You know a prime minister's in trouble when he's forced to declare that his government is working well – as David Cameron did on Tuesday. The reality is that, after a month, the budget is the gift that keeps giving – to the coalition's enemies. No chancellor would face painless choices at this time, and a few hidden horrors were always going to emerge from the red box. Few politicians can, hand on heart, claim they would have foreseen the baking heat of the pasty row. The so-called granny tax, meanwhile, was a defensible revenue-raiser indefensibly brushed under the carpet by George Osborne, whose reputation for cunning is indelibly tarnished. By contrast, the philanthropy dispute is not about spin but the substance of how far giving should be subsidised.
Taxing mega-gifts was always going to range the government against a daunting combination of wealthy donors, charities, their clients and leading lights from the arts. It was evident, too, that the move could disrupt Mr Cameron's entire story about his purpose in government, by making his big society vision look like BS. So it was always a tough sell, and No 10 made it doubly difficult by entangling it with allegations about funds being ploughed into bogus good causes purely to cheat the exchequer. That may happen, but if so the right response is for the Charity Commission to stamp out such organisations. It has nothing to do with arguments about how much subsidy the great bulk of nobly given donations should attract.
Plummeting in the polls, muddled on how its plan would actually work and hounded by everyone from Cate Blanchett to Tony Blair, the government is careering towards an inelegant wholesale retreat. But amid the wretched litany of retrenchments in prospect, the truth is that there are stronger candidates for a rethink. For there is an entirely reasonable principle behind limiting the relief on donations: namely that people should pay their taxes – whatever else they may choose to do. As a letter to the FT pithily put it: no one would openly suggest that the rich should be given special power to divert some large chunk of scarce public funds towards their pet priorities. But that is what happens where donations can be deducted from taxable income without any limit.
There are, of course, powerful counter-arguments – nobody in their right mind would risk discouraging giving in less straitened times. Philanthropy has particular strength in advancing the frontiers of knowledge, and in enabling the artistic endeavours which nourish the nation's soul – both splendid causes which regular public expenditure can overlook because it is overwhelmed by everyday concerns. But therein lies the rub. After decades of democracy, the state has assumed those responsibilities that the public have used the ballot box to prioritise. The system is far from perfect; it neglects much of importance while financing dangerous white elephants like Trident, but – as a great man once said – it is the least-bad system that we have. Millionaires' priorities are not always the same as those of everyday people, and every pound of tax relief on a gift to an Oxbridge college or an opera house is a pound that is not available to fund a tax credit or a social services department.
But what of the pragmatics? Everything turns upon how far the bribe of tax relief induces more generosity. The best evidence suggests that each extra pound that the state forgoes from the rich will induce them to give more – but not as much as an extra pound more, perhaps something more like 60p. That makes sense when you consider the mix of motives that can spur you to drop a coin in a tin, and has also been backed up by interviews in which philanthropists were asked about the effects of relief. Some said it made a difference while others insisted it made none.
Were it starting from scratch, the government would chew over such analysis and strike an appropriate balance. As things stand, the risk is that it backs off without thought, for fear of becoming a charity case.
