Rich 'use charities to cut tax'

Some of the wealthiest people in the country are donating to charities which "don't do a great deal of charitable work" in order to "wipe out" their income tax bills, Downing Street has said.

No 10 strongly defended controversial plans in Chancellor George Osborne's Budget to cap tax relief on charitable donations, saying it was necessary to prevent "abuse" of the system.

The move has prompted an outcry from charitable organisations, who fear that big donations will dry up as a result, however, the Prime Minister's official spokesman said that ministers had acted to stop wealthy individuals "exploiting" the system to pay less in tax than the average family.

"In certain instances they may be giving to charities and those charities don't, in all cases, do a great deal of charitable work," the spokesman said.

"The reason that the Chancellor decided to bring in the cap was that certain individuals in this country on very high incomes are exploiting these reliefs to reduce their tax bills. We cannot be in a situation where very wealthy individuals are able to wipe out their bills by using these reliefs. We don't think it is right that someone on a very high income is paying far less tax than the average family in this country."

In an interview with The Daily Telegraph, Mr Osborne said he had been "shocked" to discover that some of the wealthiest people in the country were paying "virtually no" income tax.

The Chancellor said he had seen "anonymised" tax returns submitted by multi-millionaires using aggressive avoidance schemes to dramatically reduce their tax bills.

HM Revenue and Customs (HMRC) found that the income tax rate among some of the highest earners was, on average, only 10%. Mr Osborne said the HMRC study had convinced him of the need to take action to ensure high earners paid more tax.

Leading philanthropist Dame Stephanie Shirley angrily condemned the suggestion that wealthy donors were simply trying to avoid tax.

"The Treasury has always been rather distrustful of the philanthropists," she said.