§ I turn now to the tax treatment of charities and charitable giving. In almost every facet of the nation's affairs, it becomes increasingly clear that private action is more effective than state action. This is particularly well illustrated by the success of charitable organisations up and down the land in the fields of famine relief, social welfare, medicine, education, including the universities, the arts and the heritage.
The Government have already done a great deal to assist charities, both through the tax system and in other ways, but the time has come to take a further step forward. The first question is whether any further fiscal relief should be given to the charities themselves, through relief from VAT, or to the act of giving.
In the light of representations from the Charities VAT Reform Group, I am prepared this year, exceptionally, to make a number of specific concessions on the VAT front. I propose to relieve charities from VAT on their non-classified press advertising:, on medicinal products where they are engaged in the treatment or care of people or animals, or in medical research; on lifts and distress alarm systems for the handicapped—[HON. MEMBERS: "Hear, hear."]—on refrigeration and video equipment for use in medical applications purchased by charities from donated funds; on all recording equipment for talking books and 179 newspapers used by charities for the blind; and on welfare vehicles used by charities to transport the deaf, blind or mentally handicapped.
But in general, I am convinced that the right way to help charities is not by relieving the charities themselves from VAT, but by encouraging the act of charitable giving. I say this for two principal reasons. First, it is clearly better that the amount of tax relief is related to the amount of support a charity is able to attract, rather than to the value of goods and services it happens to purchase. Secondly, whereas a pound of VAT relief is worth precisely that, a pound of tax relief on giving is likely to generate more than a pound of income going to charity.
My principal proposals therefore relate directly to the act of giving to charity. First, I propose to abolish altogether the upper limit on relief at the higher rates of income tax on charitable covenants. At the same time, I propose to act to stop the abuse of the tax system by ensuring that tax relief goes only to money which is used for charitable purposes.
Next companies. It is widely believed that corporate giving to charity would be more generous than it is at present if tax relief did not depend on the company entering into a four-year covenant. Accordingly, I propose to allow public companies to enjoy tax relief on one-off gifts to charity up to a maximum of 3 per cent. of the company's annual dividend payment to its shareholders. There will, of course, continue to be no limit on the amount a company can covenant to charity.
Many charities, however, have made clear to me their fear that to introduce a similar relief for one-off donations by individuals would weaken them by reducing the stability they enjoy as a result of the binding force of covenants. Instead, therefore, I propose to encourage individual giving to charity by a different means, that of tax relief for payroll giving. From April 1987 it will be open to any employer to set up a scheme under which employees can have charitable donations of up to £100 a year deducted from their pay, and get tax relief on them.
All in all, the proposals I have announced today add up to a very substantial package of assistance to charities and charitable giving. Their cost to the Exchequer will depend on how generously companies and employees respond to this initiative, but my best estimate is that it could amount to as much as £70 million in 1987–88. This will be partly paid for by the measures to curb abuse, which may save some £20 million a year. I hope that the additional charitable giving these concessions stimulate will be at least twice the amount of the extra tax relief given.