§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Major.]1.20 am
§ Mr. John Hannam (Exeter)
I am extremely grateful for this opportunity to raise a matter that is causing great concern throughout the whole country. I refer to the serious financial burden that is being imposed upon charities as a result of value added tax.
I know that in this run-up period to the Budget the Minister will not be able to give any indication tonight of the intentions of my right hon. and learned Friend the Chancellor of the Exchequer. In fact, I have to expect a Treasury stonewall in his reply, and an exposition of all the difficulties inherent in a VAT relief scheme. But I shall hope, in the time available to me, to provide up-to-date information on the extent of the burden our voluntary organisations are facing, as well as offering some answers to the arguments that are being deployed by the Treasury.
I believe that the Government accept the principle of the case for relief but have not been able to overcome the technical difficulties, with which I shall deal later. First, on this principle, should charitable organisations pay 15 per cent. on the very services which the Government implore them to provide but which, when provided by state organisations, often alongside those very charities, are free from VAT? Obviously, the answer cannot but be an unequivocal no to that question, and in various answers given by the Prime Minister and the Chancellor of the Exchequer that has been stated.
I should like in particular to refer to a sentence from the Chancellor's letter to me of 7 April last year, when he stated:If we could have found a sustainable proposal to meet your case, we should most certainly have done so.What we did get in last year's Budget were some welcome additions to tax relief on donations and covenants, and they were very gratefully received by the charities, although the indications now are that the actual gains to the charities are substantially less than the Treasury estimates of the time.
I should like to go back a little further into the history of the campaign, with which I have been involved since 1972, when I first joined a deputation to the Chancellor of the Exchequer, Anthony Barber, to highlight the particular problem which VAT would cause for charities working with disabled people. The then Chancellor recognised the possibility of difficulties, and during the Finance Bill proceedings in July 1972 he gave a commitment that, if a "serious disadvantage" to charities could be proved, he would reconsider the position.
The unfair position of charities was highlighted by the VAT relief given then to local authorities and other state bodies. The evidence continued to build up steadily over the ensuing five years, and in 1977 my right hon. and learned Friend who is now the Chancellor of the Exchequer set up a Conservative VAT task force, under the chairmanship of my right hon. Friend the present Secretary of State for Transport. One of its main recommendations—I believe it was No. 12—was thatCharities should be relieved of VAT on their non-trading activities and be able to reclaim VAT on their expenses.The report recognised that charities have real grievances about VAT. In the previous year, the Goodman committee had come to the same conclusion. However, in the 683 following year, 1979, VAT was increased to 15 per cent. and the problems of the charities were doubled. I and all those involved in the campaign therefore feel strongly that we are arguing not about the principle but about the means.
Having said that, I have to record that when we discussed the matter with the Customs and Excise officials they seemed to resist any relief on the simple grounds that the VAT line must not be breached. If it were, all sorts of other cases would pour through—sports clubs, theatres and so on. That is absolute nonsense. A non-profit-making, voluntary, charitable organisation is clearly different from a commercial company. That is why, in all previous Budgets, tax concessions to charities have been given across the board without any categorisation or any definitiion of good and less good charities. We are not engaged in any argument about worthy and less worthy charities. That is a matter for the Charity Commission. I do not ask the Chancellor to apply VAT relief on a selective basis. I appreciate his reluctance to become involved in judgments about different categories of charities. Who can say whether the RNLI, for example, is more deserving then the Spastics Society or the RSPCA? Budget concessions to charities have to be made across the board.
One thing is certain. It is quite wrong that those voluntary organisations upon which the Government constantly call to supplement the State services should have to carry huge VAT burdens which their counterparts in the public sector do not have to pay. The present Government have, quite rightly, consistently stressed their commitment to the voluntary sector and the need for an effective partnership. Within that voluntary sector our charities clearly play a vital role, and their involvement in this campaign must indicate the legitimacy of their concerns.
The steering group of the Charities VAT Reform Group is made up from organisations that are widely respected. Dr. Barnardo's, the Save the Children Fund, MENCAP, and the Spastics Society all provide valuable services for children. On a different tack, there is the RNLI, which has been established as a charity for over 158 years and has saved over 110,000 lives. Many other household names are included in the reform group. I do not need to mention them all. My hon. Friend accepts their authenticity and their importance. If those organisations did not exist, the statutory sector would have to provide those services.
The VAT reform group, which last year consisted of some seven of the largest charities, this year increased its membership to over 150. The list is very impressive. Sadly, we have to recognise that VAT has become a tax on the voluntary sector, creating many anomalies.
For example, the Spastics Society runs a residential home on the same site as a local authority home in Bury St. Edmunds. The Spastics Society is penalised by 15 per cent. VAT on the services it provides in that home, whereas the local authority, on the same site, can recover its VAT payments. That is unfair and demoralising for the Spastics Society.
The cost of VAT to charities is enormous. Last year the VAT bill of the RNLI was £300,000. That is enough to build a highly sophisticated self-righting lifeboat. The Spastics Society estimates that its unrecoverable VAT bill 684 next year will be some £600,000. That would more than provide a purpose-built home for children with severe behavioural problems.
The case for removal of the VAT burden is immensely strong—hence the nationwide campaign and the support already given by some 200 Members of all parties to my early-day motion.
We shall probably hear more about the minuses than the pluses of the argument from my hon. Friend the Minister today. I do not cavil at that. With a Budget looming next week, I expect no other response at this stage. Nevertheless, I shall attempt to deal with some of the arguments that may be made against the concession.
All kinds of estimates of the cost have been bandied around. The Treasury's estimates ranged from £20 million to £80 million per year. No one knows the true cost. The VAT paid last year by the 114 largest charities, however, was £7 million. On that basis, the total claims could not possibly exceed £30 million per year. If the Minister argues that the figure is greater, I draw his attention to the indiscriminate grants at present made across the board in a totally haphazard manner to various voluntary organisations. The replies that I received to a series of parliamentary questions recently show that hundreds of millions of pounds are distributed in this way on a catch-as-catch-can basis. All the organisations with which I have discussed this would far rather have the VAT relief than those unreliable handouts on a year by year basis. So the cost of VAT relief need not be a significant obstacle this year.
The Customs and Excise argues that the complexity of the VAT system means that extra staff would be required. First, we are not dealing with commercial organisations that might require close supervision. If charities have to register for VAT purposes to claim repayments, they will have to keep records and make quarterly returns. That would not be an attractive proposition for those with small incomes, so, even without any de minimis qualification, only organisations with a sizeable VAT input would wish to be involved in such a system.
The Customs and Excise originally argued that there would be about 250,000 charities in the United Kingdom as a whole, but if no extra staff will be required to operate the health authority VAT refunds why is so much emphasis placed on the staff requirements in the case of the charities? The dispiriting and disquieting element in the discussions between the charities' tax experts and the Customs and Excise is the lack of statistical back-up for the general assertions about the number of charities that would claim the relief and the staff implications. The Customs and Excise figure of 250,000 charities has now dropped to 100,000, without any convincing statistical evidence being produced. I should be grateful if my hon. Friend the Minister would at least give a more accurate breakdown of the figures than we have so far received from the Customs and Excise, which seems more inclined to shoot down our figures than to justify its own.
There is great nationwide interest in this debate. People who devote energy and resources to voluntary service do not understand why the Government cannot find the will to remove a totally unfair anomaly. It would be immensely gratifying if my hon. Friend could anounce today that steps are to be taken to remove the cruel VAT burden on charities, but in all honesty I do not expect him to do more than to listen to the case and to reiterate any arguments that he may have against such a move.
685 I hope that the Minister will not close the door on all the work and efforts of those engaged in this campaign. Certainly, I hope that he will re-examine the figures relating to the number of charities likely to register and the possible number of Customs and Excise staff needed to operate the scheme for charities. At present the Customs and Excise deals with about 400,000 repayment traders on a computer basis. The number of staff employed is about 9,500 on a system of periodic checks every two years or so. It is simply implausible that the addition of a few charities in each area throughout the country could require a large number of extra staff.
In this context, I was interested to see the written reply, given on 24 February at c.533, to a parliamentary question by my hon. Friend the Member for Northampton, South(Mr. Morris), that no extra staff would be required to implement the VAT changes inherent in the use of private contractors in the NHS.
It seems strange that private contractors can be brought into the domestic and cleaning sectors of the NHS and VAT relief given without the Customs and Excise expecting to need any extra staff while it argues that a similar concession for charities would require a large number of extra staff.
I hope that I have been able to advance some evidence to show that the arguments against relief to charities are not conclusive. I hope that the evidence that is being advanced by the tax experts who are working for the Charities VAT Reform Group will be taken seriously enough by Customs and Excise for it to come back with some detailed statistical back-up information to meet the arguments that have been made.
§ Mr. Tony Speller (Devon, North)
I am a signatory to the early-day motion that my hon. Friend has tabled. I hope that he will confirm that he said that when a charity is operating as a trading organisation he would not seek special relief for it, as there is no doubt that people with unpaid or low-paid staff are operating on high streets and they are in competion with legitimate traders. I hope that my hon. Friend is not trying to create unfair competition for the already hard-pressed small business sector.
§ Mr. Hannam
That is not the object of the relief being sought by the Charities VAT Reform Group. I accept my hon. Friend's point.
§ Mr. David Penhaligon (Truro)
Would the hon. Gentleman differentiate between charities in social work, for which he has outlined his case superbly, and charities as the Moonies?
§ Mr. Hannam
That is one of the arguments that has been deployed in opposition to change. If it were applied in this case, it should have been applied last year and the year before that, when major concessions to all charities were given in the Budgets. The point about whether some charities are more deserving than others or whether they should be charities is for the Charity Commission, not us, or the Treasury, to judge.
It is important, when arguing the case for charity relief, as we have seen in previous Budgets, that we stick to the broad base of registered charities which are trading and will therefore provide services for which they should get some VAT relief. We cannot enter a discussion about individual charities and about whether they should be accepted by the Charity Commission.
686 The campaign has now been going for some 10 years. I hope that 1983 will mark its end, that we can achieve parity of treatment for charities and that this debate will help to achieve that result.
§ The Economic Secretary to the Treasury (Mr. Jock Bruce-Gardyne)
I congratulate my hon. Friend the Member for Exeter (Mr. Hannam) not merely on staging the debate but on his championship of the cause of charities for many years. I might almost declare an interest in that until my present job made it impossible for me to participate adequately, I was involved in the voluntary management of a small national charity.
My hon. Friend's cause is the cause of all of us, especially on the Tory side of the House. That is why my right hon. and learned Friend the Chancellor has tried to encourage the admirable work of the voluntary sector in successive Budgets. My hon. Friend will recall that in each Budget since we took power, my right hon. and learned Friend has made specific concessions to assist charities, both by providing for zero rating for VAT of many medical items that are distributed to and by charities and by raising the limits of permissible tax-free gifts to charities, to which my hon. Friend referred.
It is with a heavy heart that I have to expose what seem to be formidable obstacles to the concession for which my hon. Friend has argued so persuasively both tonight and in the past.
I should clear up some of the misconceptions under which some people, although not my hon. Friend, labour. First, it is not true that donations to charities suffer VAT. Secondly, in answer to the intervention of my hon. Friend the Member for Devon, North (Mr. Spellar), if charities are engaged in trading, such as Oxfam with its shops, they are entitled to register for VAT and to recover their input tax attributable to those activities. The problem to which my hon. Friend referred arises only when, and to the extent that, the charities do not trade but, with the rest of us as final customers, incur VAT on the goods and services that they purchase.
I assure my hon. Friend that neither my right hon. and learned Friend nor the Government underestimate the scale of the imposition on charities. That is accepted, and since I have had responsibility for VAT at the Treasury, no other aspect of the tax has occupied more of our time and concern. However, there are four problems in the way of the concession sought by my hon. Friend—method, cost, administration and definition.
As to method, zero rating would not work. Apart from anything else, it is ruled out by the Community's sixth directive. However, there has never been any dispute that a workable method of achieving my hon. Friend's purpose is available by way of reimbursement. My hon. Friend referred to the proposals announced by my right hon. and learned Friend to reimburse the National Health Service institutions for VAT incurred on contracted-out services. He referred to that several times.
To impose VAT so that it stuck on the Health Service and on local authorities would mean simply that an increased burden would be placed on the ratepayer and the taxpayer, who finance those services. We should be imposing a tax to recover it, and that is why, from the inception of the tax, arrangements have been made to reimburse local authorities. There is no point in imposing a tax, only to recover it from another tax. What we are 687 doing for the National Health Service now is ensuring that a barrier to the contracting-out of subordinate services is removed. However, the relative position of hospitals and charities is unchanged.
My hon. Friend referred to the answer that I gave to my hon. Friend the Member for Northampton, South (Mr. Morris) on 24 February about the cost of manning the new arrangement for reimbursement of VAT to the Health Service. I said then that it was not expected that additional manpower would be required. My hon. Friend suggested that if that were true for the Health Service there was no reason why it should not be true for charities. Unfortunately, that is not the case. Only about 20 Health Service bodies are involved in the arrangements for hospitals, all of which have already registered for VAT. Charities do not account for VAT at present, unless they are traders, when the problem does not arise, and there are tens of thousands of charities.
That brings me to numbers, which my hon. Friend mentioned. There is a conflict of evidence between the Charities VAT Reform Group and Customs and Excise about numbers. I do not want to get bogged down in them in the time available. In any case, the figures are bound to be a matter of speculation. It is impossible to tell how many institutions would find it desirable to seek to recover their VAT if a reimbursement scheme were available.
I have had representations from parish councils, for which the problem is the opposite way round. They have been campaigning against the imposition of VAT running to £9–15 over several years. Therefore, I am afraid that in that area the de minimis rule can be low in people's estimation.
All that I can say is that the figure that my hon. Friend quoted as the latest estimate by Customs and Excise of 100,000 potential charity claimants does not pretend to be anything other than guesswork. It is related to the returns of charities to the Inland Revenue. The Inland Revenue has to check the fiscal status of charities. The theory is that that provides a more reliable guide than the Charity Commission can provide because the charities do not have to register with the Charity Commission. Furthermore, as my hon. Friend knows, the figures do not cover Scotland and Ireland or the Churches, which would inevitably demand parity of treatment in this area.
I should not like to bandy figures with my hon. Friend. All one can say is that they would be likely to run into many tens of thousands of institutions seeking reimbursement if it were provided. For the same reason we cannot judge what the cost of the concession might be. All one can say is that it would be unlikely if it did not run into 688 several tens of millions of pounds. That revenue would have to come from somewhere else, either from other payees of tax or from other parts of the tax system.
While those are serious difficulties, I have to say to my hon. Friend that if those were the only difficulties it would be possible to accept the substantial sum of revenue involved and additional burdens of administration. All those things are possible to accept if the cause is good enough. I concede to my hon. Friend that his cause is good enough. The ultimate stumbling block, to which there is no answer at present, is definition.
Virtually all the direct tax concessions made to charities, many of them by my right hon. and learned Friend, have had a value determined by voluntary financial support. VAT reimbursement would not. Its value would depend on the nature of the charity's spending, and that alone. I believe that that would often strike the general public as indefensible.
I shall give my hon. Friend an example, which is perhaps fanciful but by no means inconceivable. If I chose to give my money to a charity providing mink-lined kennels for overweight lapdogs and my hon. Friend chose to give his money to the Salvation Army, both gifts would attract the same tax relief. That is indefensible. While we are both giving from our own pockets of our own free will, notwithstanding the fact that to most people my hon. Friend's choice would seem excellent and mine absurd, it is reasonable that both donations should receive common tax treatment. However, relatively speaking, my kennels would benefit more than would the Salvation Army from the VAT concession. I do not think that that would strike most taxpayers as sensible or defensible. I come to the point that my hon. Friend touched upon. Inevitably such random aid would add mightily to the demands for VAT concessions in favour of a host of other causes that would seem far more deserving not just to their promoters but to most of the population than would some charities that were receiving the concession.
I assure my hon. Friend that my right hon. and learned Friend will continue to weigh up carefully all the powerful arguments presented to him, not least by my hon. Friend, in support of this cause. We recognise the strong feelings that lie behind it. I only appeal to my hon. Friend to recognise the real difficulties that would arise from the dissemination of a tax benefit indiscriminately as regards the purpose of the charity that received it. However, in the end, as my hon. Friend knows, and as I think he foresaw, I am afraid that I cannot anticipate my right hon. and learned Friend's Budget judgment.
The Question having been proposed after Ten o'clock on Monday evening and the debate having continued for half an hour, Mr. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
Adjourned at ten minutes to Two o'clock.