'Tis the giving time - so why are we donating less?

Now is the giving season. Junk mail from a bizarre array of charities clunks on to the doormat, for this is the time of year when charities pull in most individual donations. Tony Blair in his conference speech said, optimistically, that this was to be a new giving era. The Bishop of Oxford has just proposed that if the Government won't raise income tax, then there should be a box to tick on tax forms for those who feel they should pay more.

But there is not much sign of that spirit. We are giving less to charity in real terms. As each cohort of young grows older, they give less than the previous one. The habit of giving is fading fast, along with the notion that the well-off have a duty to tithe themselves. So much for the right- wing view that charity could take over the social duties of the state if the welfare state were closed down.

A puny 150,000 people choose to pay on a Give As You Earn scheme with donations deducted from the pay packet and charities gaining 30 per cent extra in tax.

The charity cheques scheme does even worse, though it is the most enjoyable way to give. You are given charity cheques for the sum you decide to donate annually; you can make them out whenever you like to whoever you like and still get the extra 30 per cent tax to donate. A donation of pounds 250 gets you pounds 325-worth of charity cheques to hand out throughout the year, free to respond to any passing charitable whim without losing the tax gain. But only a pathetic 60,000 belong to this excellent scheme.

Why do we give so little in Britain?

Some suggest the problem is with the charities themselves. Too many have an old-fashioned, Establishment image. Many foundations have exorbitant administration costs. Too many have outlived their first urgent purpose, such as running orphanages. Yet, once founded, their accumulated capital means they never die; on they go, as large, self-perpetuating organisations searching around for new tasks, in competition with each other for dwindling goodwill. Their might sometimes stands in the way of new groups that spring up in response to new real needs.

Polling by the Charities Aid Foundation, which surveys the charity scene, suggests that people have less confidence in charities than they did. There is a growing uncertainty about what qualifies as genuinely worthy. Now that so many of them have contracts with social service departments, what should charities do that the state shouldn't? And where does the Lottery fit in?

Gordon Brown suddenly announced a new tax-free Millennium Gift Aid Fund for overseas aid, with an eye to boosting our national contribution from the current 0.23 per cent of GDP towards our promised target of 0.7 per cent. Charitable giving to Oxfam and the like is not supposed to be included in this sum, but maybe with a state-run scheme he can fudge that. If so, that will be a prime example of charities taking over what is supposed to be a state function.

But whatever it is that makes people give less, there can be few who doubt that the idea of spontaneous generosity is a social good. A society without charity is a bleak prospect. Tax relief, however, is another question altogether.

Various committees are uneasily reviewing aspects of all this, the most important of which is within the Treasury, exploring the exceedingly tricky area of charities and tax. They are finding, not surprisingly, that pull on one small thread of charities' relationship with the state and the whole cat's cradle of charity law unravels. Submissions to this committee have to be in by 1 January, and they have already received 4,000 contradictory views to trawl through.

A bizarre array of causes qualifies for tax-free charitable status, from things like Japan Animal Welfare to Odin worship. Deciding what is genuinely good defeated the Charity Commission long ago, not surprisingly. These values are almost impossible to codify. But tax foregone is exactly the same burden on the taxpayer as state funds handed out in fraudulent benefit claims. Every time someone puts money in the box for rescuing Spanish donkeys or for sending missionaries out to the heathen, they are taking an extra 30 per cent from other taxpayers. Charities have an income of pounds 16bn a year, with capital of around pounds 30bn. So it matters that we all agree what a worthwhile charity is.

Legally, there are four causes that attract charitable status: relief of the poor, benefit of the community, religion, and education.

Nothing, you will note, about animals. Animals managed to creep in under the wire on this bizarre reasoning, according to the Chief Charity Commissioner: "Animals are not a charitable cause per se, but if treating animals well contributes to the ennobling and uplifting of human nature, then that is a charitable function." Under that strange rubric, the RSPCA is regularly in the top 10 or so richest charities.

Religion and education are now causes that very few people would regard as charitable. Schools for the poor used to be charitable, but now the main beneficiaries are private schools. Religion has become a tiny minority activity: few regard the promotion of religion as of itself a public good. Quite the contrary, many rightly regard a lot of it as a menace. Even defining religion has been impossible, so the tree-hugging nature-worshipping pagans were ruled out while the Odin worshippers were ruled in.

In the Treasury review the charity lobby is pushing for VAT exemption, on top of their other tax reliefs. That means yet more subventions from the taxpayer to charities. Why should we do that unless there is a much stricter interpretation of charity, so that there is broad general agreement on their worth?

As the Government is finding with welfare, all reform means there will be losers, and losers make a lot of noise. Private schools will not tolerate having their tax exemption removed because many would close down, leaving just a few of the richest. Yet calling them charities diminishes public confidence in the whole system. If the state wants to subsidise private schools, then it should be done from the education budget, on the sort of terms the Government is suggesting, demanding something back from them for the wider community.

But that is only one example of what would happen if ministers embarked on a serious reform of charity tax law. It is hard to imagine politicians of any party daring to face down the animal lobby, private schools and organised religion all at once. Would the Government dare? The more they look into this tangled muddle of values, traditions and whimsical sentimentality, the quicker ministers may back off reforming it at all.