Why the new HMRC report on giving by wealthier individuals is a missed opportunity

HMRC today launched a research report on “Charitable giving and Gift Aid behaviour amongst better-off individuals”. HM Revenue & CustomsThe area of charitable giving by wealthier donors in the UK is not one that is overburdened with high-quality research, so I was interested to see whether this report would prove to be a valuable addition to the literature. Although there is some useful stuff in there, I found myself largely frustrated, as I will explain.


I am not going to consider the sections of the report that deal with motivations for giving, largely because they don’t really add very much to previous research on this question, and the four categories of motivation identified in the report (Identity, Emotion, Social Influence and Outcomes) are pretty unsurprising to my mind. Instead I am going to focus on the bits of the report that look at the efficacy of tax incentives for giving.


The first thing to say is that the intention of the research is certainly the right one. In order for the government (or anyone else) to make a successful case for tax incentives for charitable giving requires answering three questions:

  • Are tax incentives for giving politically justifiable (and on what basis)?
  • Are tax incentives for giving effective at promoting or rewarding giving?
  • Are the particular incentives on offer actually effective?

This report focuses on the latter two questions and doesn’t attempt to address the first (my take on the first can be found in this blog). It concludes that although tax incentives do not constitute a motivation for giving, they do have an effect on the amount given. Hence, in answer to question 2, ‘yes they are effective in promoting giving where an inclination to give is already present’. This fits with previous qualitative research on this topic and also with quantitative research about the effectiveness of tax incentives for giving on a global scale (see this report by my colleague Adam Pickering, for instance).


The HMRC report considers the specifics of various existing UK tax incentives,such as Gift Aid, Payroll Giving and Gifts of Shares, Land etc. It concludes, on the basis of the interviews, that there is no real need to change any of these incentives and no appetite for doing so amongst wealthier donors. The main challenge, according to the report is simply lack of awareness (with the requirement to keep records an additional challenge identified by some participants).


It is here that the problems with the report become most evident. In particular, the fact that it is based on a very small sample size (32 interviews). The authors certainly do not try to hide this fact, and even take care to include the word “qualitative” in the title. However, they have still managed to eke out 51 pages of report with conclusions from those 32 interviews, which means that the content of each of those interviews is doing quite a lot of work.


This methodology is a problem when trying to gauge effectiveness of tax incentives, because you are extrapolating from a small sample of people’s own statements about their own behaviour to conclusions that are only really justifiable on the basis of objective, quantitative effect about the actual behavioural impact of tax incentives. For instance, knowing that the interviewees thought that their own giving would be affected by changes to the way Gift Aid works is not the same as knowing what these individuals would actually do in practice.


This is a problem because quite a lot of evidence suggests that people’s behaviour in response to changes in the value of charitable incentives is actually fairly inelastic, despite what the individuals interviewed for this report say. Surely if HMRC wants to make truly evidence-based decisions about whether to make change to various tax reliefs, it needs some solid evidence about behavioural impact? The danger is that a report which does not profess to provide such an evidence base is interpreted as if it did.


On the question of awareness, the report is also flawed. Whilst its conclusion that levels of awareness of many incentives remain low is almost certainly right, by the report’s own admission, “It should be noted that participants had been recruited on the basis that they had claimed tax relief via Gift Aid and this may explain the high awareness and understanding of this relief in comparison to others.” But what is the point of gauging the awareness of an incentive of a group of people whose membership is dependent on them having used that incentive in the first place?


Another unfortunate aspect of the methodology of the report is that the findings are not comparable with the only previous HMRC report on a similar topic, back in 2007, because the criteria for selecting interviewees are different. Hence we cannot even get a sense of whether attitudes or levels of awareness have changed.


Despite my frustration, if it is taken on its own merits the report does contain some interesting qualitative and anecdotal evidence about various aspects of the current UK system of incentives for charitable giving. However, given that the purpose of the report was to provide HMRC with a new evidence base for deciding whether changes to the existing treatment of donations by wealthier donors were necessary or desirable, it seems like a missed opportunity.


Rhodri Davies

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