CHARITIES reacted with dismay to yesterday's cut in the basic rate of income tax, which it was claimed would slash the amount they receive through Gift Aid donations.

The Charities Aid Foundation (CAF) said that the £625m UK charities receive each year would be reduced to £554m as a consequence of the basic income tax rate falling from 22% to 20% by next April.

Under the Gift Aid scheme, charities can reclaim tax on charitable donations.

However, with the amount paid upfront falling, the amount charities can recuperate will fall in turn.

CAF, a not-for-profit organisation which promotes charitable giving, said the UK currently enjoys one of the most favourable environments in the world for giving to charities and praised the Chancellor's commitment to promoting Gift Aid.

But it warned that the income tax change announced by the Chancellor would leave a huge shortfall in funding for charities.

A spokesman for CAF said yesterday: "While this (income tax cut) will create additional income for the public, charities will have to call on their donors to help make up the shortfall.

"The UK already enjoys one of the most favourable environments for giving to charity of any country in the world.

"But charities consistently fail to reclaim the tax that's currently available to them because they believe it's either too costly, too complicated, or they simply don't understand the rules.

"As a consequence, around £700m goes unclaimed by charities every year on donations that could so easily be converted to Gift Aid.

"So we very much applaud the commitment from Gordon Brown to help charities to make the most of Gift Aid.

"We look forward to working with the government to ensure charities are fully prepared to meet the challenges of the new financial year, and begin to realise the potential of tax efficient giving."