source of funding. I am not pleading that voluntary bodies are paragons of virtue, but if we want a strong, private, independent sector in our society we must provide a new source that can fund and sustain those organisations. We have the stark choice of greater State involvement in our lives or a wider variety of organisations and groups enriching our society and helping our communities. That is why my new clause goes to reduction in taxes. However, I have not the root of the society in which we wish to live.

Successive Governments have avoided making a decision. The Goodman report is an example of one such decision that needs to be made. We have allowed the voluntary movement to lurch from one crisis to the next, spending disproportionate amounts of time lobbying local authorities, wooing urban aid programmes and trying to persuade central and local government to find more resources. The new clause offers one way round that. It is realistic to reduce income tax but it is hardly realistic then to use it as a way of further impoverishing the voluntary work that we all support. I am convinced that unless we introduce corporate philanthrophy in this country we shall see the slow decline and demise of voluntary and charitable effort.

10.45 p.m.

Mr. Robert Rhodes James (Cambridge)

I intervene to express the hope that my hon. and learned Friend the Minister of State will respond helpfully to the points that have been made tonight. I declare an interest in that I am a vice-chairman of the Stop Polio Campaign of the Save the Children Fund. It is not a financial interest.

We have concentrated tonight on domestic charities, which have only domestic relevance. There are other charities with international implications that could be affected by the Budget proposals. I hope that my hon. and learned Friend will bear this in mind. I hope he will recognise that many of us who are involved in these charities feel that, although the Government have a difficult choice, they should respond to these points, recognising that there is a fount of good will and hard work in voluntary organisations in this country for this nation and abroad which should be encouraged and not discouraged.

Mr. Douglas Hogg (Grantham)

I make a short comment on new clause 18.

I have great sympathy with the provisions for charities as outlined by my hon. Friends. However, I hope that I shall be forgiven for making this observation. I understand that charities will be hit by the increase in VAT and the reductions in recoverable tax brought about by the noted any reference to the fact that the donors will have a substantial increase in net disposable income. Some part of this at least may be given to charities.

I say, with respect to my hon. Friends who have put their case eloquently, that I think they are a little premature in bringing forward this clause. Until we discover whether the effect of the Budget is likely to be a net debit or a net gain for the charities, we should refrain from taking action. Either result is possible.

Mr. Peter Bottomley

I follow the intervention of my hon. Friend the Member for Liverpool, Wavertree (Mr Steen) by saying that there are some people who give donations to charity who do not pay tax. The Budget takes an extra 1 million people out of tax.

I reinforce the suggestion that tax can be recovered from donations to charity. We should include those people who do not pay tax and offer them a precedent. The change in tax relief on insurance premiums has come into effect this year, and it provides opportunities for people, even though they are not paying tax, to have a credit against those insurance premiums. I ask the Government to consider a similar arrangement for donations to charity.

We should consider very carefully whether there is still a need to have the Inland Revenue protection on covenants, because going through the business of covenants is often off-putting to people who otherwise would give donations to charities. I speak as a member of the board of Christian Aid, where a large proportion of the income comes not from covenants but from door-to-door collections. The money comes from taxed income or from people who are earning so little that they do not pay tax. I believe that tax relief should go to charities such as Christian Aid, or others that collect by donations, just as it goes to those that are established and receive convenant income.

Mr. Peter Rees

My hon. Friend the Member for Somerset, North (Mr. Dean) described new clause 18 as a reasonable and modest proposal. He moved the clause in a reasonable, modest and eloquent manner, and he was supported by many of his hon. Friends in exactly the same way. I do not wish to distinguish qualitatively between that new clause and new clause 26, which was spoken to so persuasively by my hon. Friend the Member for Liverpool, Wavertree (Mr. Steen), but the two provisions raise slightly different considerations.

There is no monopoly of caring and compassion on either side of the Committee. We may emphasise different facets of the problem, but I am sure our objectives are the same, even though we may choose different routes by which to achieve them. I wish, on behalf of the Government, to confirm that charities have an honoured and necessary place in our scheme of things. We wish, so far as it lies within our power, to give every assistance in that direction.

My hon. Friend the Member for Somerset, North has proposed a form of relief which has a respectable and—dare I say it?—a Conservative precedent. I have already said that we on this side of the Committee claim no monopoly of compassion, but it is Conservative Governments who, on the whole, have reduced the basic rate of income tax. It is therefore Conservative Governments who, paradoxically, create the problems to which my hon. Friend has so ably drawn attention. The same problem does not face Labour Governments, and I shall not amplify that point. However, I recall that it was my noble Friend Lord Barber who, because he was the last Chancellor of the Exchequer to cut the basic rate of income tax to 30 per cent., faced this problem and solved it in his own inimitable and generous way.

I pay tribute to the right hon. Member for Leeds, East (Mr. Healey) who, when Chancellor of the Exchequer, put up the basic rate of income tax to 35 per cent. and afterwards did not claw back the relief. I am not trying to make a partisan point, but it is Conservative Governments who create the problem, and perhaps they should look at the matter more sympathetically than do other Administrations. In due course I shall deal with how we shall approach that problem.

My hon. Friend the Member for Waver-tree covered a great number of points. I do not underestimate the formidable case which he has deployed, but I shall not follow every point he made because he went slightly outside the fiscal confines. He rightly emphasised the importance of corporate contributions to charity.

There are two ways in which bodies corporate can contribute. One is by way of deeds of covenant. In most situations that constitutes a charge on income for which they will get relief from corporation tax. I am not persuaded that there are quite so many bureaucratic difficulties as he suggests in the way of companies which choose that route, but I note that point.

Beyond that, it is always open to a company to make a contribution to charity, subject to its objects clause and the vires of the board. A company is usually enabled to deduct for corporation tax purposes that contribution, provided that it can be said to be wholly and exclusively incurred for the purposes of its trade. Therefore, perhaps the position is not quite as stark as my hon. Friend has outlined. However, I recognise that if the donation is proportionately too large the Inland Revenue could cavil at it and tend to argue, reluctantly perhaps, that it is not wholly and exclusively incurred for the purposes of trade. However, my hon. Friend adopts a bolder and clearer-cut approach, and probably it simplifies the task of directors, but I am not sure that that is always the case. Every director has to consider whether it is intra vires in this country to make that kind of contribution. Even if we were to solve the fiscal problem in that way, there might still be a company law problem on which I am not perhaps competent to express a view.

Mr. Steen

What my hon. and learned Friend has stated about charitable and benevolent gifts by traders relates to an extra statutory concession set out in an Inland Revenue leaflet. The Inland Revenue takes a different view on every case. Therefore, will the Minister introduce legislation to embody this principle in statute form?

Mr. Rees

I take issue with my hon. Friend. The law states that if a donation can be said to be wholly and exclusively made and disbursed for the purposes of the company's trade it will be deductible for corporation tax purposes. It may be a matter of fine argument whether a particular donation is so made, and I recognise the practical difficulties. Individual inspectors may take different views on the matter. The principle is enshrined clearly in revenue and does not depend on any extra-statutory concession.

My hon. Friend the Member for Woolwich, West (Mr. Bottomley) made the interesting suggestion that if, on certain terms, a donation is made to a charity there should be an equivalent subvention, whether by way of tax relief, by the State. That is a novel suggestion and it may have considerable merit. However, it points to the conclusion that I have arrived at and which I offer diffidently to the Committee. The Goodman report was published in 1976. My hon. Friend the Member for Somerset, North pointed out that it was a statute from the reign of Queen Elizabeth I that first attempted to define charities, and there has been a string of cases since that time. Many Governments have applied their minds to the matter.

The hon. Member for West Lothian (Mr. Dalyell) said that there have been problems, and one has only to look at the law books to see how many cases the subject has generated. It is a continuing problem, and however shrewd, expert and accomplished the members of Lord Goodman's committee were they cannot have said the last words on the subject. It is noticeable that there has not been an opportunity to debate the report, although it has lain read but slightly uncherished for three years. The report makes the point that the time has come to look in the fiscal area at the position of charities and individual or corporate bodies that are minded to make donations to them.

We would be ill advised to tackle the problem piecemeal. I understand the motives that have led my hon. Friends to put down the new clauses, but the problem is wider. My hon. Friend the Member for Grantham (Mr. Hogg) highlighted another aspect of the problem. I hope that hon. Members will be able to discuss the problem in the round in the future. It is the Government's firm intention to consider the problem in the round. We do not feel ourselves necessarily tied to the Goodman report, although it may be a starting point for our examination. I hope that we shall be able to come to positive and practical conclusions that will be laid before the House in a subsequent Finance Bill.

Mr. Paul Dean

I am grateful to my hon. and learned Friend the Minister of State for his remarks. Earlier in the debate he said that he recognised, as I do, that it is a tax-reducing Government who create problems for charities as far as covenanted income is concerned. Therefore, our obligation to them is the greater. My hon. and learned Friend has said that he will consider the matter with a view to bringing forward constructive proposals in a future Finance Bill. I should like to press him further.

Conservative Members expect con-confidently that there will be further reductions in income tax in April's Budget, and it is important that the proposals for further relief should be brought forward at that time. Will my hon. and learned Friend be more forthcoming on the matter? Further, will he assure the Committee that he will have early consultations with the charitable bodies with regard to the various proposals that they have put forward in response to the Goodman report and the new situation that has been created by a Government who are dedicated to reducing personal taxation?

11 p.m.

Mr. Rees

I hope that I can respond with directness, because I know how keenly my hon. Friend feels about this subject. The Chancellor stated that our hope is to move to a basic rate of 25 per cent. It is impossible to forecast precisely when that will take place, but if we are not able to introduce anything more positive before long this will add zest and urgency to our searches.

We have received many representations and have given them careful consideration. I hope that we shall give equally careful consideration to further representations that are appropriate in the light of the debate and the assurances that I have given. I hope that that sets my hon. Friend's mind at rest. We do not approach this problem with a closed mind.

This is a question not only of deeds of covenant but of donations generally and gifts by the corporate sector. The issue must be considered in the round, with the knowledge that there are already reliefs for charities.

It is important to draw all the threads together rather than to deal piecemeal with the problem. In the light of the clear affirmation that we recognise that charities have an honourable and necessary place in our scheme of things, I hope that my hon. Friends will not feel obliged to press the new clause to a Division.

Mr. Steen

My hon. and learned Friend, the Minister of State, has been kind in saying that he will examine these matters, but I remind him that new clause 26 aims to deal with the position of local authorities which are stating publicly that they will cut their cash grants to voluntary organisations this financial year. That will result in an immediate reduction in services. The urban aid programme, which has filled the gap, will be used for more and more public sector rather than voluntary activities.

Where will the money come from for those organisations which have no other source of income? New clause 26 would provide a way round the problem without much cost or difficulty and without being a greater burden on public sources —which was the previous Government's solution—

The Temporary Chairman (Sir Stephen McAdden)

Order. The hon. Member is making a long intervention.

Mr. Steen

I am obliged, Sir Stephen. I wish to finish my point, if I may. How will charitable bodies cope if there is no other source of cash available to them?

Mr. Rees

I indicated clearly that deeds of covenant are still open to bodies corporate. I have no doubt that they will take careful note of our debate, and particularly of the eloquent pleas of my hon. Friend the Member for Liverpool, Wavertree (Mr. Steen). It is always possible for a company to make modest gifts to charity which will, in many cases, be deductible for corporation tax purposes.

As my hon. Friend the Member for Grantham (Mr. Hogg) said, certain individuals will be slightly better off, and perhaps they will respond to the eloquent pleas of my hon. Friend the Member for Wavertree.

I hope that with those assurances my hon. Friend will withdraw the new clause. The problem has been stated with eloquence. My hon. Friends have put down markers which a Conservative Administration would ignore at their peril.

Mr. Dalyell

Let us be candid about this matter. The truth is that a number of reports ought to have been debated by the House of Commons in the last two or three years but have not been. It may be that 47 days were spent on the unmentionable subject that I shall not go into. Among those reports, the Goodman report and the report of the Expenditure Committee on this subject ought to have been debated. It is clearly unrealistic to ask the Leader of the House to give time to debate this subject before the recess. However, some of us think that we should debate it in November or December, well before next year's Finance Bill. The Government ought to come forward with certain concrete proposals rather than our having a general debate in a vacuum on the reports.

Therefore, I ask the Minister of State to discuss with his colleagues whether, in view of the concern that is felt, particularly about the definition of charities, which is different between Scotland and England—definition in Scotland is through the Inland Revenue, and in England it is basically done by the Chief Commissioner of Charities—the Government should come up with concrete proposals which the House could debate. This is not a party matter.

We have been debating the Bill for five days, and I can imagine that the Minister of State will have many questions to answer. I asked him about deed of covenant income and whether there are any figures on that. We have not yet any clear idea of the sums that would have to be found by the Treasury if anything like the proposals of the hon. Member for Somerset, North (Mr. Dean) were accepted.

There is another side to this coin and I put it in terms of a concrete example. The Council for British Archaeology and the University of Bradford have approached some of us who are interested in archaeology about the closure of the Scottish archaeological unit that is doing valuable work in central Scotland. If money is to be found for charities, it must be found from some other source. I do not suggest that this case is a priority, but I give it as an example because in a sense it is related to work that is done and funded by charitable organisations.

There has to be a clear choice of priorities. Does one fiddle around with the tax system and give away public funds in that way? Or does one do it through the Historic Buildings Council? Does one take it away, for example, from grants available to the Ministry for Overseas Development? I do not stick to heritage organisations. Whatever the organisation, there is competition for Government funds. That is why the House of Commons ought to debate the whole issue. I strongly agree with the Minister that this should not be done piecemeal. The matter must be looked at in toto, sensibly and rationally, and preferably in the context not of a Finance Bill but of a debate in November or December on the Goodman report and the Expenditure Committee report, when it can be thrashed out.

Mr. Rhodes James

The hon. Member for West Lothian (Mr. Dalyell) has made a sound point that was also made by my hon. and learned Friend the Minister of State. On behalf of my hon. Friends, who are deeply concerned about this matter, I offer our gratitude to my hon. and learned Friend for the manner in which he has replied to the debate. Will he, however, in view of the arguments which have been put, and in view of the great concern that has been expressed from both sides of the Committee, but particularly from the Conservative Benches, reconsider the Government's position on this matter between now and Report? To have to wait until another Budget, which is nine months away, in which time considerable harm could be done to important charities in this country, seems to us unreasonable.

I do not ask my hon. and learned Friend to reply now, but I ask him to consider very seriously the representations made in the debate and see whether, between now and Report, some reasonable proposal might be made which might meet what we regard as the very important long-term points which we have endeavoured to make, relating not only to domestic charities but to British-based charities, which are profoundly concerned and involved overseas.

Mr. Paul Dean

This short debate at a late hour has highlighted the concern on both sides of the Committee about the position of charities. My hon. And learned Friend the Minister of State has made a sympathetic response. I am sure that he is in no doubt about how disturbed charities are about the present position and the wish of both sides of the Committee to have early action by the Government. In the confident expectation—

Mr. Dalyell

Before the hon. Gentleman sits down, a direct question was asked—

The Temporary Chairman

Order. We cannot have two hon. Members on their feet at the same time.

Mr. Dean

I was saying that, in the confident expectation that the Government will give serious consideration to this matter and come forward with constructive proposals at an early date, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.