Government makes third tax policy U-turn in a week

LONDON Thu May 31, 2012 4:58pm BST

Britain's Chancellor of the Exchequer George Osborne (L) arrives for a cabinet meeting at Downing Street in central London May 22, 2012. REUTERS/Olivia Harris

Britain's Chancellor of the Exchequer George Osborne (L) arrives for a cabinet meeting at Downing Street in central London May 22, 2012.

Credit: Reuters/Olivia Harris

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LONDON (Reuters) - The centre-right coalition dropped plans to tax charity donations on Thursday, in the third U-turn this week on budget proposals which have hurt its poll ratings and drawn accusations from opponents that it is out of touch with ordinary people.

Thursday's reversal follows retreats on levies on hot takeaway food - the "pasty tax" - and caravan homes, and piles pressure on a government already reeling from a phone-hacking scandal which has exposed close links between media and politicians.

Opposition Labour said the U-turns showed Chancellor George Osborne's budget had become an "embarrassing shambles", raising questions over his and Prime Minister David Cameron's judgment.

Cameron has seen ratings for his ruling Conservative party slump behind Labour since the March budget, which cut income tax for the richest while raising tax rates on the elderly.

Charities had waged a vociferous campaign against the proposals to limit the amount of tax relief that high earners could claim against their donations, saying the plans were causing uncertainty and driving away potential donors.

Osborne, defending the about-face, said he would press ahead with limiting other tax relief on the best paid, but would remove charities from restrictions after hearing their concerns.

"We have listened to charities, we said we would ... any kind of cap would have damaged donations to them," he said.

The cancelled tax changes would have raised about 140 million pounds ($215 million), relatively little compared to other budget measures, and they provoked a disproportionate public response, fuelled by campaigns in national newspapers.

The government had made the mistake of leaking so much of the budget in advance that there was an excessive focus on the unexpected tax moves withdrawn this week, said Conservative legislator Andrew Tyrie.

"With so much pre-briefing and leaking of the major measures in the budget, the government lost the opportunity to explain a coherent package of tax reforms," Tyrie said.

"The few measures not leaked attracted disproportionate attention, forcing one concession after another," he said.

(Additonal reporting by David Milliken and Fiona Shaikh; Editing by Louise Ireland)

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