Editorial - Tax Breaks for UK donors?
One of the joys of consulting in both the United Kingdom and the United
States is permanent jet lag. Another is 'intellectual arbitrage' —
the opportunity to apply good practice from one country in the other,
appropriately and sensitively of course. A difficulty in applying lessons
from the United States in the United Kingdom has always been that the
funding systems are so radically different, as a result of the tax regimes
under which they operate.
Not necessarily so for much longer. Gordon Brown (British Chancellor of
the Exchequer) indicated in last November's 'green' budget that he was
considering: i) abolishing the starting limit for Gift Aid (currently
250); ii) introducing tax relief for donors on contributions of shares
to charities; and iii) exemption from CGT for the beneficiary of those
shares.
The implications of these breaks — if given — are going to take
a while to sink in. But they are significant both in themselves and as
a harbinger of full tax relief on cash contributions. Their effect on
the political economy of the arts may not be immediate but it will be
profound.
In the language of undergraduate micro-economics, there will be an income
effect and a substitution effect. The income effect will be an increase
in the amount of funding going to the arts, provided the Treasury does
not use it as a pretext for reducing grant in aid — or at least if
DCMS successfully resists the Treasury when it does.
The substitution effect is more interesting. As the balance of tax-generated
support shifts from centrally determined grants to individually determined
tax choices, arts managers' efforts in cultivating support will switch
at the margin from positioning their organisations' agendas vis a vis
the agendas of the arts funding system to positioning vis a vis the agendas
of individuals, mostly higher net worth individuals. Watch this space
for unpredictable outcomes.
- Adrian Ellis
AEA Consulting LLC
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