It is a pleasure to debate opposite the Minister today, as always.
The Bill primarily makes changes to the gift aid small donations scheme and some technical changes to the tax-free childcare scheme. The Opposition are broadly supportive of the specific measures in this nine-clause Bill, but we have a few concerns, which I will briefly outline.
The gift aid small donations scheme was established, as many are probably aware, in 2012 with cross-party support. The idea behind it was that, in situations where it is impractical to get a gift aid declaration in the usual way, such as through collection boxes or church plates, a charity can claim a gift aid-style top-up payment from the Government. A charity can claim 25% on cash donations of £20 or less, up to a yearly total that is now at £8,000.
Since April 2016, a charity has been able to claim £2,000 in a tax year from the Government under the scheme. However, that is subject to a number of qualifying criteria, which must be met if a charity is to access the scheme in the first instance. The Bill removes a number of those qualifying rules to make it easier for smaller charities to access the scheme. I will run through those changes only briefly, as the Minister has already given a fantastic overview of them.
The scheme currently includes a requirement to have been registered as a charity for at least two full tax years—the two-year eligibility rule. The charity must also have made a successful gift aid claim in at least two of the previous four tax years, with no more than two years’ gap between claims—the two-in-four-years claims rule. Clause 1 removes those two rules entirely and makes consequential amendments to the Small Charitable Donations Act 2012 and the secondary legislation that provides for the administration of the scheme.
Clause 2 amends the definition of a small payment to include donations via contactless payments, as we have heard. Clauses 3 and 4 widen the community buildings rules. Clause 3 would essentially allow a charity to claim £8,000 for small donations raised anywhere or up to £8,000 for donations collected from each community building it has. In the latter case, donations would include those
“made in person in the local authority area in which the community building is situated”.
Clause 4 would make a series of amendments to the rules for connected charities making claims, where one or more of the charities runs charitable activities in a community building. A group of charities would then be entitled to make a claim of up to £8,000 for small donations made in the local authority area in which each community building is located. Alternatively, it would be able to make a claim of up to £8,000 for small donations made anywhere in the UK.
When the gift aid small donations scheme was implemented, Labour was generally supportive of the initiative, as the Minister is aware, but we raised concerns at the time that it was quite complex and could create barriers for small charities that could be eligible to claim the top-up payment. Indeed, the Opposition spokesperson at the time said:
“The Bill will make a difference to charities and perhaps changes will be made after the three-year review.”—[Official Report, 26 November 2012; Vol. 554, c. 110.]
The complexity has since been confirmed by the charity sector in practice, and I am pleased that, in this Bill and the consultation preceding it, the Government have acknowledged that there is a problem. However, I am aware that the charity sector has expressed disappointment that the Government have not gone further, a little of which has been reflected in the interventions made so far. The Charity Finance Group, for instance, has said the changes were a missed opportunity for widespread reform of the scheme and that the Government were “locking in future failure”.
In particular, some charities have been calling for changes to the matching requirement, which stipulates that to make a claim under the small donations scheme the charity needs to receive gift aid donations in the same tax year. The total of eligible donations on which the charity can claim a top-up payment is restricted to an amount equal to 10 times the amount of the net donations on which gift aid is claimed for that year. Charity organisations have made representations arguing that changing the matching requirement would remove a significant barrier, particularly for small charities. Indeed, a survey carried out by the National Council for Voluntary Organisations found that 50% of respondents with an income under £10,000 want the matching requirement to be removed or reduced. Will the Minister take the opportunity when summing up to explain in more detail why the Government have not addressed the charity sector’s main concern about the matching requirement?
When discussing eligibility criteria for any kind of Government grant, the issue of fraud must be considered. The Opposition have several concerns about how loosening the eligibility criteria could have an impact on that risk. It is widely known that some charities have been abused in the past, being used as a vehicle to avoid tax and indeed to launder money. In the 1960s and 1970s, there were some high profile cases involving large companies, such as Metal Box and Imperial Tobacco, which used supposed charities to provide education for the children of the UK, but actually spent the money solely to pay the school fees of their directors’ children. That may seem a long time ago, but I am trying to make the point that there is always scope for abuse in such schemes. I hope that the Government will look carefully at any potential loopholes. We must make sure that any loosening of the rules for access to Government grants or tax reliefs does not provide a further incentive for tax avoiders, albeit a small minority, to set up a charity.
I will turn briefly to the elements of the Bill relating to tax-free childcare. Clause 5 will make three minor technical amendments to the tax-free childcare scheme. As the explanatory notes to the Bill explain, under the tax-free childcare scheme, parents will receive top-up payments quarterly and will have to reconfirm at the end of each quarter that they still meet the eligibility criteria. This entitlement period is currently three months, but can be varied by no more than one month by secondary legislation. Clause 5 changes that period to two months, which simply allows for the alignment of eligibility periods for additional children. The other minor change is to the way in which applications for a review of a decision by HMRC can be made. The Bill will allow secondary legislation to be introduced to enable such applications to be made digitally.
Although I appreciate that the Bill makes only minor changes to the tax-free childcare scheme, I believe it is within the scope of a Second Reading debate to discuss
the wider policy background. As the Minister will be all too aware, the Opposition have some concerns about tax-free childcare. In particular, the policy is hugely regressive. For instance, the saving is capped at £2,000 per child, as an additional 20p from the Government on top of every 80p spent by the parent, so to get the maximum benefit people would need to spend £10,000 a year on childcare. That is not an option for many working families, and it is not therefore the most efficient way of providing Government support to cover the cost of childcare.
Families certainly need help with childcare costs, which have soared in the past six years of Tory Government. Parents now spend £1,600 more each year than they did in 2010, according to Labour party analysis. According to new data taken from freedom of information requests, costs in some local areas have risen by more than 200%. Labour has established a childcare taskforce, led by the shadow Secretary of State for Education, to bring forward proposals for a comprehensive system of universal, affordable and good quality childcare.