§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Pope.]9.53 pm
§ Mr. John Whittingdale (Maldon and East Chelmsford)
It is a great privilege to initiate the first Adjournment debate of the new parliamentary Session. I am particularly pleased to raise an issue that greatly concerns many people in Essex and, indeed, throughout the country. I thank the Financial Secretary to the Treasury for being present to reply.
It has long been the case that welfare services supplied other than for profit, by a charity or public body, are exempt from value added tax. For a long time, home care services of all kinds were considered to be welfare services, but in 1995 Customs and Excise redefined the meaning of "welfare services" in the Value Added Tax Act 1994 to exclude practical help in the home. That was confirmed in a written answer given to my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) on 9 December 1997, in which the Financial Secretary said:The policy on the VAT treatment of domiciliary care services depends upon their nature. Where those services constitute medical care or welfare they are exempt from VAT. Domestic services such as laundry, cleaning, etc. do not qualify for VAT relief under any exemption."—[Official Report, 9 December 1997; Vol. 302, c. 508.]As you will know, Mr. Deputy Speaker, in Essex, those services are supplied to elderly people on low incomes by the charity Age Concern, which provides a subsidised service to some 750 clients.
Despite the ruling having been made some time earlier, Age Concern was informed only in August that the policy branch had decided thatgeneral housework and shopping servicessupplied by the charity should no longer be exempted from VAT. That corrected the advice that had been given earlier in the year, so VAT became chargeable only from that date: 24 August this year.
The justification for that rule comes from schedule 9 to the Value Added Tax Act 1994, which provides guidance on the way in which welfare services are to be understood. In group 7, item 9, "welfare services" means services that are directly connected withthe provision of care, treatment or instruction designed to promote the physical or mental welfare of elderly, sick, distressed or disabled persons".The crucial word is "care". Customs and Excise takes the view that the provision of practical help in the home is not care. It would be hard to find a single care professional who agrees with that.
The value added tax tribunal that considered the appeal on behalf of the Watford help-in-the-home service found:It is only by considering the type of recipient that one can determine what services qualify as welfare.It went on to uphold the appeal on the basis thatthe services provided are not an additional help but are either part of the necessary care which the people need in order to continue to live at home, or they are so directly connected with it that they fall within the terms of the statutory provision.116 A study by the Joseph Rowntree Foundation found that older people who had been interviewed saw the withdrawal of help with house work and with related activities as a failure by social services to understand what was important to them. In their view, getting such help stood between staying in their homes and going into residential care. Keeping the house up was akin to keeping themselves up. At the same time, diminishing energy and difficulties in managing heavy or physical tasks created concern that they could no longer cope in their homes. Seeing the dust pile up or no longer being able to reach the top shelf was a constant reminder of what they could no longer do and that could have a negative impact on both mental health and motivation to manage.
At present, social services in Essex cannot fund all category one care requirements. Therefore, understandably, they prioritise "personal care" over more general domestic help. However, recognising the value of low-level care, they have jointly funded, with local health authorities, Age Concern's home help support service, which steps in where there is an identifiable gap in care. Age Concern does not make a profit from that service; in fact, when agreed funding in my constituency runs out in April, the service will run at a loss.
Age Concern seeks to work within its charitable guidelines. It assesses in its clients a need for home help services, a need that it is willing to subsidise. However, since the service started, it has already had to absorb the cost of the working time directive, which has made every care worker more expensive to employ and led to an increase in the charge that it has had to make. It simply does not have the resources to absorb the additional cost of VAT, which will amount to more than £1,000 per week.
As a result, Age Concern will have no alternative but to increase the charge that it makes by about £1 an hour. Many recipients of its service will simply be unable to afford that increase and are likely to give up the service as a result.
As the chief officer of Age Concern Essex, Mrs. Terry Cassels, wrote to me:we expect that the majority of clients will stop using our service and make private arrangements rather than pay an extra £1 an hour which will not benefit the worker or the organisation. Must older people on low fixed incomes be pushed into relying on their families and friends to do the essential work that has become too difficult for them? It does not take much imagination to realise that those members of family and friends will not be calling quite so frequently if on every visit they spend the whole time scrubbing floors or changing beds".Customs and Excise has also argued that present arrangementsgive the widest possible relief for home care services within the constraints of current EC legislation.
§ It being Ten o'clock, the motion for the Adjournment of the House lapsed, without Question put.
§ Motion made, and Question proposed, That this House do now adjourn.—[Jane Kennedy.]
§ Mr. Whittingdale
That is not a generally accepted interpretation of EC law which does provide broad scope for the exemption of welfare services. Under the terms of the sixth directive, article 13a exemptsthe supply of services and goods closely linked to welfare and social security work, by bodies governed by public law or by other organisations recognised as charitable by the member state concerned.117 It makes it clear that, in cases where the supply is made by a bodyother than those governed by public law",VAT exemption will apply only if the organisation is not providing the service for profit. As I have already set out, as a charitable organisation, running a service that is based on an assessment of need and making no profit, Age Concern's service meets all those conditions.
Following the result of the Watford home help tribunal case, the Government announced a review of the possible VAT exemption of home help services—I welcome that review. However, there is a real danger that any change may come too late. The consultation papers sent out to interested organisations have a response date of early next year. We do not as yet have a timetable as to when the review process will be concluded or when charities will be notified of the result. That leaves charities such as Age Concern in a difficult position. In a written answer on 3 November, the Financial Secretary said:Charities, including Age Concern, Essex should not anticipate the outcome of the consultation".—[Official Report, 3 November 1998; Vol. 318, c. 448.]That means, that as Age Concern has been told that its services are subject to VAT, it should either charge clients the full amount, including the tax, or subsidise the increase from its reserves. Age Concern has chosen to do the latter, but can afford to do so only for a limited time. If the review is not completed quickly, Age Concern will have no choice but to increase its charges to take account of VAT.
If the review results in an exemption from VAT, it may be too late for many of Age Concern's clients who will already have given up a service that they can no longer afford. What is more, in order temporarily to meet the cost of VAT, Age Concern is having to divert money from other areas of its activity. If the review does not come out in its favour, those reserves will be lost.
The charity has received conflicting advice. In a letter from Customs and Excise, the value added tax policy directorate says:For the present, charities may anticipate the announcement and apply the wider exemption immediately.That clearly conflicts with the written answer given by the Financial Secretary. I hope that she will take this opportunity to make the position clear.
The imposition of VAT on those services will hit some of the most frail and vulnerable people in my constituency. One 84-year-old widow wrote to me saying:I thought that the Government was committed to supporting those of us who wanted to stay in our own homes and not to be a burden on others.The chairman of the Burnham patients liaison group wrote saying:as clients are mostly frail elderly, having to reduce or cease the service will, we are convinced, have a detrimental effect on their health, both physically and mentally. By this action, Customs and Excise are affecting some of the most vulnerable people in this country.Perhaps one of the most moving letters I received said:My husband and I started work at the age of 14, worked all our lives and paid our taxes, now we are both disabled. I have had both my legs amputated and we need help, we get none but what we pay for. Now they want to put it up by £1 an hour. Either we will not be able to eat or keep warm, or we will have to live in filth because neither of us can do any housework at all. I am sure that you would not want to live like this.118 The review was a step in the right direction, but it would be an appalling irony if the review set up to address the problem caused the end to the services in question merely because of the time required to carry out the review.
Yesterday, the Government published a document entitled "Building a Better Britain for Older People". It states:Most people do not need residential care. Effective joint working, with a focus on promoting independence, between health, social care, housing and other agencies can play a big part in helping older people stay in their own homes, in comfort and safety.Nobody would disagree with that aim. However, imposition of VAT on home support services is likely to have precisely the reverse effect. Many of my constituents will be unable to afford the increased charges and, consequently, will be unable to stay in their own homes.
A review is not sufficient. Under the terms of the directive, the legal case for exemptions is strong—but the moral case is overwhelming. I hope that the Minister will show that she has listened to the arguments by confirming today that home support services provided by charitable organisations such as Age Concern do not have to pay VAT.
§ 10.5 pm
§ The Financial Secretary to the Treasury (Dawn Primarolo)
I congratulate the hon. Member for Maldon and East Chelmsford (Mr. Whittingdale) on initiating this debate and on his research on the issue. I hope that, when I finish my reply, both he and other hon. Members on both sides of the House who have written to me about the issue will be completely satisfied.
As the hon. Gentleman rightly said, in 1995, under the previous Government, there was a redefinition of welfare services. As a Minister, I followed that redefinition, which was provided for in legislation. He quoted a written parliamentary answer from me confirming that that was the policy that we inherited.
The Government completely support Age Concern's work, whether it is in Essex, Avon, Northumberland or anywhere else. We absolutely support the principle that we should as a Government facilitate the ability of members of our community to stay in their own homes for as long as possible. We recognise the contribution that charities—especially not-for-profit ones, such as Age Concern—make in those circumstances.
The hon. Gentleman mentioned the tribunal's decision. To save time, I shall not detail the very complex VAT reliefs, especially as they affect the charitable sector. I know that he is well aware that the House often has to deal with what are known as "border disputes" in the interpretation of tax law. Nevertheless, it is a matter of great concern that we shall have to deal with speedily.
I support the points that the hon. Gentleman made. It would be tragic if, while we were considering how to clarify rulings because of the tribunal's decision, there were subsequently problems for charities. It is important to understand the change in interpretation that is necessary because of the decision.
Before the tribunal's decision, our policy was to exclude services such as housework, shopping and gardening from the VAT exemptions unless they were incidental to the overall package of personal care.
119 The tribunal's decision has shifted that interpretation so that it now covers health and welfare. The VAT tribunal decided that services supplied on a not-for-profit basis constituted care for the purpose of VAT exemption—this is the crucial point—where social services assessed that there was a current or imminent substantial risk to the health and welfare of the recipient. The tribunal took a decision on the principle of interpretation. Customs and Excise now has to translate that decision on principle into how we make it work in action within the rulings and legislation.
The hon. Member for Maldon and East Chelmsford is correct. I have listened carefully and tried to ensure that we came to a conclusion as quickly as possible on this problem. The problem does not affect only Essex Age Concern. The problem that I faced was this; I will share it with the hon. Gentleman. We need to get the services that are covered by the new ruling right the first time round. We need to get a clear ruling from Customs and Excise so that the organisations can see where the exemptions exist.
We needed to be clear on exactly what services are provided by organisations such as Age Concern on a not-for-profit basis and what would and would not come within the changed decision on principle. We decided to consult directly with those organisations. A closing date of 15 January has been set for that consultation. I recognise what the hon. Gentleman said about the need for a final decision, so I intend to be able to announce the revised interpretation of the law on 1 February 1999. As this is not a change in law but a change in interpretation, the revised treatment can then be applied retrospectively. Charities will be able to claim a repayment and refund their clients.
The hon. Gentleman asked what happens now in terms of increased costs. I recognise that point. I confirm the proposals that he quotes from the Customs and Excise policy unit. We are saying that charities can anticipate the announcement and apply the wider exemption immediately, but I have to make it absolutely clear to them that, if they stop charging VAT and, as a result of the consultation we find that they have applied the exemption more widely than is provided for by the tribunal decision, we will expect them to pay customs the outstanding tax. That is not a very tidy arrangement, but I am trying to respond directly to the point that the 120 hon. Gentleman, my hon. Friend the Member for Basildon (Angela Smith) and others have made to me. I am trying to facilitate the work of charities now.
§ Angela Smith (Basildon)
I appreciate that what my hon. Friend has announced is not a tidy way to deal with the problem, but may I make it clear that it will be greatly welcomed by many people in Age Concern? Like the hon. Member for Maldon and East Chelmsford (Mr. Whittingdale), I have written to my hon. Friend on many occasions recently on the matter. As patron of Basildon Age Concern, I thank her for her consideration.
§ Dawn Primarolo
I always try to assist hon. Members, taxpayers and organisations, especially charities that make such a valuable contribution. Therefore, I think that we can offer charities an alternative. Either they can wait until there is clear agreement between us all on what counts as the services provided now for health and welfare as a result of the tribunal decision, or they can anticipate the agreement by scrutinising the services that they provide and informing customs. However, I must repeat that, if charities interpret the rules as providing a wider exemption than the tribunal decision allows us to provide, we will ask them to pay the outstanding VAT. I hope that, if they choose that way, they will not then argue with the Government, who have been perfectly fair, open and straightforward in dealings with them, when it comes to paying any outstanding tax if it is due.
On that basis, we can take the issue forward. We must clarify what is meant by welfare services and how they affect not-for-profit organisations. We do our best to facilitate and protect those organisations in the current arrangements, but we must move to a speedy conclusion, which I hope that the whole House will accept.
I congratulate the hon. Gentleman on securing the first Adjournment debate of the Session. He chose an excellent subject to start with, because it is about supporting those members of our community who are vulnerable and ensuring that they have the necessary services, supporting charities that make an excellent contribution to our society and, most important, making sure that tax is fair and is seen to be fair. I hope that the hon. Gentleman will accept the assurances that I have been able to give him.
§ Question put and agreed to.
§ Adjourned accordingly at sixteen minutes past Ten o'clock.