Rhodri Davies, Programme Leader, Giving Thought

Rhodri Davies

Head of Policy

Charities Aid Foundation

The role of giving

Share this blog


25 July

The NCVO Charity Tax commission recently released its long-awaited report. While this is definitely exciting for fans of charity tax (there are a few of us out there…) it is also important that the sector as a whole engages with  it - not just because there are some good recommendations which could result in positive change, but because the way some issues are framed highlights potential future challenges. (If you want to read CAF’s full submission to the commission, you can do so here).

The current UK situation

The UK has one of the most generous tax environments for giving anywhere in the world - something of which we can be justifiably proud and which reflects our long history of support for civil society. (For a detailed international comparison of tax incentives for giving, see our Donation States report from 2016). However charity tax (like many other aspects of our tax system) has become extremely complex; and the concern is that we are failing to maximise its potential to get money to good causes.

The Commission’s aim to assess the failings and inefficiencies of the existing system and recommend changes where possible is very welcome. However, as they highlight themselves, there is little economic evidence about how well the tax system is working and the political reality is that they needed to avoid recommendations with major cost implications. Both factors have made it difficult to suggest genuinely radical changes.

Despite that, many of the recommendations that have been made are eminently sensible, and include many things we at CAF have been arguing for over the years such as the introduction of a Universal Gift Aid Declaration .

However the way the commission justifies charitable tax reliefs - particularly tax breaks on donations – does highlight some deeper issues.

This may seem ridiculously esoteric, but it has definite real world implications: the way in which these tax reliefs are justified reflects the overall relationship between the state and civil society, and sets the tone for wider government policymaking.

Justifying Tax Relief for donations

The NCVO Tax Commission argues that a key reason that tax relief on charitable donations makes sense is because it delivers public goods that are in line with government priorities and which the state would otherwise have to deliver.

The Commission does acknowledge that there are wider reasons to recognise the value of donations in terms of the “general economic and social benefits of having an active and independent civil society”. But we have to be careful to get the emphasis right here.

There are three main problems with the idea that the justification for tax breaks on donations stems first and foremost from the extent to which they subsidise state provision. (For a more detailed discussion of the theory and history behind the tax treatment of donations, you can read the relevant section of my book Public Good by Private Means for free here. Or if you just want to find out why tax relief on philanthropy was only introduced by mistake in the UK, check out this blog).

Firstly, the scale of philanthropy and public spending are totally incomparable: total charitable giving in the UK in 2018 was £10.1 billion, whereas Total Managed Expenditure across all government departments was £822 billion. (The NHS budget alone was over £110 billion).So anyone with hopes that donations are going to cover gaps in public spending is likely to be sorely disappointed.

Secondly, the profile of where donations go to and where tax money is spent differs enormously. By value, the largest amount of charitable donations go to religious organisations, followed by overseas aid and disaster relief and then medical research (See CAF’s UK Giving). But by far the highest proportion of public spending goes to state pension provision, followed by healthcare and education. So there is little correlation.

State vs Civil Society

The problem is that the state and civil society are profoundly different. Yes, there are many services that began life in the voluntary sector before being taken over by the state (e.g. hospitals and schools) There are also a number of well-known anomalies where services that one might expect to be state-delivered are in fact wholly voluntary (e.g. lifeboats and hospices). But there are also many activities that are part of civil society that one would never expect the state to take responsibility for (or indeed want to even if it could).

This includes things like model railway societies, Scout and Guide groups or community beekeeping; but it also includes all of the campaigning and advocacy work undertaken by civil society organisations. This has historically been a crucial driver of social progress and reform - yet if civil society organisations weren’t around to campaign on issues, the alternative surely wouldn’t be state-delivered advocacy against itself, but rather no advocacy at all.

The Closing Space for Civil Society

The danger is that framing tax breaks for giving in terms of the provision of public goods that the state would otherwise have to deliver could sideline the campaigning role of civil society and play into the views of those who see this as something to be discouraged.

This is a problem in many countries around the world, where the phenomenon of the “closing space” has seen governments restrict many of the freedoms that are vital for civil society - such as the ability to speak out and challenge government policy.

And we aren’t immune from the dangers here in the UK: measures like the Lobbying Act and the introduction of advocacy clauses in government grant contracts show that this strain of thinking is present in our politics too.

Many don’t seem to be particularly optimistic about the situation improving either: CAF’s 2019 Charity Landscape survey found that 92 % of sector leaders thought that over the next 5 years government would expect charities to fill gaps in public service provision, while only 21% thought they would be valued for their advocacy role and their ability to offer constructive challenge. (59% even agreed that charities would be seen as a nuisance for criticising government policy).

Justifying the tax treatment of donations on the grounds of how far they align with government spending priorities would be to get things the wrong way round. The starting point should be a belief in the fundamental importance of a pluralistic and free civil society that represents a full spectrum of values and activities, which is why charitable status in the UK is defined very broadly. Tax breaks simply support that vision.

None of this should take away from the sensible, practical, proposals the NCVO tax commission makes, and its clear view that charity tax reliefs are an overwhelmingly positive thing for society.

But if we focus too much on the role of charities as service deliverers, the risk is that a future government may take this to heart: for instance, by decreeing that tax relief should no longer be applicable to campaigning activities. Given that civil society advocacy plays such a crucial role as part of the systems of checks and balances within out democracy (alongside an independent judiciary and a free press), this should make us all stop and think.

Public Good by Private Means

Rhodri Davies' book tells the story of philanthropy through the ages, and examines the relationship between philanthropists, the state and society.

Place-Based Giving campaign

Understanding and tackling the challenges facing our communities.


Our project to create a world where new technologies and social trends have a positive impact on the future of civil society.