State of the arts

'Public funding of the arts will always continue '“ we have set out government funding for the life of this parliament, and we have increased the amount of lottery money going to the arts. But we must help our arts organisations develop more mixed funding models, to help give them long-term financial stability and certainty. This stability will allow them to plan ahead with confidence, leading to a more vibrant and resilient cultural sector.

'There is huge scope to strengthen private and corporate support for culture over the next few years, for the benefit of the culture sector and audiences across the country. The measures I am announcing today will do a huge amount to bring about a long-term boost to giving.' '“ Jeremy Hunt MP, secretary of state for culture, olympics, media and sport, 8 December 2010 in a speech to the European Association of Philanthropy & Giving.

As with their wider voluntary sector counterparts, arts and heritage bodies are seen as being key to the delivery of the 'Big Society' agenda by the government. In this respect, it is surely no coincidence that from his inaugural ministerial speech in May 2010, the culture minister has sought to send a consistent message to the arts lobby that arts charities and their supporting funding bodies must expect to meet the demands of reduced public funding with an active engagement with donor philanthropists and their grant-making charities.

The wider vision of the role of arts and heritage organisations within the Big Society is succinctly put in the foreword to the Report for public debate recently published by the Culture Forum (December 2010) and supported by the charities Arts & Business and the National Campaign for the Arts: 'Arts and Heritage is one of this country's greatest success stories. It goes to the heart of what it is to be human. It is a force for good in health, education and strong communities. It is vital for tourism, foreign earnings and urban and rural regeneration. In this word we are world class.'

Encouragement in an age of austerity

So, against a background of public funding cuts (the Arts Council for England, for example, sees a 29.6 per cent government funding cut over the next four years) and squeezed donors, what has the government done so far about encouraging its vision of a mixed economy where public money meets with private philanthropy to create a donors' circle of virtue?

For a start, it is arguable that in the current spending round at least cuts to the arts are perhaps not as deep as had been feared. Also, in terms of making other funding available, the government has tried to sweeten its slimming pill by confirming its pre-election promise to restore the proportion of national lottery money that arts, heritage and sport are entitled to receive (to 20 per cent) and has announced (as part of its ten-point action plan on philanthropy) an £80m match funding scheme whose purpose will be to support smaller organisations and to help the creation of US-style endowments for larger bodies. In association with this, a review of the government's philanthropy strategy is being undertaken with a report to be brought out in the spring.

In undertaking its review it is hoped that HM Treasury take more notice of DCMS than has hitherto been the case. It is also hoped that government will take on board a widely voiced view that the tax system for donors might be reviewed to facilitate the mixed economy of public and private funding that their philanthropy strategy seeks to achieve.

Taxing times

In this regard, it is suggested that government could do more to assist donors (at all levels of the philanthropic spectrum) so as to allow them to act as a lever for giving during their lifetime. For example, it is generally accepted that existing tax incentives are not well understood by the public and that the take up of those using gift aid as a means of giving has been relatively poor on account of the administrative inconvenience of the gift aid system.

For heritage bodies and charities whose purposes focus on works of art, there is also the added frustration that the relatively generous income tax incentives offered to UK taxpayers for gifts of cash, quoted securities and land do not extend to a donor offering a gift of works of art. This is in contrast to a number of overseas jurisdictions where a donor will be allowed to claim deductions against their taxable income for gifts of artworks to certain types of cultural institutions (see for example Securing the Best for Our Museums: Private Giving and Government Support, a report by Sir Nicolas Goodison to HM Treasury, January 2004).

The current acceptance in lieu dispensation managed by HMRC is also a source of frustration for heritage bodies in that it only enables inheritance tax or estate duty debts to be settled by the gifting of heritage chattels to the nation. Arguably, and for the benefit of the national cultural heritage, it ought to be relatively straightforward to extend the relief to settle capital gains tax, income tax and corporation tax debts also and it is, for example, the case that arrangements of this kind exist in a number of countries, notably Australia, France and the United States. The desirability of extending offers in lieu in this way in light of the well-publicised difficulties faced by UK public museums in obtaining funding to make acquisitions seems self-evident (see further MLA's Acceptance in Lieu Report 2009/2010 and the Art Fund's website of various campaigns to save works for the nation, www.artfund.org/policyandcampaigns/ campaigns).

Purpose test and lifetime legacies

Other areas for review include the much maligned substantial donor regime and about which draft legislation is to be included in the Finance Bill 2011. Specifically, this includes anti-avoidance rules that will replace the current substantial donor rules with a 'purpose test' designed to catch 'tainted charity donations'. The draft legislation is still subject to consultation; however, it is hoped that its implementation will alleviate the concerns of advisers under the existing rules, whereby donations that provided no benefit to the donor were unwittingly caught and risked being treated as tax avoidance.

Finally, in common with others in the voluntary sector, the arts and heritage bodies have long championed the introduction of US-style charitable remainder trusts (or 'lifetime legacies') which are seen by many to be the key to unlocking new income streams from private philanthropy.

In particular, these are seen as encouraging the promotion of lifetime giving by donors as opposed to post-death giving and have been credited with boosting the endowment-style culture of giving in the United States.

With more details on the government's philanthropy policy awaited, and the concept of the Big Society being challenged actively by the opposition and those in the third sector, it is hoped that any policy initiative for 2011 will have the courage to adopt at least some of the various proposals for tax incentives and reform being put forward so that the UK may continue to remain as the Culture Forum states 'world class' in our support for arts and heritage.