Bringing Things to a Head: what the drop in Gift Aid usage means for the Small Donations Bill

charity signWith all the attention around this year’s UK Giving report being focused on the reported 20% real terms drop in donations, another interesting (and potentially slightly worrying) finding has been overshadowed: namely that, for the first time since the report was published, Gift Aid usage is down.

The proportion of donors using Gift Aid fell from 42% in 2010/11 to 39% in 2011/12 (as shown in the graph below). As the report itself makes clear, this is just a snapshot in time rather than clear evidence of a downward trend. However, at a time when it is vital for all charities to maximise the value of the donations they receive, a drop in the usage of the main available tax relief is certainly reason to sit up and take notice.

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What is particularly interesting given the current policy environment is the explanation for the drop. It is not that there is a decline in Gift Aid usage across the board, but rather that there is a growing disparity between small and large donations. The real cause of the drop is a decline in the proportion of people using Gift Aid on small donations: in 2011/12, only 19% of those who gave £10 or less in the last month used Gift Aid, in comparison to 23% of the same group the year before. And of those giving £10-25, the proportion is now 43%, down from 45%. Conversely, the proportion of people using Gift Aid has increased for those giving larger amounts (from 60% to 62% for those giving between £25 and £100 and from 70% to 80% for those giving £100 or more).

So, on the assumption that this finding is not simply an aberration, what does it tell us? For my money, the best guess is that there are two opposing factors in play: on the one hand, awareness of Gift Aid and the benefits it brings in terms of increasing the value of donations has been going up and up, so more people think about Gift Aid when making a donation (although levels of awareness are still much lower than might be hoped). On the other hand, the way the system currently works is quite bureaucratic; based on the collection of written declarations from donors each time a gift is made (this isn’t quite true if all the gifts are to the same charity, but the essential point holds true), and requiring charities to keep large numbers of paper records. This may be off-putting both for donors and charities, and may mean that neither feels it is worth their while to go through the Gift Aid process for donations below a certain size as the monetary benefit doesn’t justify it. Hence the fall in the proportion of donors using Gift Aid on smaller donations.

Now, this explanation may not be exactly right, but that does not take away from the finding itself and its relevance at this moment in time. With the Small Charitable Donations Bill currently just about to go to Report stage in the House of Commons, the fact that donations in general are falling and at the same time Gift Aid usage on smaller donations is down seems pretty important. It support’s CAF’s view that the original rationale for the Gift Aid Small Donations Scheme was absolutely spot on. But it also makes it clear that getting the detail of the Bill right, so that it actually works for charities, is not just desirable but absolutely vital.

I have covered our key concerns about the Small Charitable Donations Bill elsewhere (see previous blogs here and here), so I will not rehearse them here. What is important is that MPs have an opportunity on Monday to do something tangible to “Back Britain’s Charities” by encouraging the Government to listen to the concerns of all those in the voluntary sector who have explained clearly why the Bill in its current format will not fail to meet the needs of many charities.

 

Rhodri Davies

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