Free minds by cutting the red tape of giving

US-style philanthropy would give our universities the boost they need to stay competitive, C. Duncan Rice says

Each year Americans give more to charity than the rest of the world put together. The United States has a philanthropic culture far stronger than any other country.

There is a stark contrast between British and American higher education systems in the levels of private income from fundraising. In the US, the donor's mind is focused on ensuring that a significant proportion of income is given to take advantage of tax breaks. As a result of such tax concessions, charitable donations have increased sharply in America. They rose last year to $175 billion, accounting for more than 2 per cent of gross domestic product. Of this, $2.5 billion comes through payroll contributions, a popular method of giving in the US. Donations from the most affluent Americans are also on the rise. In 1996, people with annual incomes exceeding $1 million reported giving an average of $137,000 to charity, up from $113,000 in 1995. In addition, approximately 1 per cent of all US company profits before taxation go to charity.

British universities have suffered from 30 years of struggling with incessant government cutbacks that have stifled thinking about new activities and eroded core activities. My own university, in real terms, is taking a cut of Pounds 700,000 next year, after years of shrinkage. With this decline in government funding, higher education institutions have had no option but to look to philanthropic support. It is essential for funding to flow from the private sector into higher education if we are to serve the private sector well, and if universities are to become internationally competitive. Government funding can keep a respectable university system going, but it cannot provide the level of quality that higher education institutions require, or enable them to compete among themselves or in an international forum. British universities are in the early stages of recognising the need for private assistance. Higher education is rapidly developing a fundraising profession specifically targeting philanthropic support, with some notable and early successes, including a number of multimillion-pound gifts, most recently Bill Gates's donation of more than Pounds 130 million to Cambridge University.

Many British universities have realised that graduates will give if they are asked, and are achieving very high levels of participation. Between 25 and 30 per cent of those asked for a donation to an annual fund make a financial contribution of some kind. It is hoped that levels of giving will rise with important recent changes to the British tax system. In contrast to the US, the British tax code has, until recently, been recognised as complex, confusing and restrictive, with little incentive for potential donors. The proportion of households donating to charity has actually decreased by 10 per cent since 1978 and only 0.2 per cent of company profits are given to charity.

In his March budget, chancellor Gordon Brown announced sweeping alterations to the tax treatment of charitable donations as part of a "Get Britain Giving" campaign.

The most radical change creates an incentive for a powerful type of giving that has had a dominant effect in America. For companies and individuals who give publicly quoted shares or securities to charities, there will not only be an exemption from capital gains tax, but also income tax relief in the year of the gift on the appreciated value of the instruments passed over.

Such changes would have been unthinkable for traditional Labour governments, but they are consistent with the stress on public-private partnership to lighten some of the burdens traditionally borne by the welfare state.

Other changes include the removal of the Pounds 250 limit on tax-free one-off gifts, which means that even small charitable donations will be tax free, and the abolition of the Pounds 1,200 limit on tax-free giving through payroll deductions. That removes any limit on giving from annual salary.

In addition, a great deal of the red tape constraining giving has been removed. The chancellor has taken an important step, but it is to be hoped that this is not the end of reform. Another possibility might be trusts, sheltered from tax, the proceeds from which would ultimately flow to charities. The chancellor might also consider imitating the example of some of the Canadian provinces, by introducing a system of state funds matching private donations to fundraising campaigns that meet important public priorities, among them the support of universities.

In the meantime, as the finance bill passes through parliament, universities are already seeing encouraging signs from their donors, regarding the level of gifts and frequency of giving. The changes in tax regulations will be a catalyst for the transfer of funds from the private sector to education and the arts. As state support for universities declines, this is help we cannot do without.

C. Duncan Rice is principal and vice-chancellor of the University of Aberdeen.