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Charities today told of their relief as Chancellor Kwasi Kwarteng promised to protect Gift Aid donations from the impact of the income tax cut announced in his mini-budget.
But there was widespread voluntary sector anger at the balance of the package of announcements, with Oxfam GB saying the focus on cutting tax meant the poorest were left to “cross their fingers and hope”.
Kwarteng told parliament the basic rate of income tax would fall from 20 per cent to 19 per cent next year, while the top rate would fall from 45 per cent to 40 per cent.
The post-announcement documents revealed that the government will cover any subsequent shortfall in Gift Aid donations for four years – likely to cost £300m.
The Treasury papers said: “A four-year transition period for Gift Aid relief will apply, to maintain the income tax basic rate relief at 20 per cent until April 2027.”
Experts had previously estimated that transitional relief would cost about £80m a year, meaning the government may need to cover a funding gap for charities of £320m.
The Charity Tax Group said: “We are pleased that the government has maintained Gift Aid at its current level until April 2027, following income tax being reduced to 19 per cent a year earlier than originally planned.
“Charities will have time to prepare for this change. Plans for a modern and digital Gift Aid system should be progressed in the meantime.
“Positive engagement by the sector has ensured that the interests of charities are being considered as policies like this are developed.”
CTG added that it hoped the Treasury would continue to work with charities on the impact of future changes.
Kwarteng also confirmed that the government will reverse a 1.5 per cent rise in National Insurance contributions, which had been introduced by his predecessor Rishi Sunak to fund social care.
Treasury documents estimate the NI rise would have been worth £18.1bn over the next four years.
Caroline Abrahams, chief executive of Age UK, previously warned that the government was not addressing “the deep, underlying problems affecting the NHS and social care, chronic workforce shortages above all”.
Oxfam GB said the focus on tax cuts meant the mini-budget would leave the poorest people in the country “to cross their fingers and hope”.
Kate Chakrabortty, head of policy and advocacy at Oxfam GB, said: “They will be hit hardest by cuts to public services and mounting debt with only the uncertain prospect of economic recovery to bail them out.
“And with the aid budget under ever-increasing threat, it is the world’s very poorest who are being told to make the ultimate sacrifice.”
Mark Russell, chief executive of The Children’s Society, said: “Changes to the tax system right now are barking up the wrong tree – spending billions in handouts to benefit those on the highest incomes but failing miserably to meet the needs of families on the lowest incomes who will still be struggling to heat their homes this winter.”
Dan Corry, chief executive of the think tank NPC, said the government’s new-found focus on using tax cuts to try to grow the whole economy meant charities may need a new approach to lobbying ministers and officials.
“If charities want to work with the new government to shape the agenda in favour of social impact, they’ll need to really consider this,” he said.