Rhodri Davies, Programme Leader, Giving Thought

Rhodri Davies

Head of Policy

Charities Aid Foundation

The role of giving

Waking from the American Dream 

27 February 2014

Why the UK needs to stop comparing its charitable giving to the US

The UK should stop comparing itself to the US when it comes to charitable giving. At least,  that is according to a new CAF report, "Give Me a Break”  (written by yours truly) which attempts to highlight what I hope are some interesting facts about the ways in which the US and the UK differ in terms of philanthropy, and to make the argument that there are features of the US system that are simply not replicable over here, and also aspects of their system that we wouldn’t want to replicate even if we could.

Obviously this is supposed to be a little bit provocative in order to get people talking (hence the slightly cheeky subtitle to he report “Why the UK doesn’t need a ‘US-Style’ culture of philanthropy”). And this seemed to do the trick at the event we held in Parliament , where Minister for Civil Society, Nick Hurd, and his shadow, Lisa Nandy, both took part in a roundtable discussion of the report’s findings.
The first thing to notice about US charitable giving is the huge influence of religion and higher education. Taken together, these account for nearly half of all donations by value in the US, whereas in the UK they account for less than 20 per cent. his clearly reflects deep-seated differences in terms of religiosity and the way college education works that we must take into account when comparing the charitable cultures of the two countries.

Government attitudes

There are also significant differences in terms of attitudes to the role of government and towards private wealth between the US and the UK: roughly speaking we’re keen on the former and not so keen on the latter, and vice versa for Americans. The antipathy towards government action in the US can cause problems in terms of people falling through the safety net, but it also undoubtedly leaves a fertile space for philanthropic initiatives. Likewise, the generally positive view of those who have created large amounts of wealth and want to do something good with it makes it far easier to be “out” as a philanthropist in the US than it is in the UK, where you are more likely to be viewed with suspicion.

These are factors that we probably cannot influence, but there are also specific features of the way that charitable giving works in the US that we might not want to replicate. For instance, the US system has an inherent bias towards those on higher incomes in a way that the UK does not. This is because the US charitable tax deduction is only available to those filing an itemised tax return, which is heavily correlated with home ownership (as mortgage interest payments are the most common deduction) and thus also with income. Since the year 2000, when the lower limit of £250for qualifying donations was scrapped, any UK taxpayer has been able to claim Gift Aid on donations of any size. In this sense our system is much more democratic.

Tax relief on non-financial contributions

The other feature of the US system that we might be wary of copying is the ability to claim tax relief on donations of clothes or household goods. At first sight, this might seem like a good thing and one of the positive features of the US system, but further investigation reveals a problem. Since people are not required to provide any evidence to support their claims for donations of goods, there is –perhaps unsurprisingly – a significant problem with overvaluation. A 2005 study, for instance, found that the average value of deductions for donations was over $1,400 per year, and a recent US Treasury report estimated that $3.8 billion was claimed in erroneous deductions every year. Given that HMRC are already extremely cautious in their approach to potential abuse of charitable tax reliefs, introducing a new type of relief that is known to be open to widespread abuse would seem foolhardy.

This doesn’t mean that there is nothing we can learn from the US. Apart from anything, the US is the most generous nation on earth by pretty much any measure you care to use, so they must be doing something right. Although there are many features of the way the Americans do things that are particular to their history, society and tax system, there are also elements of their philanthropic culture that we could bring across to the UK.

One such feature is the greater range of methods for charitable giving available in the US, where vehicles such as Charitable Remainder Trusts allow individuals to give legacy gifts during their lifetimes rather than only on death and have opened up massive new markets for fundraising. Another is learning to be more open and positive about philanthropy. We might never be able to match the American acceptance of big money donors getting their names emblazoned on hospitals and museums, but we can certainly do a lot more to ensure that those with money who choose to put it to use for the good of society are not viewed with suspicion and cynicism.

keeping our own cultural values

If we can strike a balance between learning from the US and keeping true to our own cultural values, then we can hopefully begin to develop a uniquely British philanthropic culture that matches, but does not mirror, the American one.

The anecdote concerns a conversation Kelly had with Google co-founder Eric Schmidt 25 years ago, in which he questioned why they were creating a new search engine when there were already plenty on the market. Schmidt’s answer was that they weren’t creating a search engine: that was just means to an end, and the real goal was to create an Artificial Intelligence (AI).