Philanthropist calls for tax break to aid university donors

Britain's tax rules must be radically overhauled to provide more generous breaks to wealthy donors who give money to their old universities, the country's leading educational philanthropist says.

Peter Lampl, the financier who has given millions to improve opportunities for under-privileged youngsters through his charity, the Sutton Trust, wants a change in the culture of giving to generate the funds necessary for universities to compete internationally.

Oxford and Cambridge are the wealthiest British universities, with cash reserves of £2bn each. But this is dwarfed by the vast reserves of American institutions with wealth of up to £10.7bn, the trust says. Oxford or Cambridge would rank 15th in the American league. No other British university would be in the top 150.

A report by the Sutton Trust, University Endowments, compares British and American universities and calls on UK institutions to develop a greater sense of community among former students.

Mr Lampl, who made his fortune by founding an investment and private equity firm in the United States, says wealthy individuals must be encouraged to make substantial donations to narrow the funding gap. "US universities tend to be much better than their UK counterparts at generating a sense of community amongst their alumni. Research suggests that this sense of identification, especially [with] someone who helped them as a student, is a key motivator for giving."

Endowments are central to funding because they give universities another source of income, independent of the State. The Government recognised the importance of endowments in its recent White Paper on higher education. It floated plans to form a central endowment fund, paid for by the taxpayer, to match money raised by individual universities. It also proposed better promotion of tax breaks for donors to encourage more people to give. Under the gift aid scheme, charities can reclaim basic-rate tax on any gift. Higher-rate taxpayers can also reclaim the difference between the basic and higher tax rates for themselves. But Mr Lampl believes funding endowments is not necessarily the best use of public money and wants the "unnecessarily complicated" gift aid scheme to be replaced by one that gives all the tax benefit to the donor.

"In the UK, if the donor gives £1m to a university, the donor and the university share the tax claimed back," he says. "In the US, the donor claims back all the tax, which provides an additional incentive to give."

Yet Mr Lampl thinks British universities could still catch up with American ones. "[They] have created their enormous endowments only over the last 20 years, with substantial growth in the past eight years."

Peter Agar, development director at Cambridge University, believes that changing the attitudes of British graduates to charitable donations will be a slow process.

"Mighty oaks grow out of little acorns and I think it's the same with philanthropy," he says. "You have to build people's loyalty. Institutions have to get a lot better at communicating with alumni. People might give to charity but would not think of giving to their university. We need to rid them of any misconceptions and explain to them why we need their money."