REFUND OF TAX IN CERTAIN CASES

HC Deb 12 July 1972 vol 840 cc1663-724

Mr. Denis Healey (Leeds, East)

I beg to move Amendment No. 103, in page 12, line 34, at end insert: '(m) a charitable body which is treated by the Board of Inland Revenue as being exempt for income tax or corporation tax purposes'.

Mr. Deputy Speaker

It will be convenient also to discuss the following Amendments:

No. 100, in page 12, line 32, leave out 'and' and insert: '(kk) a charity giving aid to the disabled or handicapped; and'.

No. 101, in line 34, at end insert: '(m) a charitable body which is not liable to selective employment tax'.

No. 102, in line 34, at end insert: '(m) a charitable body which is registered with the Charity Commissioners'.

No. 104, in line 34, at end insert: '(m) A body which has as its main aims the furtherance of religious education and instruction'.

No. 105, in line 34, at end insert: '(m) a charity;'.

No. 106, in line 34, at end insert: '(m) an amateur sports organisation'.

No. 107, in line 34, at end insert: '(m) a youth club'.

No. 108, in line 34, at end insert: '(m) the Y.M.C.A.'.

No. 109, in line 34, at end insert: '(m) any organisation receiving a grant from the Arts Council'.

No. 174, in line 34, at end insert: '(m) the Youth Hostels Association'.

No. 216, in line 34, at end insert: '(m) a charity except insofar as it is engaged in the supply of goods (other than gifts) or services for the purpose of business'.

No. 110, in page 13, line 8, at end insert: '( ) This section shall have effect in relation to tax chargeable on the supply of goods or services to, or on the importation of goods by, a body to which this section applies, being a charity, as if for the reference to any business carried on by the body there were substituted references to any (trade) (activities by way of trade) carried on by it'.

No. 111, line 8, at end insert: '( ) In this section "charity" has the same meaning as in the Income Tax Acts'.

Mr. Healey

The purpose of these Amendments commands general support in the House and in the country. They aim at persuading the Government to give charities, churches, amateur sports organisations, youth organisations and organisations like theatres which get grants from the Arts Council the same privileges as the Government propose to give to local authorities, to the British Broadcasting Corporation and to Independent Television News—that is, to refund VAT which has been paid on goods or services supplied to them.

This is not, as The Times suggested in a leader which I otherwise wholly applaud, a problem which has suddenly come to public knowledge at the end of our discussions. The Chancellor of the Exchequer will be aware that the charities and churches have been discussing this problem with him for, I imagine, almost a year. They published a paper on the problem in January and the Opposition tabled Amendments which were discussed at length in Committee upstairs a month ago. But the Government refused to budge.

We are glad that the Chancellor agreed the other day to meet one of the complaints made by the charities and churches by accepting the Opposition's Amendment in principle to ensure that sales by charitable organisations which belong to a national body were not aggregated for purposes of VAT so that they would not be required to seek a refund of VAT on the goods which they sold. This will be of great assistance to church bodies which raise funds by fetes.

There are still many charitable bodies which it would be difficult to disaggregate in the way the Chancellor of the Exchequer proposes, for example some of the charitable shops run by Help for the Aged and Oxfam which each week will have a turnover of £100, which is only £16 a day and, therefore, even if their operations are not aggregated with those of the parent body, will qualify for payment of VAT on their sales.

In one sense the concession made yesterday, which we welcomed, increases the problems for some charities, because they cannot recover the tax on their inputs if they are exempted by increasing the price of the goods which they sell or recover the VAT in that way. There are three burdens which still lie on nearly all the charities and which I hope the Chancellor of the Exchequer will find it possible to raise after listening to what is said in this debate.

First, there is the problem of the many charities whose activities largely rely on selling goods to the public, for example Oxfam, Help for the Aged and many other such organisations which run permanent shops from which the public can buy goods. Many of them will have a turnover which is above the limit set for exemption, and they will not be helped by the concession of disaggregation announced yesterday. I believe that they deserve more consideration than the Chancellor has yet given them.

Secondly, the problem of the inputs on which charities still must pay tax is a serious one in two respects. A minor problem is that they must pay tax even on gifts of money, goods or services if those gifts are made by taxable persons like firms and are worth more than £10. I do not suggest that this is a great problem but a firm may, for example, give a charity a car, a washing machine or a refrigerator for a sale. Under the law as it stands somebody will have to pay to the Exchequer 10 per cent. of the value of that gift. One might hope that the donor would pay the tax but one cannot be certain of it. It may be said that purchase tax works in the same way, and of course it does for new goods, but people often give second-hand goods for sale and purchase tax does not apply to second-hand goods. I do not suggest that this is a major problem, but it is a genuine one and I think the Chancellor will agree that it deserves consideration.

Mr. Carter-Jones

Disaggregation may be an advantage to the charity, but will it not substantially increase administrative costs?

Mr. Healey

The amount by which it increases administrative costs depends entirely on the final form of the proposal which the Chancellor brings forward.

When we discussed this earlier, it was common ground that if the Chancellor had not agreed to disaggregation the charities would have been compelled to disperse their activities by changing their constitutions and acting in a different way. That would certainly have increased administrative costs and it was one of the factors which led the Chancellor to make the concession. He will be the first to admit that he has problems in finding a way to disaggregate these operations, and until he can tell us precisely how he proposes to do this we shall not be able to assess the full value of the concession which he has made.

7.45 p.m.

A far more serious problem than the imposition of VAT on gifts to charities, both new and second-hand, by taxable persons is the 10 per cent. tax which the charities will have to pay on essential goods or services which are supplied to them to enable them to operate. This is a serious problem as I am sure the Chancellor recognises.

Last night we debated one aspect of that problem when we discussed relieving churches and historic buildings from the payment of VAT on repairs and maintenance. The miserable speech with which the Financial Secretary sought to persuade the House that it was impossible for the Government to make an exception for churches without excepting all repairs and maintenance totally failed to commend itself to the House. When he sought to suggest that the whole fabric of the relationship between Church and State would collapse in ruins if he accepted the Amendment, we felt that the hyperbole was a little excessive. He could perfectly well have accepted the Amendment. We have all known, ever since Professor Cornford wrote "Micro-cosmographia Academica", that the "thin end of the wedge" argument is always used against change, but only the day before the Financial Secretary in accepting an Amendment to relieve hired television sets of tax had maintained that he could do so without extending the concession to hired radio sets or hired Xerox machines. I suggest—and the hon. Gentleman knows this in his heart—that he could perfectly well have accepted this Amendment, which would not have required him to extend the concession to anybody else, but he did not do it.

It is not only a question of the repair and maintenance of church buildings. A great number of charities have to pay for a large range of goods and services to enable them to operate. This applies to sheltered workshops, rehabilitation centres, day care centres and so on. Many of these organisations have given estimates of the additional burden which VAT will impose on them compared with the burden that previously fell on them from the taxes which it replaces. The churches have pointed out that they will have to pay 10 per cent. extra on repair bills for cathedrals, churches, chapels, parsonages and manses, and for the first time they will have to pay 10 per cent. on the professional advice they receive on their office expenditure. The VAT extends into areas which may seem to hon. Members to be fairly trivial but which to a poor parish are substantial.

For example, ecclesiastical furniture is at present relieved of purchase tax but no similar relief is allowed for VAT. The result of all this is that the churches believe that a large additional cost will fall upon them—and nobody who has talked to those responsible for the financial administration of the churches can regard them as in any sense amateurs in the understanding of their economic problems; far from it.

The churches estimate that if VAT is imposed on their inputs it will cost them £1¼ million a year more than they are now paying. The Church of England thinks it will cost it £800,000 a year more, or for the average parish church £200 a year more. Those of us who know the problems of the churches will recognise that this is a very heavy sum, particularly for some of the country parishes, and indeed for some of the poorer areas of the cities, to have to carry.

The Methodist Church calculates that VAT will cost it £500,000 a year extra, the Roman Catholic Church reckons that it will cost it about £250,000 extra a year, and similar burdens are likely to fall on charities other than churches. Dr. Baranardo's Homes reckons that VAT will cost them an extra £50,000 a year. The Spastics Society say that VAT will impose an additional burden of £30,000. The British Legion, an organisation for which at one time I had a certain responsibility, estimates that VAT will increase the cost of producing poppies for Poppy Day by £16,000 by taxing services provided by ex-servicemen or disabled people who work at their two factories for this purpose.

It is not only cruel but absurd to load those extra burdens on these charities. In most cases the charities are simply filling gaps in work done by local authorities, and local authorities will have their VAT inputs refunded under the Bill.

When we discussed this matter at some length upstairs in Committee the Financial Secretary gave firm reasons for rejecting our proposals. He first attempted to argue that VAT was simply replacing purchase tax and SET, implying that the one was very much like the other. But the impact of those taxes on charities and the churches was infinitely less heavy than will be the impact of VAT. These matters have all been pointed out in letters sent by various organisations to Members of Parliament and to the newspapers. Purchase tax covers a much smaller range of goods and is not imposed on second-hand goods. Oxfam pointed out only this week that the impact on its operations of the halving of SET was not perceptible, and most people who are not charities would say that the impact is very much the same.

The Financial Secretary dropped the argument without elaborating it too much and rested his case mainly on the contention that the Government had this year given charities and churches certain other concessions whose value to them far outweighed the burdens imposed by VAT—namely, the concessions relating to estate duty and capital gains payments on gifts to charities.

The concessions on capital gains and estate duty will substantially help some charitable organisations, and this certainly applies to those which depend on legacies, such as the British Museum and the National Trust. However, they will not help those charities which are most affected by VAT because those organisations benefit very little from legacies or gifts which are large enough to be affected by the concessions already announced by the Chancellor of the Exchequer.

The charities rightly argue that these concessions—and I give credit to the Chancellor for making them—are required not as an offset to the burdens of VAT but as a necessity if they are to continue to operate and as a matter of justice. It is no good the Chancellor saying "We may be imposing a burden by VAT, but we are removing it by making these other concessions". He sought and got credit for these other concessions because they were justified in their own right, but many of these charities will not benefit significantly from the estate duty and capital gains concessions.

Mr. Peter Hordern (Horsham)

This is an important point. The right hon. Gentleman appeared to be suggesting that charities would require this treatment in respect of bequests and capital gains tax. In view of the appearance of the Labour Party programme dealing with future treatment of wealth tax and gifts tax, will the right hon. Gentleman give an undertaking that in the up happy event of a Labour Government being returned to power in future there will be no question of either a gifts tax or any change in the suggested treatment of bequests of £50,000 in terms of capital gains?

Mr. Healey

I am delighted that the hon. Gentleman has such confidence in a Labour victory in the near future that he is now spurred to ask for more information. I will take the earliest opportunity to put personally on the board a copy of the document to which he referred. I can give him the assurance that while a wealth tax would hardly affect charities, a gifts tax certainly would. It would be my intention, if I were in a position to do so, in introducing a Bill on gratuitous transfers to ensure that charities were as a result no worse off.

Some of the most worthy charities, those which are doing the most important work, are those which tend to be least attractive to the big donors. I shall give two examples from the churches. The Church of England Council for Social Aid—which specialises in frontier work for the young people, for those coming out of prison or borstal or for alcoholics—had an income last year of about £10,000 in subscriptions and special gifts but received only £100 from legacies. I fear that drunkards are not all that popular, nor are ex-prisoners. The National Trust and the British Museum can sometimes benefit enormously from the generosity of the wealthy, but some of these other very important charities benefit very little.

To take another example, the Church of England Children's Society gets some legacies but 80 per cent. of them are for sums of £500 or less and about 17 per cent. are for sums of from £200 to £2,000. Only 1.4 per cent. were for sums of £5,000 or over. In other words only 1½ per cent. are likely to benefit from these concessions.

At the same time as the Chancellor made concessions to charities, he also imposed a new burden upon them. The unified personal tax system means that charities which receive gifts through bank orders and covenants will recover tax at only 30 per cent. instead of at 38.75 per cent. It has been estimated that this will cost them about £4 million a year.

The Chancellor of the Exchequer will be the first to admit, as the Financial Secretary did yesterday, that it is totally impossible to quantify even the global benefit to charities from the concessions. on capital gains and estate duty because no one can tell precisely how they will influence the pattern of gifts and legacies. The Financial Secretary made a great deal of that yesterday.

Mr. Albert Roberts (Normanton)

If these charitable organisations cannot continue, what will be the result?

8.0 p.m.

Mr. Healey

Obviously some charities will be compelled to cease operating, because they will not be able to cover their administrative costs. That is the fear of many charities in relation to the VAT.

The Financial Secretary pointed to the case of the Spastics Society which this year, according to him, was gaining almost as much from the additional reliefs through the capital gains and estate duty provisions as it was likely to lose in VAT on its sales and inputs. But there is no guarantee that it will be as lucky next year, and we can be certain that many charities will not be as lucky.

Mr. Bruce-Gardyne

Surely the whole point is that if the fiscal system as it applies to gifts to charities is changed, it is a logical expectation that the yield which the charities will obtain from such legacies will be increased and that they will be encouraged to seek out such legacies.

Mr. Healey

That is true, of course. With respect to the hon. Member for South Angus (Mr. Bruce-Gardyne), however, logical expectations "gang aft agley". We have had so many logical expectations from the Chancellor of the Exchequer. Every time he presents a Budget he tells us with confidence precisely how it will affect the pattern of production, the yield of taxation and so on. Every time he has been wrong. I do not altogether blame him for being wrong. But for the hon. Member for South Angus to pretend that one can predict exactly how a change of this nature will affect the receipts of charities which depend so much on the caprice of a handful of very wealthy men is to make a pretence which has no foundation.

The Chancellor of the Exchequer has been in a somewhat generous mood this week. In Committee he made almost no concessions. But they have been dribbling out of his cornucopia like golden coins at the rate of three or four a day since the Report stage began. He has done a good deal for auctioneers. He has done quite a lot for art dealers. He has done a great deal for television addicts. In the latter case he has sacrificed £20 million, and rightly so, because we pressed him to do it. He has relieved lotteries and the gambler entirely of the burden of the VAT. The cost of meeting the churches and the charities completely on this issue is only £1½ million. I do not think the right hon. Gentleman can deny that of all causes in the country it would be impossible to find a more deserving one for his generosity.

I am sure the right hon. Gentleman will say that the Amendment which has been selected for the House to vote upon is defective in its drafting. We drafted it in this form only because we did not think that it would be selected if we tabled the same Amendment as the one we debated in Committee, which was less defective. But I am not pressing the right hon. Gentleman to accept the Amendment in these terms. I ask him to accept the case in principle and to return to charities their inputs, in the same way as he is relieving Independent Television News and the British Broadcasting Corporation. He has power to do this by order under subsection (3)(l). He does not need to come to the House with an Amendment. He simply has to publish an order—he can tell us that he will do it this very evening—to include charities, defined as he thinks fit in the light of the problems among those bodies, which can obtain refunds of the VAT paid.

If compassion and logic will not move the right hon. Gentleman, is there no other motor which might stir him into action? I remind him of the words of his hon. Friend the Member for Belper (Mr. Stewart-Smith) in the debate on children's shoes. The hon. Gentleman said: There is also a stark political issue here. We cannot afford another school milk scandal for the sake of £12 million. In Group 4 of the Schedule the Government are exempting from the tax facilities for gaming and lotteries. It seems extraordinary that the Government should exempt them but not children's shoes."—[OFFICIAL REPORT, 16th May, 1972; Vol. 837, c. 294.] The charities are quite as deserving as children's shoes, and the cost of meeting their requirements is only £1½ million. That is little over 10 per cent. of the cost of meeting the needs of the children which the right hon. Gentleman went a little way to do in the concession he made on 16th May.

I think that I speak for many hon. Members on both sides of the House when I ask the Chancellor to take the opportunity offered by subsection (3)(l) to make an honest man of himself, to remove this cloud from the reputation of a Government whose reputation is already very murky and to tell us that he is prepared to add one more concession to those he has made to the Opposition during the past three days.

Mr. Hordern

The right hon. Member for Leeds, East (Mr. Healey) approached this matter very seriously. His speech was a serious contribution to a topic which has concerned very many people, as the correspondence in the national newspapers have shown for some time past. I am sure that every hon. Member has a deep and personal interest in either a group of charities or a specific charity. I speak as a director of a national charity, and I know the concern that the charities feel about the proposal that VAT should be charged on them.

One of the difficulties about this proposal is that all estimates by definition are somewhat imperfect. It is extremely difficult to make any accurate forecast either of the weight of the VAT that the charities will have to bear, or of the total effect on charities taking into account the benefit that they will receive by legacies and that from the capital gains concession which has been granted by my right hon. Friend the Chancellor of the Exchequer.

I turn first to one or two of the points that the right hon. Member for Leeds, East made at the outset of his speech since they illustrate some of the difficulties that the House has to face in looking at this matter. The right hon. Gentleman referred to the input tax and to gifts of new articles, such as cars and and television sets, and of second-hand items.

I thought the proposition being made by the right hon. Gentleman was that it was extraordinarily unfair that charities should have to bear a tax on gifts. However, the right hon. Gentleman seemed to suggest that people who are disposed to give gifts to charities will say, "We will give you the value of the gift, but we shall deduct the VAT input on it." In practice, that is a most unlikely proposition. I hope the right hon. Gentleman will accept that, whatever else may be true or untrue about that matter, people who are generously going to give gifts to charities will not at the last moment be mean enough to deduct the VAT from them.

Mr. Healey

I should hope that it will not be the general practice. However, I know of some charities and charitable givers who are capable of behaving in that way. If the donor deducts the money it is true, as the charities argue, that this is another 10 per cent. devaluation of the £ for them, because the value of what the donor is giving will be only 90 per cent. of what it would have been had he not been compelled to pay this tax.

Mr. Hordern

This illustrates the dilemma in which the House and, indeed, these charities are placed in trying to guess at the propensity of people to make gifts to charities and the marginal effect the imposition of VAT will have. I do not think it is proper for either the right hon. Gentleman or the charities to make this kind of precise and apparently logical estimate, because I do not think it is conceivably possible to do so.

Mr. Bruce-Gardyne

Surely the point is that the kind of gifts we are talking about now, the more expensive things like washing machines, cars, and so on, will have borne purchase tax in the past, so the donor, according to the right hon. Gentleman, will have had his gift devalued by purchase tax.

Mr. Hordern

I was coming to that point. The right hon. Gentleman referred to the purchase of essential goods. He knows that if the goods are new, in the majority of cases they will already have borne purchase tax. Many charities depend, if not wholly at least in considerable part, on the buying of Christmas cards and gifts of that kind. The right hon. Gentleman knows that the Labour Government raised purchase tax from, I think, 40 per cent. to the top rate of 55 per cent. on greetings cards. So, concerning both gifts and the purchase of essential goods and services, we must recognise that both purchase tax directly and selective employment tax indirectly were and are now charged on charities. I hope my right hon. Friend will tell us something about this matter when he winds up this debate. It would be interesting to know whether any estimates have been made about the total effect of the imposition of purchase tax and SET being paid by suppliers to charities compared with the projected payment of the value added tax.

Mr. Healey

The hon. Gentleman should know that the figures I quoted of the cost of value added tax to charities, which were estimates made by the charities themselves, were net of purchase tax and SET. If he wishes, I can also put their calculations on the board.

The Chancellor of the Exchequer (Mr. Anthony Barber)

I should be grateful to know where the figure of £1½ million comes from.

Mr. Healey

The figure of £1½ million is given by the Churches' Main Committee. It is the addition, roughly speaking, of the three figures I gave for the Church of England, the Methodist Church and the Roman Catholic Church. I quoted the separate figures for each. They are all figures provided by the Churches' Main Committee, whose financial advisers are, I suspect, as expert as many of the Chancellor's advisers.

Mr. Hordern

Perhaps I may be allowed to continue my few remarks. What the right hon. Gentleman said was very interesting. I have read those figures, but I do not believe any accurate estimate can be made of the amount of SET paid by the suppliers either to charities or to the churches. It is extremely difficult to know how any precise estimate can be made.

8.15 p.m.

I may be wrong, but listening to the right hon. Gentleman mentioning the estimates made by the Church of England, the Methodist Church and the Roman Catholic Church, I thought that in total they amounted to rather more than £1½ million. That is a small point which can easily be checked.

The important point is that here is a great area of uncertainty. The churches and the charities have put forward certain figures, but, by the nature of the matter, there is a great deal of uncertainty, and anything which can be done to resolve it to make a more precise estimate possible would be extremely useful. I hope my right hon. Friend will be able to do something in that regard.

The right hon. Member for Leeds, East referred to small charities. I have seen an estimate—the hon. Member for Heywood and Royton (Mr. Joel Barnett) mentioned it upstairs in Committee—that 94 per cent. of all charities will be under the £5,000 limit, which means they will be exempt altogether from the charge. This figure could be improved upon by the announcement made yesterday by my right hon. Friend concerning the branches of national associations. It will not be very long—I shall be surprised if it is—before the ingenuity of the branches of national associations makes itself felt. There are many branches of Oxfam all over the country. I shall be greatly surprised if there are not many more, after the concession announced by my right hon. Friend yesterday, so that they can come within the £5,000 limit.

Many branches of charities are somewhat puzzled about the tax on outputs. I am sure it is not their fault, but they seem genuinely impressed with the view that it is they who have to bear the charge. It is not. It is the purchaser, the buyer, of anything the charities sell who has to pay the charge.

We move now into an area of real uncertainty. Some of the charities, and certainly the churches, have been arguing that because the purchaser will have to pay an extra 10 per cent., by a close calculation they can show how their turnover will be affected. I do not believe any such close calculation can be made. It depends mainly on the propensity of people to give and by how far they will be affected at the margin by an extra 10 per cent. on the charge. Anybody's guess is good here. I think it is impossible to be precise about the propensity of people to be generous. I hope that nobody will try to be precise about that. If, as I believe, 95 per cent. of all charities will be outside of the scope of the charge, we are left with 5 per cent. who will not.

We must consider the real position. My right hon. Friend in his Budget has given an exemption or allowance for estate duty up to £50,000 for bequests to charities. That was an extraordinarily generous measure, the importance of which has not yet been properly taken in. My right hon. Friend thought that the cost of this concession would be £15 million. I do not know how these estimates are made. I have spent all my working life in the City looking at estimates. The more I see of them, the less able I am to go along with that kind of estimate. My guess is that it will be a good deal more than £15 million, because what has to be evaluated with the concession of the bequest is the concession of the capital gains allowance. This is important, because the people who give large bequests to charities do not have a lot of money in the bank; they have it carefully invested in stocks and shares, often in their own companies. There is and has been a real problem for those people. If they want to give a large gift of cash to a charity they have to dispose of the shares, and capital gains tax, generally very large indeed, is payable.

The problem does not end there, because once they have sold the shares and raised the money they have to sell more shares to pay the capital gains tax, and in doing that they have to sell yet more, and the process goes on for a long time. I must tell my right hon. Friend that the position has been completely transformed not only by the concession on bequests, but in particular by the capital gains concession. I do not know what they amount to together, but I should be surprised if it were not a significantly larger sum than £15 million.

The 5 per cent. of charities, most of which are national organisations, extremely well run and often professionally managed, will know exactly how to take advantage of these concessions. Sticking to the 5 per cent. of charities which fall outside the £5,000 exemption, I shall be greatly surprised if they do not benefit to a considerable extent. It is almost as certain as can be that the overall effect of these concessions—and that is the matter with which the House must be concerned—will on balance be to benefit them far more than the cost to them of VAT.

That is what my right hon. Friend said during his Budget speech, but I think that the House is entitled to ask my right hon. Friend to take the matter a little further and, after the operation of the charge of VAT for one year—or any reasonable period which he may think proper—see what the effect is on the size of the legacies they are getting, and also the effect of the capital gains relief.

The whole House is concerned that there should be no overall charge on charities. In my opinion there can be no charge on them, because the great majority will be outside the charge and the few that will remain within the charge will greatly benefit from the concessions made by my right hon. Friend.

Mr. Dalyell

I should like to follow the line of thought of the hon. Member for Horsham (Mr. Hordern) and take direct issue with him on the question of estate duty and express disbelief in the argument about swings and roundabouts. In so doing I am crossing the "t's" and dotting the "i's" of the brilliantly deployed speech of my right hon. Friend the Member for Leeds, East (Mr. Healey).

I am cynical about this, because I think that people leave major bequests to those charities which, in a sense, can be memorials to them. Of course people leave money to the National Trust because they will be remembered. They may leave money to the church for good reasons or for what some might think are not good reasons. Nevertheless, there is an element—I put it no higher—of leaving money to institutions by which they will be remembered.

It is different for those who depend on current expenditure. Charities such as Oxfam which will not perpetuate the memory of the person who leaves the bequest into the 21st century suffer more than those who can give some guarantee of a memorial. This may be a cynical view of what human beings do with their money, but it is true, and it is relevant, because it accounts for the difference between some favoured charities which receive a great deal of money from estate duty, and will receive large bequests, and those which get almost none at all.

I should like to be specific. Yesterday when I raised this matter I was interrupted by the hon. Member for Twickenham (Mr. Jessel) who said: Is it not incorrect to analyse the last five years and project the result into the future? Does not that method fail to allow for the dynamic effect of any change resulting from the Budget which might cause more people to leave legacies to charity. I should not have dwelt on this when there are so many others who wish to speak had it not been for the fact that the Chancellor said: Although this is not the occasion to go over this particular aspect again, I say in passing that I agree entirely with the intervention of my hon. Friend the Member for Twickenham (Mr. Jessel), who put the matter very fairly when he spoke about what this would mean to charities. One cannot just look back over the past. Obviously it is bound to have an effect on people's intentions in the future."—[OFFICIAL REPORT, 11th July, 1972; Vol. 840, c. 1433–9.] I wish I thought that that were true. It may be that the Chancellor is right, and that as it affects the National Trust, and perhaps the churches, there will be an uplift in the number of bequests, but I do not think that it will in any way benefit those charities which are organs of current expenditure and which provide no means by which those who give huge bequests are remembered by their grandchildren and great-grandchildren.

I am sorry to be cynical about this. If I am wrong, it behoves the Treasury to produce some evidence, because this debate is taking place in almost a vacuum of fact. We do not have sufficient facts, and until we get some concrete evidence that a substantial number of charities which are users of current expenditure and pay out this year or next year will be benefited on the roundabouts, we may be forgiven for thinking that what they lose on the swings will be a great deal more

I should like to ask two factual questions. The first concerns this matter of disaggregation. As my right hon. Friend said, it is true that there are a number of what we might think are small charities which have a turnover of more than £16 a day. In fact, there are many which would not be in business at all if their turnover from gift shops was not greater. What calculations has the Treasury made of the effect of giving them this Amendment? Surely, after recognising that this is an important Amendment, we can be given some figures?

My next question relates to taxable gifts of more than £10. Has any calculation been made of this? How often do charities depend on motor cars, on washing machines and on various kinds of consumer goods which cost well over £10! Indeed, it may be thought to be a bit mingy if a prize is under £10. On the whole charities depend heavily on these consumer goods, even fairly modest consumer goods which are over £10. Again we must ask what calculations the Treasury has made. We cannot sensibly continue the debate in the absence of fact.

Sir Derek Walker-Smith (Hertfordshire, East)

I am sure that most of the country as well as most hon. Members will share the view expressed by my hon. Friend the Member for Horsham (Mr. Hordern) in his admirable speech, that there should be not net adverse effect on charities from the fasciculus provisions made in this context. They would probably not express it as happily as my hon. Friend did in that phrase, but there is a considerable volume of disquiet, as we see from the columns of the newspapers, from the leader in The Times this morning and, if other hon. Members are in the same position as myself, from a good deal of communication from constituents. One is always glad to have communication from constituents, especially when the matter raised is not of their own immediate personal interest but on this wider and sympathetic matter.

8.30 p.m.

There seems to be difficulty about whether it is possible to come to a precise evaluation on the facts, and whether it can be said that they balance out so that there is no net adverse effect. The hon. Member for West Lothian (Mr. Dalyell) referred to there being a vacuum of fact. That is perhaps putting it a little too high, but it is true that there are a number of imponderables and imprecisions regarding the estimates which can be made.

Broadly, the proposition that there would be no net adverse effect depends on the assumption that the benefits accruing from the estate duty and capital gains concessions and the disaggregation concession, which are all welcome, mean that charities would not be in a worse position because VAT in any event is a substitute for purchase tax and SET.

Mr. Dalyell

One of the difficulties of that assumption is that the term "charities" is generic and tends to be rather less than meaningless. The Treasury may be right regarding one set of charities, but, referring to the charities which have a current income, the truth is that people are unwilling to give money, for instance, to look after Bangladesh today when it might be an issue which is forgotten in a year or 10 years' time.

Sir D. Walker-Smith

I was coming to that point. What is true of one form of charity may not necessarily be true of another, more particularly in the context of legacies and gifts, for reasons which are apparent. But even there we are, to some extent, dealing with un-predictabilities as to the form which the generosity of testators and donors will take. I accept that there is some substance in the hon. Gentleman's point, and it was apparent in The Times leader of this morning.

The other possible point of difficulty which I found is the proposition which my hon. Friend the Member for Horsham gave of the number of charities which would not be affected by reason of coming under the £5,000 limit. I was somewhat surprised, and perhaps I was not alone, that the figure was as high as 95 per cent. My hon. Friend did not precisely indicate the basis for that figure. I would willingly give way, because this must be a matter of great interest to many.

Mr. Hordern

The estimate comes from Oxfam.

Sir D. Walker-Smith

The combination of the authority of Oxfam and my hon. Friend is impressive.

Mr. Healey

I hope that the Chancellor of the Exchequer will take this point. The advice given by Oxfam related to the effect of VAT on outputs, especially given the disaggregation. However, all the exempted charities will pay on their inputs and will not in any way be affected by the concessions which the Chancellor makes.

Sir D. Walker-Smith

My hon. Friend thinks that the number constituting the 95 per cent. would be the same. If that be so, it means that the residue of the 5 per cent. is likely to benefit from the other concessions which my right hon. Friend has made.

That puts a more favourable complexion on the position of charities at the end of the day in seeking to see whether there would be a more adverse effect than is generally apprehended. I hope that my right hon. Friend will seek to do anything further that he can for the amelioration and assistance of charities in this respect and that he will have in mind the adjuration of my hon. Friend the Member for Horsham that he keeps this matter under review, if no Amendment is accepted, so as to see that charities do not suffer in a way I am sure they were not intended to and in which I am equally sure British public opinion would not wish them to suffer.

Mr. Alfred Morris

These are deeply important Amendments and they have been admirably, as well as powerfully, introduced by my right hon. Friend the Member for Leeds, East (Mr. Healey). I rejoice that there are so many right hon. and hon. Members in all parts of the House so strongly in support of the principle at stake in this debate. The Amendments are of concern to millions of kindly people in every part of Britain who contribute to the immense volume of charitable work that is done in this country.

My principal concern is with Amendment No. 100, standing in my name and the names of other of my hon. Friends. It says:

Page 12, line 32, [Clause 15], leave out 'and' and insert: '(kk) a charity giving aid to the disabled or handicapped; and'. I was at the Treasury yesterday meeting the Financial Secretary with my hon. Friend the Member for Eccles (Mr. Carter-Jones) and the hon. Members for Newbury (Mr. Astor) and for Exeter (Mr. John Hannam). We introduced the Financial Secretary to distinguished representatives of the Central Council for the Disabled, the National Fund for Research into Crippling Diseases—or Action for the Crippled Child as the fund is sometimes known—the Spastics Society, Oxfam and Dr. Barnardo's. The Financial Secretary showed all his customary kindliness and understanding towards the deputation.

I hope that, when the Chancellor comes to reply, that kindliness and understanding will be given practical expression in an agreement to accept the principle argued by my right hon. Friend. We expressed concern about the future of sheltered workshops. Value added tax will need to be added to the invoice value of goods sold by sheltered workshops, because there are no provisions for special relief. These workshops are already unable to compete with open industry and the imposition of VAT, bringing with it an inflation of the prices of goods made by the disabled, will clearly affect the already serious incidence of unemployment among the disabled.

The unemployment figure among the employable disabled is 14.9 per cent. In the region represented by the Chancellor and myself, among others, the figure is 16.3 per cent. Why should we deliberately make worse, or do anything which may make worse, the condition of disabled people who passionately want to work and are denied the opportunity? Even the figure of 16.3 per cent. unemployed among the employable disabled in the North-West understates the seriousness of the problem. Today there are large numbers of disabled people who have lost all hope of ever again obtaining work. They are afflicted by a sense of hopelessness and despair. They crave the right to work. They want to be as normal as possible and it is part of normality to earn a living. I have met few disabled people who want to be supplementary pensioners. All of the disabled with whom I am in contact want to be taxpayers.

I appeal to the Chancellor of the Exchequer to look carefully at the effect of imposing VAT on sheltered workshops. Why tax voluntary work and voluntary organisations? Why make life more difficult for those who lead our charities?

The many ways in which charities will be adversely affected by VAT were dealt with in detail by my hon. Friend the Member for Heywood and Royton (Mr. Joel Barnett) when he moved an important Amendment to Clause 15 in Standing Committee. I pay tribute to the care with which my hon. Friend prepared his case. As we explained to the Financial Secretary yesterday, that Amendment was regarded by charities everywhere as one of real importance.

There is no need for party animus on Amendments of this kind. The right hon. Gentleman himself must have a personal concern to do what he can to help a number of charities. Thus I hope that he will not enter into detailed arguments about arithmetic. Instead, he should recognise that the country as a whole wants him to respond constructively to the Amendments. All the organisations working for the disabled want him to accept what my right hon. Friend the Member for Leeds, East has said. There are right hon. and hon. Members on both sides who will fully endorse what my right hon. Friend said. I hope that at the end of the debate we can say that the two right hon. Gentlemen are moving together in a full acceptance of the Amendments.

Mr. Barber

I make it clear that in rising to speak now I am not seeking to curtail this important debate, but it may be for the general convenience of the House that I intervene now.

Long before the Finance Bill was published—indeed, as long ago as during the second half of last year—one of the most important aspects of VAT which my hon. Friends at the Treasury and I were considering was the impact of this changeover in indirect taxation on charities.

There are about 100,000 charities registered in England and Wales. Even this large number excludes churches and all Scottish and Irish charities. Further, as the Royal Commission on the Taxation of Profits and Income observed. The term 'charitable purposes' covers activities which the ordinary man would not regard as charitable at all. I appreciate full well that in this clutch of Amendments an attempt has been made by various right hon. and hon. Members to single out certain types of charity, or in some cases non-charitable voluntary organisations, which those supporting the Amendments consider to be especially worthy of relief. This selectivity in itself poses problems which will be obvious to the House.

8.45 p.m.

Having said that, I do not think there will be any difference of opinion in any part of the House about the very important part which voluntary service plays in our society. We in this country are fortunate indeed, as a result of decisions taken by both major political parties, to have built up over the years a Welfare State which goes a long way to providing for those in need. But the Welfare State is not enough. No one who has been Minister of Health, as I was, could pretend that it is. The fact is that no Government and no local authority organisation can ever wholly replace the particular advantages of voluntary service.

It was with those thoughts in mind that I decided in the Budget to take certain steps to help charities, and I should first like to remind the House briefly of what has been done in this year's Budget—something which the hon. Member for West Lothian (Mr. Dalyell) yesterday fairly and generously described as a sizeable concession to charities. In the first place, the Bill provides that all gifts to charities of whatever character will in future be entirely exempt from capital gains tax. This, I shall tell the House, is a change which has been put to me on a number of occasions since I became Chancellor of the Exchequer. One individual who is well known for his charitable work and whose name will be well known to every hon. Member here, approached me specifically to say that he believed this concession would make a very considerable difference to the sums which individuals were prepared to give to charities during their lifetime.

The right hon. Member for Leeds, East (Mr. Healey) said that these concessions, and I noted his words, were demanded as a matter of justice. I can only say to him, and I do not say it in any spirit of animosity, that I know, as he does, that these concessions which I decided to make had been turned down by my predecessors. But despite the fact that there were arguments against the change, I decided to make it.

It is not easy, if I may say so, to put a figure on the cost to the Exchequer, but after my hon. Friend the Financial Secretary was asked last night what the cost of this capital gains tax concession would be, I asked the Inland Revenue this morning to give me its best estimate. The best estimate I have been given is that the cost to the Exchequer of the capital gains tax concession will be £10 million a year.

Mr. Healey

Can the right hon. Gentleman tell the House what increase in the number of gifts and/or legacies is assumed by that figure of the cost to the Treasury? The central question is what the elasticity is in this field and what marginal effect this change will have. The important thing to the charities is how much their revenue increases rather than how much the Chancellor of the Exchequer loses.

Mr. Barber

Perhaps I can deal with that point also in relation to estate duty, as I am about to do.

Secondly, there is estate duty exemption. I say at once that I recognise that this exemption will benefit some charities more than others and that there will be certain charities which will not gain very much from it——

Mr. Healey

Precisely.

Mr. Barber

I should have thought that was self-evident. The simple fact is that this change has been widely welcomed by charitable organisations. A person will in future be able to leave up to £50,000 to charities with that sum being left out of account altogether for estate duty purposes. The cost of this change is a further £15 million a year.

These two sums of £10 million and £15 million, making a total cost to the Exchequer of£25 million a year, are solely to benefit charities and the estimates take no account of the dynamic effects. I inquired particularly whether this was the case, and I am told that in making the estimate no account was taken of the dynamic effects. So it will be apparent to the House that, if anything, the estimate may well be unduly modest and the cost may well turn out to be more. That seemed to be the most sensible basis on which to calculate these estimates. I did not ask for that particular method to be adopted.

Mr. Healey

I thank the Chancellor for making this clear. He will realise that many charities had assumed—quite wrongly, as is apparent from what he has said—that the gain to the charities would equal the loss to the Exchequer. But he has made absolutely clear that the cost to the Exchequer of £25 million assumes that there is no gain to the charities. I am not trying to make a party point. What I am saying is that the Chancellor is quite as unable as the rest of us to form any estimate of what the charities will gain from these concessions as distinct from what he will lose.

Mr. Barber

When we are trying to debate a very serious matter of this kind, it is a little much to suggest, as the right hon. Gentleman has suggested, that because those who advise me can make no estimate of the dynamic effects of these two very major decisions, designed specifically to benefit charities, there will therefore be no dynamic effects.

Mr. Healey

With great respect, when the Chancellor reads Hansard I think he will realise that I suggested no such thing. The point I am making, which is critical to the debate because the issue has been raised on both sides of the House, is that the Chancellor is no more able than the rest of us to make any estimate of how far the charities themselves will gain from these concessions, as distinct from what he would lose if they gained nothing. I am not for a moment suggesting that they will gain nothing. I am seeking to get the Chancellor's agreement that he is no more able than the rest of us to predict what, if anything, charities will gain. One can guess that they will gain something, but the idea previously put abroad that they would gain what the Chancellor loses in tax is based on a misunderstanding of the facts and figures.

Mr. Barber

One thing is quite certain, and that is that although it is difficult, as my hon. Friend the Member for Horsham (Mr. Hordern) pointed out, to be precise about the effect of the changes in indirect taxation on charities, there can be no doubt that as a result of the changes as a whole in the Budget, charities generally will be substantial net beneficiaries. No one would seriously deny that. My hon. Friend the Member for Horsham pointed out, illustrating the point vividly, that there is a considerable danger—we have seen this in some Press articles—of considering the effect of VAT on charities without taking into proper account the abolition of purchase tax and SET. I shall return to that point.

I should mention one point raised today by the hon. Member for West Lothian. Yesterday he gave a figure which had been provided for him by Oxfam, estimating the advantage to Oxfam of the new estate duty relief. But, as my hon. Friend the Member for Twickenham (Mr. Jessel) pointed out, that estimate was related wholly to the past and took no account of the additional incentive to testators as a result of the new relief. Some right hon. and hon. Members may take the view that it will not make any significant difference. But I do not believe that, particularly in view of the talks which I had with people concerned with charities, who urged me before the Budget to take these measures. They did not believe that there would be only an insignificant effect or no effect. They believed that the effect would be very considerable and that this would lead to a very significant increase in the flow of funds to charities.

Mr. Dalyell

Were these representatives of whom the Chancellor has spoken the representatives of what one might call the established, marble plaque, memorial charities or were they the representatives of those charities with current expenditure, such as Oxfam, which provide no memorials for the afterlife, to put it crudely?

Mr. Barber

I can only say that I had representations on both these points—mainly about estate duty but also, from a number of sources, about capital gains tax—and, so far as my recollection goes, they were from a variety of charities. I cannot remember any off-hand, except for one individual who has done a great deal for a variety of charities in this country. It is all very well for the hon. Member to sit there laughing. I shall not mention the man's name, but if I did he would be the first, I know, to pay respect to it because he would know the person about whom I am speaking.

Yesterday, in reply to an Amendment which the right hon. Member for Leeds, East rightly described this evening as of great importance, I promised to deal with the case of the charity which, because its trading turnover was less than £5,000 a year, would, on the face of it, be exempt from VAT but which, as a result of its organisational link with a national charity, might, as the Bill stands, find itself unable to claim exemption and so be liable to VAT.

This is an important aspect of the matter. Apart from the traditional local jumble sales, sales of work and other money-raising activities, local charity shops have come very much to the fore in recent years. I promised to see whether it was possible to treat branches of charities as separate entities for the purpose of VAT even though they are not legally and formally separated from the parent charity. Any necessary amendment in next year's Finance Bill could operate with effect from the start of the tax. Meanwhile, I am asking any charity which is faced with this problem to get in touch with the Customs and Excise, which will do everything it can to help.

I turn now to a point raised by my right hon. and learned Friend the Member for Hertfordshire, East (Sir D. Walker-Smith). In the context of the undertaking which I gave yesterday, it is worth bearing in mind that, according to Oxfam, as we were reminded by my hon. Friend the Member for Horsham, of all the charities registered with the Charity Commissioners 94 per cent. have a gross income of less than £5,000 a year. Thus, when, in addition to this fact, account is taken of the undertaking which I gave yesterday, it will clearly be possible—at least, I sincerely hope so—for the overwhelming majority of charities to avoid these problems in relation to their sales because they will be completely exempt from VAT.

This is important, and I know that some of my hon. Friends, including, in particular my hon. Friend the Member for Basingstoke (Mr. David Mitchell) were concerned about possible liability to VAT in respect of sales of second-hand goods which had been given to a charity. On this matter, I think that it will be generally agreed that, if we are able to work out a sensible system, the problem with second-hand goods will be likely to be minimal.

Yesterday, in answer to my hon. Friend the Member for Dartford (Mr. Trew), my hon. Friend the Financial Secretary spoke about the burden on those responsible for the repair and maintenance of churches and listed buildings. This important matter was referred to again, quite understandably, by the right hon. Member for Leeds, East in his opening speech today. I wish to add to what my hon. Friend said yesterday.

There is no statutory bar on Exchequer aid for buildings if they are of outstanding historic or achitectural interest. In this respect, without any change in the law, churches are eligible, like other outstanding buildings, for grant under the Historic Buildings and Ancient Monuments Act, 1953. In fact, however, such outstanding churches in use have been excluded by successive Governments from benefit from those grant provisions.

The right hon. Gentleman referred to an observation made by my hon. Friend the Financial Secretary last night regarding certain problems of Church and State. In fact, my hon. Friend was on to a good point, because—I admit that I did not appreciate it at the time—churches which are in use have not benefited from the existing grant provisions largely, I understand, at the insistence of the Church of England itself. I gather that it is because to some extent these churches have been excluded from successive legislative controls which apply to material alterations or demolitions of other historic structures.

Having made the position clear, I assure the House that the Government are willing to consider any approach made by the church authorities about the possibility of grants towards the cost of repairs to historic churches, and naturally any question of grant for historic churches in use would not be confined to those of the Church of England.

9.0 p.m.

It may be that one solution for dealing with historic churches would be to do so through the normal grant system. The Government are ready to consider such a solution with the churches. But there may be a better answer and before any decision is taken the best course would be for the churches to discuss their problem with the Customs. I shall come back to this suggestion presently.

Mr. Healey

I have two points to put to the Chancellor. First, he must be aware that the main problem facing the churches is not how they deal with their historic buildings but how they deal with the normal upkeep of their church, manse or chapel, or whatever it happens to be. The Church of England estimates that value added tax will increase the cost by about £200 a year for the average parish. Anything the Chancellor succeeds in doing for churches as historic buildings will affect only a tiny proportion of the buildings, and probably largely buildings of the Church of England. I regret to say that the number of Methodist churches which would qualify for this sort of aid is very much smaller than in the case of the other churches.

Surely the Chancellor must recognise that all the problems of the churches in this regard could be met if he would accept either the Amendment we are putting forward now or the one which the Financial Secretary rejected last night, namely, to relieve the repair and maintenance of churches—and churches are very easily defined—from the provisions of the value added tax. We cannot understand why the Chancellor rejects that very simple solution. Instead he worries himself about how he can apply the historic buildings legislation, which was not intended to deal with the problem, to find a solution.

Mr. Alexander W. Lyon

As my right hon. Friend has said, the whole point is a red herring. The Chancellor has simply read out the statement which was read out in Standing Committee C this morning by the Financial Secretary and which was also read out to me in 1967 by the then Prime Minister when I was asking for funds for York Minster. But the hoary old myth about the attitude of the church goes back to a statement by the Archbishop of Canterbury in 1913. The Church of England has changed a great deal since then and is anxious to receive help. If the Chancellor is using that statement as reason for not giving help, he would do well to reconsider his attitude.

Mr. Barber

I understand that the previous Government took the same view as we did. I know that the hon. Member for York (Mr. Alexander Lyon), like myself, takes a great interest in the restoration of York Minster. If he is saying, with the full authority of the Archbishop of Canterbury, that there is no problem, we can make progress. We have all noted what he said.

I want to turn to the suggestion by the National Council of Social Service——

Mr. Healey

Will the Chancellor comment on my intervention, because that is a matter of major concern to the churches? Why is it not possible to relieve the repair and maintenance of churches as such from the provisions of VAT?

Mr. Barber

I thought I had dealt with the point in dealing with the proposal which my hon. Friend the Financial Secretary put forward last night and which I have sought to elaborate. I used almost identical words to those used by my hon. Friend. That is because we in the present Government like to maintain a certain consistency. [Interruption.] I am sure the best answer is for the churches to consult with Customs as I have suggested to see whether they can find an appropriate solution.

I want now to turn to the suggestion made by the National Council of Social Service that: There seems to be no doubt that VAT on the purchases made by charities will be substantially heavier than purchase tax, and that any saving on prices as a result of the abolition of SET will not compensate for this. I do not doubt that this general expression of opinion is genuine. There will be some instances where the National Council may well be right, and I shall refer to them later. But in helping hon. Members to make up their minds on the Amendments I should say that the view of Customs and Excise, whose duty it is to advise successive Chancellors objectively, is that the general assertion is open to doubt. It has been provided with detailed accounts relating to a selection of major charities and has made a careful assessment of the overall financial effect of the changeover from purchase tax and selective employment tax to VAT. The result of its study does not support the view that charities by and large would suffer significant damage from the changeover. Indeed, its view is that in general the net difference seems likely to be small. This assessment takes no account of the earlier concessions to charities to which I referred some time ago.

I should here answer a factual question put to me yesterday by the hon. Member for Portsmouth, West (Mr. Judd), who asked what the position of charities was in the six EEC countries. I am told that charities as such, in the legal sense in which we use the term in this country, do not exist in the Community. But there are many voluntary organisations, and I am told that the answer to the hon. Gentleman is that in none of those countries do they receive a repayment of the input tax as is proposed in the Amendments.

I come next to the problem which has obviously faced those who put down the Amendments, namely, which charities should benefit from the proposed concession. It is not surprising that there is a variety of suggestions. The problem of where to draw the line was recognised as particularly difficult when the matter was debated in Committee. There is, furthermore, the point which cannot be overlooked that there are other bodies which are doing valuable social work but which are not technically charities. An obvious example is friendly societies.

The next point which is relevant, although I say immediately that it is certainly not conclusive, is that if more than 100,000 charities were entitled to claim repayment in respect of VAT on their inputs—many of the sums claimed no doubt being almost trivial, but they would be entitled to the repayment—that would undoubtedly impose a considerable extra burden on the administration. I repeat that of course that is not a conclusive argument, but it is certainly not one which Parliament should ignore.

In view of all those factors, I do not believe that a case has been made out for general, across-the-board relief from VAT in respect of the inputs of charities as a whole. But this I will say to the House. If it can be demonstrated by particular charities that the effects on them of the various tax changes in the Bill would be to bring serious disadvantage, I should certainly be prepared to consider whether some means could be found of providing relief, perhaps by category of charities. But clearly I cannot be precise until we know more about what are alleged to be the financial consequences to the charities concerned. Incidentally, Customs tells me that it is clear to it that in some of the instances where charities have claimed to be seriously worse off those charities have misunderstood the way in which the changeover will affect them.

I have already explained what I hope to do to cover the problems of local charity gift shops and the like, and how we might deal with the problem of the heavy cost of repairs in respect of historic churches.

The hon. Member for Manchester, Wythenshawe (Mr. Alfred Morris) mentioned that yesterday my hon. Friend the Financial Secretary saw representatives of Spastics, Dr. Barnardo's, Oxfam and the Central Council for the Disabled, about which the hon. Member is particularly concerned, to discuss the problem of VAT as they considered it affected their charitable activities. I understand that at that meeting the charities agreed to provide further information and to meet the Customs for another discussion as soon as the various charities are ready. I invite any charity which feels that it can demonstrate a significant deterioration in its position as a result of the changes in this Bill to send details to the Customs and Excise. I can assure the House that Customs will approach the forthcoming discussions in a constructive and helpful way and report back to me in good time before the introduction of VAT next year.

I know that the House will appreciate the position as I have put it, and, in the light of the offer which I have made, I believe that those who wish to approach this matter fairly and objectively will agree that it is reasonable to ask that the Amendment should be withdrawn.

Mr. Alexander W. Lyon

I do not know why the Chancellor will not yield on this Amendment. He hopes that if 95 per cent. of charities will not be registered for VAT because of the size of their turnover that will deal with a considerable slice of the charitable activities. He goes on to indicate that the Bill will not bite on certain restricted charitable activities because they are exempt on other grounds.

The Financial Secretary, when he replied to the letter from the National Council of Social Service, said that the Department of Employment would consider the grant made to sheltered workshops and rehabilitation centres in the light of the yield of VAT which would be required to compensate them for that yield.

When we add all these penny packets together, we see that the cost to the Treasury of accepting the Amendment would be very small. The Chancellor of the Exchequer has alleged that he wants to relieve charities as far as possible of any additional burden. I should have preferred the Amendment which I tabled to the Schedule 4 to zero-rate charities, because their position should be improved rather than simply, as the hon. Member for Horsham (Mr. Hordern) suggested, not disadvantaged as a result of the change from purchase tax to VAT. There is a way of improving the position of charities, because, although it is difficult to see how they could reclaim purchase tax, it is by no means difficult to reclaim VAT because of the system which will exist. Therefore, at a time when we are introducing a completely new tax, we should have given them this benefit.

I wish to deal with the red herring of the hon. Member for Horsham that because 95per cent. of charities have a turnover of less than £5,000 most of the problem is cured. I first became interested in the problems of charities as a result of the introduction of SET. I suggested to the then Labour Government that they should not impose SET on charities. As a result of the pressure from both sides of the House the Government yielded and did not impose SET on them. As a consequence of the study which was made, we came up against the problem which the Chancellor mentioned today, namely, that there are many charities which the average man would not regard as charitable and there are many activities which cannot be registered as charitable but which he regards as charitable, and therefore there may be a case for revising the definition.

I asked the Charity Commissioners for a list of the charities and I was taken into a room on the whole of one side of which was a collection of the names of the various charities. The room was stacked from floor to ceiling with little books containing the names of charities. But 95 per cent. of them were tiny charities that had no effect upon the life of the community at large. A limited number of big charities are responsible for the wide range of charitable activities and that is the area with which we are concerned.

Mr. Barber

I reinforce the point made by the hon. Gentleman. On making some inquiries I was told that the object of one charity is: To improve the conditions of life of residents in the Borough of Hastings in or before 1880 or their descendants by helping them to emigrate.

9.15 p.m.

Mr. Lyon

As the Government trundle on from one disaster to another that charity may be useful. I take the point that we are concerned with 5 per cent. of the charities, but that 5 per cent. provides about 90 per cent. of the charitable activities and, therefore, the point made by the hon. Member for Horsham is invalid in this context.

The concessions for estate duty and capital gains will affect the prestigious charities which attract that kind of gift or legacy, but they will not affect the many charities which are prominent in help to the community. How much Shelter will benefit from the concessions in the Budget is speculative. It is likely that the Spastics Society will benefit considerably, and I am not at all sure that the Spastics Society does not already have considerable endowments as the result of past legacies. There is a whole range of charitable activities which will not benefit very much but which will have to pay VAT. It is incredible that anyone should want to tax compassion as the Chancellor is proposing to do. I am sure that, if he looked at it again, he could say that charities should be zero-rated, or that the concession asked for in this series of Amendments should be given and that they should not have to pay this amount of VAT.

Charities provide services which, if they were not provided by charities, would have to be provided by the State. For precisely that reason we have exempted local government and local authority services from the whole range of VAT. We say it is ridiculous to tax those services when either central government would have to reimburse the tax or it would have to come out of the rates. Exactly the same argument applies to charities, which are different from any other range of commercial activity on which VAT will fall.

We are united in believing that it is important to stimulate charitable activity. Given the philosophy of the Government, it is even more important that charitable activities should be stimulated. Therefore, I hope that the Government will reconsider their parsimonious attitude and allow the Amendments to go through.

Mr. R. J. Maxwell-Hyslop (Tiverton)

I am far from convinced by my right hon. Friend's defence, because most of it was peripheral to the major matters which we have been discussing. The principal Amendment which we are discussing has nothing to do with the disposal of assets by charities, with charities handing over anything or, therefore, with the £5,000 exemption limit. The Amendment has to do with Clause 15 which itself has to do not with the disposal of assets but with the acquisition of assets or the performance of services. That is a point of substance of which my right hon. Friend should take note.

Let me give an example of the capricious manner in which the replacement of purchase tax by VAT can work.

Whereas the purchase tax is not chargeable on services, VAT is. A large number of charities are completely heterogenous in the manner in which they spend their income—on the one hand by purchasing and distributing articles which might have been subject to purchase tax, and on the other hand by spending their resources on service, for instance, on the maintenance of structures.

Where a large proportion of the income of a charity is spent on the maintenance of structures for charitable purposes, exchanging purchase tax for VAT is an exchange which will leave that charity very heavily in deficit. It would be reasonable for my right hon. Friend to suggest that there is a comparative balance between abolishing purchase tax and substituting VAT from the point of view of charities only if purchase tax applied to services, which it does not. Therefore, it is necessary that we should include provisions such as those in Amendment No. 103 to include within Clause 15 charitable bodies.

I find unconvincing the argument that there are a large number of charities which may be moribund, that therefore the effect is negligible and that we can leave them out of our calculations. There are a large number of funds—and for all I know my right hon. Friend may be a trustee of a number of them—which are of a bizarre nature; for example, looking after the survivors of the collision between the "Victoria" and the "Camperdown", and the survivors of Mafeking, which are all grouped under the Royal Patriotic Fund Corporation, which sends an annual report to the House.

This is not the sort of matter with which we are concerned. We are concerned with organisations such as Shelter where a large proportion of funds collected will be spent in a manner which will not benefit from the cancellation of purchase tax, but which will suffer considerably from the imposition of VAT because it is concerned with services.

Furthermore, a number of charities which supply services to certain sections of the community at a cost well below the economic cost of providing that service will also be affected. As I see it, the Bill unamended will make the services they render subject to VAT from the beneficiary. It cannot be paid by anybody else, so it will be paid by the beneficiaries. I do not know whether the trust deeds will allow them to pay the VAT themselves. This is a legal point which should be looked into. But I see no provision in the Bill which overrides the normal trust law to enable the charity to pay the amount which legally would be payable by the recipient for either goods or services at a less than economic cost. This matter is much more complex than my right hon. Friend realises.

The way to cut through the complexity of the problem is to have a general exemption on charges. If this is done, then the administrative costs in dealing with the small rebate claims would largely disappear. The need for many of the exemptions on purchases could be offset against a general exemption on sales. My right hon. Friend would do well to cast his mind in this direction.

The tiny dormant charities concerned will not need to make claims under Clause 15, but the major ones, whether they be churches or organisations for providing accommodation of one kind or another where very often a considerable amount of money will be spent on alterations or redecoration are a case where a lot of VAT will have to be paid.

Much the easiest way out for my right hon. Friend would be to go back to the old principle in taxation law that charities are exempt from taxation. The fact that the logic of this was not carried into the purchase tax law by giving rebates is not a very good ground for saying that it should not be returned to now.

I hope that on reconsideration my right hon. Friend will agree that instead of picking and choosing by individual Amendments which seek to distinguish between the merits of different kinds of charities—which is a task that this House is not fitted to carry out; indeed, if it were to carry it out conscientiously we should still be here in September—much the best that he can do is to import into the Bill a general exemption from the provisions of VAT for charities as a whole, and leave it at that.

Mr. Frank Judd (Portsmouth, West)

I endorse warmly much of the message spelt out by the hon. Member for Tiverton (Mr. Maxwell-Hyslop). He referred to the impact on charities of VAT on services, which is a major factor which has to be taken into account.

In his intervention just now, the Chancellor of the Exchequer referred to his correspondence with the National Council of Social Service. I ought to own up by saying that I am a vice-chairman of that body and have been intimately concerned with that correspondence.

That right hon. Gentleman said that in making estimates about the impact of VAT as compared with the impact on charities of SET and purchase tax, the Customs and Excise had looked at a representative cross-section of the larger charities. But that in itself is a rather worrying argument. All charities are affected by SET and purchase tax, all 100,000 of them, and all will be affected by VAT. Therefore one has to look at a wider and more representative cross-section of charities as a whole than just a few of the larger ones if one is to make an acurate assessment.

The second point in the right hon. Gentleman's speech which I wish to take up concerns what he said about my remarks in the course of yesterday's debate. He has consulted his experts and checked the situation in the Six. Yesterday, however, we were discussing the output tax. Today we are discussing the input tax. I made my observation yesterday about the output tax. We could still do with more information generally about the detailed implications for equivalent types of organisations in the Six if we are to learn valuable lessons from their practical experience.

That brings me to one of the major points about this debate. I am sure that any fair-minded person listening to the arguments being presented will agree that one of the glaring inadequacies of the debate is the lack of precise information. The Chancellor of the Exchequer took me to task for smiling when he referred to one important individual with whom he had had conversations. I do not object to the right hon. Gentleman's fulsome praise to the gentleman for what he has done. But one cannot assess the significance for charities of this complicated new legislation in terms of what one generous individual may have said about the proposition. We have to look at it on a more scientific and detailed basis. We cannot look at it in terms of what some donors say about it. We have to look at it in terms of what the organisers—those with day-to-day responsibility for running the charities—see as the implications of the proposal.

9.30 p.m.

Naturally it would be churlish not to give a word of welcome to the Chancellor's remarks about a readiness to look at what happens over the next year. This indicates the real misgivings which I am sure exist in his mind and the minds of his colleagues as they consider what is being said in the debate. However, it is not reassuring to a charity, which may be desperately anxious about how to raise the funds to keep its programme going next week, next month or next year to be told that if it writes to the Customs and Excise that department will look sympathetically at its problems so that appropriate measures might possibly be taken later.

I speak from practical experience, as I said yesterday, having been General Secretary of a national charitable organisation for seven years before becoming a Member of the House. I think of the reality, not the theory, of charities throughout the country and their committees meeting anxiously, worried and wondering how to find the funds to keep their programmes going, let alone expand them. While they may take solace from this general word of sympathy by the Chancellor, it will not be good enough in terms of giving them the practical assistance they will need to keep their programmes going for a year, even if we see significant changes in a year. On this point I endorse what was said by the hon. Member for Tiverton. The only fair and effective way to look to their immediate needs is to introduce a general exemption now. This also relates to the point about swings and roundabouts on which we touched briefly yesterday and underlines the inadequacy, the generalised almost meaningless point, of the debate today.

We need to look through the list of charities, however big and complicated the task may be, in terms of human beings both in this country and abroad who will not get the services they have been receiving during the past year and in preceding years as a result of this new policy. We must look at this list in detail before we can come to an honest conclusion whether we can accept this proposition. It is no use saying that some charities will benefit and others will not but that overall, looking at the position in a general way, the situation will be marginally better than before. That is not looking at social service in a responsible way.

We must recognise that many of the practical, front-line, pioneering charities, those which are primarily concerned with social work supported by volunteers who use all their time in social action and have precious little left to raise the funds to make their social action possible, will suffer in the next year as a result of other tax changes, the merits of which I do not want to comment on tonight, which will mean a major drop in income in terms of their impact on deeds of covenant.

There are other matters at which we must look. I am sorry if they seem a little philosophical, but having worked in the charitable sphere I feel that they are absolutely critical in the debate. Charities exist to deal with and put right symptoms of the fundamental problems in society. I hope I shall not be accused of being totally unfair in the context of the good-natured debate we have had so far when I say that some people, slaving away in charities to try to deal with those symptoms, will find it sad to reflect that a Government which are so hell-bent on redistributing wealth in society in favour of the wealthy and aggravating some of the basic problems are now looking to the charities to raise more taxation because of a retreat from the principles of direct taxation. This is a serious charge about which we should have heard more. We shall see a crude situation in which the more that charities do, the more they will have to pay, instead of the wholesome principle of direct taxation whereby the more a person makes, the more he contributes to society. Unless we are prepared to accept the fundamental issues, we are having a superficial debate about the whole problem.

I do not want to trespass on the time of the House much longer, but the Chancellor referred to correspondence with the National Council of Social Service. The council is not an individual charity but a framework which represents a large number of small, medium-sized and large charities, and it has no existence apart from the organisations which make it up. For that reason, with the leave of the House, I wish to quote from the latest communication sent to the Chancellor as a kind of cri de coeur from the officers of the council writing on behalf of the countless charities which make up the council's membership. The letter summarises the position rather clearly.

The officers say: We are convinced that unless the Finance Bill is amended charities will suffer from the introduction of VAT. There seems to be no doubt that VAT on the purchases made by charities will be substantially heavier than purchase tax and that any saving on prices as a result of the abolition of SET will not compensate for this. Our fears as to the threat posed by VAT have been strengthened by recent confirmation from Mr. Higgins of how VAT could affect certain activities. Residential and day care establishments run by charities, whilst for the most part being exempt, will have to meet the additional cost of VAT on their purchases. This is bound to reduce their effectiveness and this imposition seems doubly unfair in the knowledge that local authorities running similar homes can recover the VAT included in the cost of their purchases. Fund-raising will be taxed. We are aware of the exemption relief for small traders but many local events are run by branches of national charities and will therefore not qualify for this exemption. Yesterday we had a welcome move by the Chancellor in this respect and, together with others, I applaud what he said, but what has been suggested in this debate is that charities can reorganise their charities so that more of their activities can be constituted as individual branches operating on their own so that they will not be disadvantaged in the way that would originally have been the case had they not taken such a step and had the Chancellor not made his statement yesterday. A remark of that kind is very much out of touch with the reality and spirit of the charitable movement. It may be how a company goes about its affairs to avoid the heaviest burdens of taxation, but people who run charities want to get on with the job and do not indulge in the administrative rigmarole of setting up separate subsidiary branches.

Mr. Barber

That is not what I said or suggested.

Mr. Judd

I am not suggesting that that is what the right hon. Gentleman said, but it has been suggested in this debate that a number of charities might do things like that.

Mr. Hordern

The hon. Gentleman may have been referring to my remarks, but I did not make the comment that he alleges. I was referring to branches of national charities and these, being under the £5,000 level, as the hon. Gentleman ought to know, are to be exempt. There is no question of forming separate charities within the national charities. The hon. Gentleman must try to get his facts right.

Mr. Judd

Precisely. The fact remains that there will be a tendency for organisations to be encouraged to set up on a small scale of activity because there will be a feeling that by so doing the problems of taxation will be less grave.

The letter goes on to say: Mr. Higgins has confirmed that there will be no relief from VAT on second-hand goods. This will be most discouraging for the many voluntary workers raising money for charities by selling such goods and this decision will undoubtedly erode the income from this source. We are concerned by the possibility of membership subscriptions being taxable. It has also been represented to us most strongly that the tax will place additional administrative burdens upon those charities with taxable activities, especially if some of these are zero-rated; this must surely add to their overheads. We greatly appreciate the concessions on Estate Duty and Capital Gains Tax included in your Budget but we cannot accept your contention that these will more than compensate for the effect of VAT. Inquiries we have made show that, for some time at least only a relatively few long-established and well-known charities, mostly with an emotive appeal, are likely to benefit significantly from the estate duty concession. Until testators increase the size of their legacies to charities, only residuary bequests from estates large enough to suffer estate duty will show an immediate benefit to charities. Many thousands of charities will not get this benefit but will have to bear the additional burden of VAT. We know you are concerned that the granting of relief might create anomalies between charities and some other benevolent but non-charitable organisations. With respect we would point out this is no new issue and has arisen on numerous occasions in the past when tax concessions for charities have been considered, notably rating relief, income tax relief and SET relief. We defend this special treatment of registered charities, not only on philosophical grounds but also because they among benevolent bodies are subject to statutory controls which ensure that their income from whatever source is used only for the public benefit. We doubt whether the administrative problems of granting registered charities complete relief are as great as has been suggested. Not all of the 100,000 charities will need to reclaim VAT, and we cannot see that Customs and Excise will face any greater problem than the Inland Revenue has resolved in respect of the recovery of income tax or the Department of Employment and Productivity in respect of the recovery of SET. The actual impact of VAT may or may not be as serious as we fear but what cannot be overlooked is that the very existence of this tax on charities will be seen as an expression of lack of faith in the voluntary movement and will surely lead to much discontent and discouragement Enormous heart was taken"— I strongly endorse that on a personal basis— from the Prime Minister's address to the National Council last December when he said, 'This is a Government committed to releasing the energy and enterprise of men and women so that they can build a better life for themselves, their families and their community as a whole.' We have to say to you that the course being adopted by the Treasury seems to be in complete negation of this policy.

Miss J. M. Quennell (Petersfield)

Will the hon. Gentleman help the House by giving the dates of the two letters from which he has quoted, the one from the National Council and the letter referring to Mr. Higgins?

Mr. Judd

The quotation which I have just given was from the Prime Minister addressing the National Council of Social Services last December. The one letter from which I have been quoting was written three days ago. I do not apologise for quoting that letter at length, because this is not a letter written by any one charity or individual but a letter from an organisation which represents the interests of a large number and a wide cross-section of charitable organisations.

If we are to have a healthy, civilised community with a warm relationship between charitable organisations and statutory organisations. I am sure all hon. Members will agree that whatever the tremendous strides forward in social care through the institutions of the Welfare State, it would be a sick form of society in which there was no spontaneous concern for those who are under-privileged and disadvantaged. We want to give this sort of activity every possible source of inducement to expand so that we can improve the quality of British life.

If this partnership is to flourish it needs encouragement from Governments, of whatever political persuasion, and not, as I believe we have seen in the Bill, the pouring of cold water over all the enthusiasm, the conscience and the compassion of the best elements in British life. I welcome the Chancellor's indication that he will look at this problem again. If he is as concerned as I believe he is, I am certain that even at the eleventh hour plus he will take drastic action and introduce a general exemption.

9.45 p.m.

Mr. Christopher Woodhouse (Oxford)

I hope that one of the thoughts that the Chancellor will take away from this debate is that it is high time that we had a fundamental look at the law on charities and revised that law radically. The debate has shown that there are many anomalies hidden in the law relating to charities which the Chancellor has indicated he fears may be multiplied by some of the Amendments. Meanwhile, we have to deal with the status of charities as it is. I warmly support the principle of the comparatively simple Amendments tabled to Clause 15.

My Amendment, No. 216, is not simple, it is complex and it is almost certainly defective. Let me save the Chancellor the trouble of saying that. It is complex because such is the nature of the law of charities. The underlying thought I have tried to embody in the Amendment is the segregation of commercial activities of charities from the strictly charitable activities. As the Chancellor pointed out, the general conception of a charity in the mind of the public is something quite different from the legal definition.

The public, when it thinks of a charity, thinks of bodies such as Oxfam or Shelter. Possibly it may even think of purer kinds of charity which do not serve a material purpose at all. One of the purest kinds of charity known to me is one established in my constituency in the 14th century to pray for the souls of those killed in the French Wars. There are other kinds of charitable bodies, of which the public does not think at all when it thinks of a charity. Some charities in the legal definition are large and rich; some of the richest bodies in the country are charities. Quite a number are in my constituency. They are landowners on a very large scale. They may engage in commercial activities on a considerable scale, too. Even the kinds of charities which the public understands by the term have also in recent years become engaged in quasi-commercial activities, which is one of the reasons why the problem is so intractable.

For example, another well-known charity in my constituency, Oxfam, makes a good deal of money out of sales in its shops and the sales of Christmas cards. It has made it clear that it would not expect any kind of relief from VAT in respect of the sale of Christmas cards or other activities of a straightforward commercial nature. Of the things it sells in its shops, a few are purchased, the majority are gifts. It seems to the layman not at all difficult to discriminate between those two types of sale of goods and one of the purposes of my Amendment is to do just that.

In many constituencies—this applies particularly in mine—there are sheltered works. These present a difficult problem, but it should be possible to establish a criterion for concessions to them based on competitiveness with strictly commercial interests. I believe that commercial retailers do not regard sheltered workshops as a form of unfair competition and it would not be difficult to reach an agreement with the Customs and Excise providing for exemption in the case of sheltered workshops.

A number of charities take the form of "the friends of" such-and-such an institution. In some cases the friends of a given institution give some benefits in return for membership subscriptions. Where no benefit is given in return for a membership subscription, which is the case with the Friends of the Ashmolean Museum, in contradistinction to friends of other artistic institutions and museums, it should not be impossible to find a means of giving the concession from VAT which is sought in the Amendments.

Some wealthy charities in my constituency, namely, the colleges of the University, as applies with colleges of universities elsewhere, make a considerable income during vacations by turning themselves into something very like catering institutions. In respect of that part of their activities they presumably would not expect any concession from the tax. In respect of their educational functions they could reasonably do so.

I have made these points merely to illustrate the complexities which are injected into the debate by the present status of charity law. I would much prefer that the Chancellor should as soon as possible initiate a reform of the law on charities with a view to removing anomalies of the type which make a decision on the Amendments so difficult. Meanwhile, we must deal with the situation as it is. My purpose in supporting this group of Amendments is to anticipate and try to forestall the argument that a simple Amendment such as No. 103 will only substitute new anomalies for old.

Mr. A. E. P. Duffy (Sheffield, Attercliffe)

I wish to divert the attention of the House from charities and the related Amendments to Amendment No. 109. I invite the Chancellor to consider tax refunds to any organisation receiving a grant from the Arts Council". The organisation I have in mind is the living theatre. Unlike my hon. Friend the Member for Putney (Mr. Hugh Jenkins), who, if he succeeds in catching your eye, Mr. Deputy Speaker, will wish to make a general approach to the same problem, I shall confine myself to the theatre in the provinces.

I ask the House to consider a specific case—the Crucible Theatre in Sheffield which is a new construction which was opened less than a year ago, which cost more than £1 million, and which was financed on a tripartite basis by the Arts Council, Sheffield Corporation, and public subscription. The contribution of the Arts Council was a capital grant of £300,000, plus a revenue grant.

This is a new theatre. It has been open for less than a year. It is the first theatre in the country to be committed to a deep-thrust or promontory stage, with the audience on three sides. The main auditorium seats a thousand people, and there is also a theatre workshop which seats 250. The workshop has a twofold function: it undertakes experimental work and it caters for schools.

I am sure that as a fellow South Yorkshireman the Chancellor of the Exchequer will be interested in this theatre. It is the only full-time professional theatre operating in South Yorkshire which, as the right hon. Gentleman will also know, is soon to be a new metropolitan authority. The Crucible Theatre in Sheffield will therefore be providing for the whole of this metropolitan authority. This week it is playing to packed houses. William Douglas-Home's "The Secretary Bird" is being performed. There is no lack of success, as well as deep pride in Sheffield and the whole of South Yorkshire in the new theatre.

Yet already the Crucible Theatre has had to make economies due to increased costs, though its first year's balance sheet necessarily cannot be available. Because of VAT, it faces the prospect of a levy of 10 per cent., not merely on admission charges but on costumes, scenery, printing and advertising. The additional cost has been estimated at £10,000 a year, though it could very well be double that sum.

It is not believed by anyone in Sheffield that the theatre can any longer look to a city council, which has been more than generous, for subsidy to cover this additional cost. Nor is it believed that the theatre can look realistically to an Arts Council which in any case may very well have to go on increasing its grant just to keep pace with inflation.

If the theatre cannot look to the public its outlook is gloomy, yet I cannot believe that any hon. Member present does not appreciate the difficulties of merely relying on public support. There is a distinct possibility that the theatre's very survival, even in its first year of operation, may be at stake, so delicately poised are its finances. But only a subsidised theatre of this type seems any longer to be viable in the provinces.

I hope that the Chancellor of the Exchequer will not call into question the theatre's survival in this way, but that by accepting Amendment No. 109 he will relieve theatregoers throughout his native South Yorkshire of the acute anxiety they presently feel about the future of the Crucible Theatre.

10.0 p.m.

Mr. Robert Cooke

I must join issue with the hon. Member for Portsmouth, West (Mr. Judd), who completely misrepresented our philosophy in this matter. I can only assume that he did so out of ignorance, because anyone who claims to be so personally involved in the charitable work he mentioned cannot have done it from malice or in an effort to make a deliberate political attack.

The hon. Gentleman complained about the burden as he saw it—it is imaginary—that VAT might have on the charities in their day-to-day fund-raising activities. He painted a picture of a hand-to-mouth existence. I see that the hon. Gentleman nods assent to that. He also spoke about how these charities were treating the symptoms of the various matters they were trying to tackle. But if the hon. Gentleman knew anything at all about medicine, he would know that what one has to do is to find the disease and treat that and not treat the symptoms. The effective way is to treat the disease. That is what my right hon. Friend is trying to do. He is trying to help charities with their financial problems and to help them to go ahead with their activities on a firm financial base. The hon. Gentleman has expressed his doubts, but I believe that the estate duty and other provisions my right hon. Friend has introduced will provide this firm base.

That should appeal to hon. Members on the Opposition side because the provisions will bring about a redistribution of wealth, and that is what it is all about in the minds of the Opposition. This is almost part of Socialist philosophy. But it is being done in a highly beneficial way and there is an element of personal choice in this. It would appear that one has the choice now of either giving one's money to a good cause or letting it go to the "hated" Revenue, or to the Chancellor of the Exchequer, if one must be personal. It is the Chancellor of the Exchequer, and not just the person the hon. Gentleman mentioned that he knew all about and whose word one could not take as gospel, who is the anonymous—perhaps not so anonymous—benefactor potentially, because the funds which go to charities great and small by means of these concessions are potentially enormous and they will provide a firm foundation upon which people like the hon. Member for Portsmouth, West can build and organise. They will not have to spend every day of their lives deflected from their proper course in looking after those they want to help by wondering where the next penny will come from.

I welcome what my right hon. Friend said about the way in which historic churches can be helped by the process he is proposing and the way in which the Historic Buildings Council, no doubt with more funds than it has been given recently, can cope with that problem. It is right to deal with all the churches' problems of their historic buildings by this method and not by putting the churches in a special category.

The churches also have modern, multipurpose buildings to take care of. Some of them are used even as bingo halls as well as places of worship, and that is not what we are trying to deal with. We are trying to deal with the burden of historic buildings. The fact that the Church of England has a great many is a historical accident. But the Church of Rome has plenty too. Many high, Victorian churches belong to the Church of Rome, which has its problems with them. It was no good when hon. Members on the Opposition side shook their heads and suggested that only the Church of England was involved. There is an enormous number of free churches throughout the land. In the West Country in particular there are some fine late-Georgian and early nineteenth century buildings which have crumbled away for lack of funds and which could certainly be saved if the Historic Buildings Council could spread its net a little wider.

This is an interdenominational problem. Perhaps the Church of England has more buildings than the others for which to care, but it is those buildings which are our principal tourist attraction. No one would suggest that even Westminster Abbey was, at this moment in history, primarily a place of worship. It is a place of tourist resort. Only yesterday I thought that I would take a quiet walk through the Abbey and have a look at some of the things I like looking at there and contemplate on my way to the House. But not a bit of it. Immediately I found myself somewhat firmly marshalled into a queue and I nearly had a guided tour.

These national monuments obviously ought to be cared for by the nation and not just by one denomination or another. We all benefit greatly from them, not only our own people but all those who come from abroad.

I am certain that any marginal ill-effects which VAT is alleged to have on the churches as a whole will be more than adequately made up by what the Historic Buildings Council can do to help with the fabric.

For one motive or another, hon. Members on the Opposition side are making a great deal of unnecessary fuss about this matter. As one devoted to the welfare of our historic buildings, realising the value of the contribution which they can make to modern life, I am well satisfied with my right hon. Friend's proposals.

Mr. Hugh Jenkins (Putney)

I doubt that those concerned with running charities will derive much comfort from what the hon. Member for Bristol, West (Mr. Robert Cooke) said at the beginning of his speech. Indeed, I have here a letter from the director of one charity, of which the Prime Minister himself is a supporter, which shows what the feeling is. Mr. Falkner, the director of Help the Aged, says: Surely, the present Chancellor would not wish to go down in history as the one who set back the wonderful tradition that Britain has in leading the world in voluntary giving and in charitable enterprise. Nothing I have heard from the Chancellor today has given me cause to believe that anyone in the charity world can draw great comfort from what he has done. One hopes that one is wrong. One hopes that the crumbs which the Chancellor has spread out will prove rather more substantial than they now seem to be. But we shall have to wait for the evidence of that.

My hon. Friend the Member for Sheffield, Attercliffe (Mr. Duffy) was right to draw attention to the fact that the Chancellor did not refer specifically to any of the specific Amendments, and, in particular, made no mention of Amendment No. 109, which would add to the bodies able to claim a refund of tax in certain circumstances, any organisation receiving a grant from the Arts Council. My hon. Friend drew attention to the plight of the theatre outside London, giving the example of the theatre in his own constituency. This is a serious matter. It is fair to point out that, in Committee the Chancellor said that he was conscious of the threat to the theatre and bodies supported by the Arts Council, and he gave an undertaking that, if the fears which had been expressed by people responsible for running various theatres throughout the country were justified, then, at least as regards those supported by the Arts Council, he would see whether funds could be made available to increase the Arts Council grant so that the Arts Council could in turn help such theatres.

I felt at the time that that was a somewhat vague and unsatisfactory offer. I must say in passing that I find it a little surprising, to say the least, that a Conservative Government are, apparently, prepared to neglect the commercial theatre and to confine any help which they are inclined to give to the supported theatre. But I do not complain about that. If the Chancellor wants to help the supported theatre, by all means let him do so.

I have a different method to suggest to the Chancellor for going about what he said he would like to do. His suggestion was, as I say, that if it turned out that a theatre was in difficulty at the end of the year, he would, after asking the Arts Council and being told who was in difficulty, increase the Arts Council grant so that it could, in turn, put the money back.

The right hon. Gentleman would save a great deal of administrative trouble and avoid going through that rather complicated process in one of two ways. He could take the powers outlined in the general propositions put forward by our Front Bench today. It is worth bearing in mind that almost all the theatres in receipt of money from the Arts Council are themselves charitable bodies. Therefore, the general amnesty for charities would benefit them all.

If the Chancellor wants to be more specific we can offer him another method. It is indicated in Amendment No. 109. The bodies for which he proposes a refund under the Clause—such as the BBC, Independent Television News and so on—can be extended in number by an order made by the Treasury. Instead of the tax being deducted and the whole procedure being implemented so that the theatres and charities are short of money while they wait for the repayment the Chancellor could issue an order providing that any organisation receiving a grant from the Arts Council shall be exempt from the tax.

Would that not be a better way of proceeding rather than deducting tax, waiting for a period and giving the Arts Council the task of deciding whether an organisation is losing money because it is paying VAT, because it is inefficiently run or whether it is artistically bad? Instead of working out all those complicated sums would it not be simpler to issue an order exempting all organisations receiving the grant from the Arts Council from the impact of the tax.

The Chancellor could and should accept the proposal. I hope that he will take the wider step recommended by the Opposition Front Bench. If he does it will save an enormous amount of administrative complication. I do not know whether it is generally appreciated how great will be the difficulties experienced in the theatre by the attempts to administer VAT. For example, the theatre is one of the few areas in which some of the people working there will themselves have to charge VAT on their income. Some people operating in theatre are companies and as such they will have to charge the 10 per cent. value added tax on their income to their employer. If the person concerned is a self-employed variety artist earning more than £5,000 a year, he will have to add 10 per cent. on his charges and value added tax will have to be charged by him as an addition to his employment.

This shows the extraordinary degree of complication which will occur because VAT in these circumstances will be charged upon the wage or fee. The complication could be avoided by the Chancellor accepting either the Amendment moved by my right hon. Friend the Member for Leeds, East (Mr. Healey) or by accepting Amendment No. 109. I am prepared to give way to the Chancellor if he wishes to rise now to announce his acceptance, and to say that he will issue a Treasury order agreeing to the sort of exemptions we are seeking. In those circumstances we would be prepared not to press Amendment No. 109. Since we do not have the opportunity of voting on Amendment 109, I am not giving a great deal away. Nevertheless it is a concession I offer to the right hon. Gentleman. Let him jump to his feet and accept it.

10.15 p.m.

Dame Irene Ward

I have listened with great interest and sympathy to what my right hon. Friend the Chancellor said. Whatever action he takes, he takes with the greatest care, humanity and understanding. But tonight I am sorry to say that I cannot agree with the line he has adopted. The whole issue has been put into operation far too quickly. For instance, when my right hon. Friend said that certain representatives of various important voluntary organisations had been seen, I wondered why the British Legion and the Red Cross had not been seen. There is a number of first-class charitable organisations with a much wider knowledge of what goes on in trying to raise money for charity.

My right hon. Friend does not realise the enormous shock this decision, made far too quickly, has caused, perhaps incorrectly, to people who have given years of service to raising funds to help good causes. I fully appreciate all that my right hon. Friend has done in the Bill. We are all very grateful. But I hope he will not mind my saying that sometimes men think that bigger things are more important than little things in life, whereas psychologically—I try to be a good psychologist—little things are much more important than the larger things, to the way in which our community tries to serve, even though much of the money comes from the Treasury, and I could not welcome it more.

Shocks can be given to the public which even the nicest Chancellors do not understand. I do not often beat my feminist drum, but sometimes women are better than men at this kind of thing. It would have been much better if my right hon. Friend had consulted those of us on both sides of the House who have knowledge of the immense amount of voluntary work, work done with pleasure, good will and humanity, than suddenly to land this on our community. I very much regret it. Does he not realise that in the minds of the ordinary people who try to help with good causes the Customs and Excise does not mean a thing?

My right hon. Friend was kind enough to let me know that he regretted that I disagreed with him, which I thought was extremely nice of him. Cannot we start afresh and have an inquiry on the lines that my right hon. Friend wants? He wants to do his best, and we want to do our best, but there is a wide gap between humanity and knowledge. I feel rather diffident in saying that on this subject perhaps I have a little more knowledge than my right hon. Friend. It would be helpful if we could have a proper inquiry so that everyone could put his point of view.

My right hon. Friend must do something to allay the shock to the general public. An immense amount of anxiety has been felt.

I shall support my right hon. Friend in the Lobby tonight. [Hon. Members: "Oh."] If my right hon. Friend were not in power, there would be no money for anybody. So I want to hang on to the money. However, I shall support my right hon. Friend in the Lobby, much against the grain, because I do not really want to do it, but I shall do it because I believe that his motive is right. But please, oh please, do something to allay this enormous shock to people who do not understand what it is all about.

I hope that before long, when my right hon. Friend has had time to reconsider the position, he will talk not about the Customs and Excise but about the humanities and that he will contact all the big organisations—and there are many of them—which will willingly give him all the support, knowledge and understanding he wants in dealing with this difficult situation. As I say, my right hon. Friend will find me in the Lobby with him, much against the grain, but, by Jove, I hope I shall get something for it in the months to come.

Mr. John Farr (Harborough)

I congratulate my right hon. Friend the Chancellor on the steps he has taken in the Bill to help charitable bodies in relation to estate duty and capital gains tax. However, I, too, wish he could include in the Clause the words "or charitable bodies". The reasons why I say that are twofold.

First, I do not believe that the charitable concessions which my right hon. Friend has made will be felt by certain charitable organisations and that the impact of VAT on their activities will increase their total tax load. As an example, I refer to a typical Red Cross branch and the extra expenses it will incur if charitable bodies are not included in the Clause.

The Government are encouraging voluntary organisations to operate in support of the statutory health and social services and yet, if charitable bodies are not included in the Clause, extra expenses will be incurred by them. In the case of the Red Cross, the cost of training will bear VAT. The provision of uniforms, which are normally paid for by the volunteers, will be subject to VAT. A large number of aids for disabled people are provided from Red Cross funds, and they will be subject to VAT. The concessions which my right hon. Friend has made on capital gains tax and estate duty will not have the same benefit for the Red Cross as they will have for many other charitable organisations because many Red Cross branches rely on the donation of very small sums collected by door-to-door means or by people giving a little each month. They receive very few large bequests from wealthy donors on their death.

The second reason why I do not like the omission of charitable organisations from the Clause is the inequitable position in which voluntary organisations will be placed compared with local authorities. The non-business activities of local authorities which will be excluded from VAT include the conduct of schools, children's homes and welfare services for old people. Maintained schools will get a VAT refund and independent schools will not. Children's homes maintained by local authorities will not attract VAT, yet children's homes sponsored by the Red Cross and other voluntary associations will attract it. Local authority old people's homes will be exempt from the effects of the tax, yet homes established by voluntary bodies for old people, the sick and the infirm will attract VAT.

I congratulate my right hon. Friend on what he has done, but the concessions that he has already made will not be fairly shared between all voluntary bodies and in the long run charities will be worse off.

Mr. John Gorst (Hendon, North)

I agree entirely with the points already made by my hon. Friends the Members for Tiverton (Mr. Maxwell-Hyslop), Oxford (Mr. Woodhouse) and Tynemouth (Dame Irene Ward) and with nearly all of what was said by the hon. Members for Putney (Mr. Hugh Jenkins) and Portsmouth, West (Mr. Judd). The fact that there is so much agreement between both sides of the House indicates that there is no monopoly of compassion or concern abut the rôle of charities in our society. I remind my hon. and right hon. Friends that self-help, self-reliance and voluntary service are matters in which the Conservative party takes a particular interest.

In my constituency there is in the John Groom home for disabled people a truly remarkable, devoted and effective charitable organisation, and no doubt there are similar organisations throughout the country. That type of organisation will have a difficult time if we adopt the attitude which my right hon. Friend urged us to take in his earlier intervention.

The Chancellor seemed to be saying that we should let the charities show the adverse effect of VAT on their charitable activities and if they make out a case something will be done about it. I would prefer him to take the other attitude; let the Chancellor show that a significant breach in the principle, the practice and the logic and equity of this exemption occurs, and let him do something about that. The Board of Customs and Excise is not noted for its readiness to make concessions or to keep records which are contrary to its arguments and the purity of its protection of the revenue. Most of us have experience which supports this.

Let us not be selective at this stage but rather at a later stage in the light of evidence that the Board of Customs and Excise or others in the Treasury are able to produce on the viability of VAT, on abuse or on any anomalies which may arise during the next 12 months. Any tax on charity is a disincentive to assistance being given in a selfless fashion. If "charity" is wrongly defined, as my hon. Friend the Member for Oxford said, let it be given a new definition later, but I urge the Chancellor to think again about what he does now.

10.30 p.m.

Mr. Healey

The hon. Member for Hendon, North (Mr. Gorst) was right when he said that the speeches in this debate have shown that there is no monopoly of concern for the situation of charities under the VAT. The question is whether there is a monopoly on one side of the House of the will to do something about it.

In what he said earlier, the Chancellor of the Exchequer was profoundly disappointing, and that disappointment must have been felt especially by those hon. Members opposite who share the concern of the hon. Member for Hendon, North. The right hon. Gentleman made no attempt to suggest—indeed, how could he—that the charities will not suffer to some degree by the application of VAT to their inputs. He made no attempt to suggest that there would not be hundreds perhaps thousands of charities which would not benefit from the disaggregation concession that he made yesterday. All that he attempted to argue was that charities as a whole—all the 100,000 that there may be in the country at present—are likely—though he could not prove this—to gain more than they would lose from the total package of measures. Probably he is right about that. But he had to admit that it was impossible to calculate the advantage to the charities from the concessions on estate duty and capital gains.

No doubt the right hon. Gentleman was right to say that all the representatives of charities whom he had met applauded his actions in this respect. But I challenge him to deny that every single charity has opposed the application of VAT to their concerns. I am not aware of any charity in the country which does not support the general sense of these Amendments.

The snag about the right hon. Gentleman's argument is that, as he readily admitted, there will be many charities individually which lose a great deal more than they gain from the total package. I do not deny that there are some which will gain a great deal more than they lose. But we are concerned with those charities which cannot expect to derive great benefit from a large increase in the number of legacies and gifts that they receive from wealthy people in the same way that certain other charities will benefit. Shelter was quoted as one organisation which is not likely to benefit on balance, and I quoted a couple of Church of England charities in my opening remarks.

What was most disappointing of all was the right hon. Gentleman's total failure even to address himself to the impact of VAT on the inputs for churches, especially in respect of repair and maintenance. In effect, the right hon. Gentleman accepted the figures that the Church of England and other churches have given of the total impact upon them, and the figures are best illustrated in real life not by the large total sums falling on the churches but by the additional cost to the average parish in the Church of England of £200 a year, which is a very substantial additional cost for many parishes.

All that the right hon. Gentleman could offer on churches, as the Financial Secretary did last night, was that it might be possible to contrive a means by which those which qualified as historic churches could get additional assistance. But the right hon. Gentleman knows as well as I do that the great majority of churches in the country, in all the main denominations, cannot qualify as historic churches without a gross breach of the normal rules of English.

The right hon. Gentleman did not suggest in anything that he said, and nor did the Financial Secretary last night, that a concession on historic churches would meet the main concern which has been expressed in public and in private again and again over the past year by those responsible for the finances of our churches. Nor did the right hon. Gentleman attempt for a moment, as the Financial Secretary did unconvincingly, to explain why the Government could not accept the Amendment last night which would have relieved all churches at a stroke from VAT on repair and maintenance. He made no attempt to argue that this relief could not be given to the churches without giving it to everyone else. But he has made concessions on television rentals. He has made concessions on children's shoes without making concessions on children's clothes. He could perfectly well have done something similar in this case, or he could have achieved the same result by accepting this Amendment to return inputs to churches in the same way as he has to the BBC, the ITN, local authorities and a whole range of other bodies.

The Chancellor admitted that some charities might suffer heavily as a result of the imposition of VAT; but all he offered, if they did, was that they could talk to the Customs and Excise and something might be done about it. Of course, the rest of his argument was devoted to showing that it was impossible to do anything about it. Otherwise, he would be accepting the Amendment.

The Chancellor's only argument against doing anything about his situation, in the sense of the Amendment—namely, the refund of inputs—was that it would impose a great administrative burden. However, he could reduce that administrative burden in innumerable ways. Indeed, if he means what he says about helping charities which suffer, he will have to do so when he comes back to the House, if he ever does.

This argument is about imposing a tax on charity, a tax on compassion, a tax on those bodies in this country which are working not for themselves, but for others, and a tax on those who help those bodies to help others rather than themselves.

The right hon. Gentleman would not discuss the amount involved. It must be something over £1½million, but not very much; and certainly if he chose to make the concession to the churches alone it would be only £1½ million.

I believe the Chancellor must be profoundly distressed at his total failure to meet what is clearly the desire of hon. Members on both sides who have spoken in the debate. I hope he is slightly ashamed that he has not produced one argument to justify his failure to meet that desire.

For these reasons, I ask the House to divide on this Amendment. I hope that hon. Members on both sides of the House who have spoken so bravely for the charities will demonstrate that they mean what they say by voting in the Division Lobbies.

Question put, That the Amendment be made: —

The House divided: Ayes 169, Noes 181.