Osborne's Tax Relief Cap To Be Reviewed

The Government's tax policy has been called a "shambles" after it was announced plans to cap tax reliefs claimed by the rich would be the subject of a formal consultation.

Downing Street unveiled the move amid an ongoing row about how a cap would affect charitable donations and it was immediately seen as the start of a U-turn.

Osborne's Tax Relief Cap To Be Reviewed

Number 10 said Prime Minister David Cameron wanted to encourage charitable giving but refused to say whether he accepted the proposal would hit donations.

The announcement came after a Treasury minister conceded the changes would have an impact but insisted the super-rich should not be allowed to "opt out" of the system.

Treasury figures released in a bid to justify the step showed almost one in 10 people earning more than £10m-a-year pay less than the 20% tax rate.

But it has now been revealed that the proposal to limit income tax reliefs to £50,000 or 25% of income will be the subject of a consultation set to report in the summer.

Meanwhile, ministers are due to hold talks with charity groups and philanthropists in the coming days and weeks about the policy's implementation.

John Low, chief executive of the Charities Aid Foundation, said: "This has been a shambles. The Government simply has not thought this through. It is astonishing that the Treasury did not properly assess the impact on charities of their new tax relief cap before announcing this damaging measure in the Budget.

"Hundreds of charities large and small are united in opposition to this measure and generous philanthropists across the country are demoralised by being branded tax-dodgers.

"We are not asking the Government to drop caps on all tax relief. We are saying that ministers should think again about extending that cap on tax reliefs to include charitable donations."

The measures have already sparked outspoken criticism and a widespread revolt among Tory and Lib Dem MPs.

A new poll by ComRes, conducted for the Charities Aid Foundation, found two-thirds of Conservative and Lib Dem MPs were against the measure.

Conservative MP Zac Goldsmith has said he is "ashamed" that his party appeared to have "declared war" on the very people who should be at the heart of the Big Society project.

Business Secretary Vince Cable, former top Tory David Davis and ex-Lib Dem leader Sir Menzies Campbell have also expressed their concern.

As Parliament reconvened after the Easter break, Labour leader Ed Miliband accused the government of "incompetence" and branded the plans "hasty and ill-thought through".

"Four weeks after the budget, they're ripping up their proposals on charity taxation. That is not the way tax policy should be conducted," he said.

Former prime minister Tony Blair is set to join the outcry later. In a speech in the US, he is expected to say: "This is absolutely the right moment for government to do all it can to promote philanthropy; and certainly nothing to harm it."

Mr Cameron insisted the plans had always been due to go out for consultation to make sure they did not harm charities. 

"I want to see Britain's charities succeed but at the same time I think it is important to make sure that the wealthiest people in our country are actually paying a good share in income tax," he said on Monday.

"This was never going to be introduced until next year - [there is] plenty of time to get it right, plenty of time to consult and listen. The key principle is more for charities and philanthropic giving yes - but allowing people to drive down their tax rate to 10% when they are some of the richest in the country, no."

Treasury minister David Gauke said earlier that the overall cap on tax reliefs would bring in £300m in extra revenue and between £50-100m of that would be from the donations limit.

"We don't think it is entirely fair that the tax system, as currently designed, does mean that there are some very wealthy individuals who are essentially able to take themselves out of the income tax system," he said.

The controversy is the latest to erupt in the wake of the Budget in March , which also sparked anger about a "pasty tax" on hot snacks and a "granny tax" on pensioners' personal allowances.

In a separate row, it has also been reported that plans to force people to fit energy-saving insulation in their homes when they install new boilers or build extensions are to be scrapped.

And George Osborne is facing further calls to abandon his so-called "heritage tax", which will end the VAT ememption for the improvement, alteration and restoration of listed buildings, amid claims it will cost churches tens of millions of pounds.

To maintain the pressure, Labour is expected to force Commons votes on several budget measures this week.

Foreign Secretary William Hague has vowed that concerns about relief on charitable donations will be considered "very sympathetically".

A Treasury spokesman said: "This is the system we have at the moment, but the Government is committed to making it fairer. We're capping benefits and these figures clearly show why it's fair to cap tax reliefs for the wealthy as well."