HC Deb 17 November 1999 vol 339 cc111-6

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Jamieson.]

10 pm

Mr. Stuart Bell (Middlesbrough)

I am grateful for the opportunity to address the House on a matter that is pernickety and pernicious—VAT on church repairs and charities. I am doing so in my role as Second Church Estates Commissioner as well as the Member of Parliament for Middlesbrough. The millennium will end as it began with the Church rendering unto Caesar—that is the state—that which belongs to Caesar, although at severely damaging VAT rates and under an unreformed VAT system.

It is as well to put the debate in context. Successive Governments have pursued a tax strategy of lessening the direct tax burden and switching to indirect taxes. In 1995 the then Chancellor of the Exchequer, the right hon. and learned Member for Rushcliffe (Mr. Clarke), said: Since 1979 this Government has shifted the tax burden away from direct taxes which fall on income and employment towards indirect taxes on consumption and spending. The policy actually began in 1978 under a Labour Government. At that time, the basic rate of income tax stood at 35 per cent. It has now fallen to 22 per cent. In 1978, the standard rate of VAT was 8 per cent. and it is now 17.5 per cent.

The Church of England points out that the shift from direct to indirect taxation costs it first by way of reduced revenue from covenants—because the rate of income tax is lower—and secondly by adding, in 1998, £18 million to the cost of major repairs to churches amounting to a total of £123 million. Those costs fall mainly on local congregations, relate solely to major repairs and exclude routine maintenance and running costs. Consequently, it represents a substantial burden that inhibits the other work of parishes in support of their communities.

Over the past 20 years, the scope of VAT has been extended to charges on church halls, heating and bells. All those items were once tax free. An insurance premium tax has also been introduced so that not only must the Church maintain the rich heritage of churches and cathedrals, it must pay an additional tax of £1 million for the responsibility. It is against that background that we must debate VAT on church repairs and charities.

According to the Charities Aid Foundation, the size of the voluntary sector in the United Kingdom has grown to exceed £30 billion. However, the tax burden falling on that sector has also grown by £460 million a year in VAT payments. That would be recoverable in the business sector but not in the charitable sector. Within the Church of England, irrecoverable VAT impacts on many of its activities.

The Church of England is responsible for 16,000 parish churches, 13,000 of which are listed, making the Church the largest owner and greatest conservationist of our built heritage. Indeed, 3,000 of its churches are grade 1 listed. The Church of England's bill for major repairs is almost one sixth of its total annual expenditure and is bigger than almost any other single item, with the exception of clergy stipends.

English Heritage grants were introduced 20 years ago for historic churches in use. The Church values, and is grateful for, that support and for the encouragement that that funding gives towards planning a consistent maintenance programmes for the conservation of those buildings. Currently, £10 million a year is given by English Heritage, but the Church of England's VAT bill of £18 million exceeds that.

English Heritage has rightly noted that it could provide greater support to listed churches and other buildings if available resources were greater, and, equally, that the Church at parish level might make scarce funds go further if the VAT charge were reduced or removed. Repairs to listed buildings carry VAT, but alterations do not.

The overall effect of the VAT system on listed buildings is to encourage not conservation, but modification. Surely the better policy is to sustain, conserve and reuse our listed churches, not to modify them. As a demonstration of the extent to which the VAT system has not been reformed, new buildings are on a par with alterations, attracting absolutely no VAT.

Most historic buildings are in rural or inner city areas, where per capita incomes are often lower, and the burden of repairs and concomitant VAT on parishioners is consequently greater. Preston parish, in Blackburn diocese, has a Sunday congregation of 60 people. Last year, the parish embarked on urgent repairs to the roof and chancel, which cost £60,000, with an additional burden of more than £10,000 in VAT. Had the diocese not stepped in, the burden might well have worked out at £1,000 per parishioner.

The impact of VAT on repairs to listed buildings is not unique to the Church of England, but is common to other charities and to private owners, including bodies such as the Historic Houses Association.

Recently, the Joint Committee for National Amenity Societies produced a report entitled "VAT and the Built Heritage", which provides some staggering statistics on the impact of VAT on church repairs. I should say now that I am grateful to the Paymaster General for meeting—last July, when she was Financial Secretary to the Treasury—a delegation from the Joint Committee for National Amenity Societies and listening courteously to what its members had to say.

The committee's findings in the report include data from detailed surveys of 363 separate building projects, ecclesiastical and secular, and separate data from the Church of England, the National Trust and English Heritage. The report estimates that, in 1998, £5,900 million of building repair work was done to listed buildings.

Disentangling the intricacies of the VAT system is no easy task, given a variety of rates and zero rating on modifications. However, the view of the Joint Committee for National Amenity Societies is that, were a single harmonised VAT rate—at 5 per cent.—to be applied to all building work, regardless of its nature, the net loss to the Exchequer would be £92 million.

The loss might be offset by what President Reagan referred to as the Laffer curve, which he believed demonstrated that lower taxation rates ensured more tax returned, as people would have an incentive to work harder. Similarly, the Joint Committee for National Amenity Societies believes that, the lower the VAT rate on building repairs, the more repairs will be done. The Church of England concurs with that view, given the variety of opinions to that effect it has received from parishes.

The General Synod of the Church of England has also taken up the call for a harmonised VAT rate, at 5 per cent., on all building work. After a debate, in February 1998, the Synod reached that conclusion unanimously. At its July 1999 sessions, the Synod again demonstrated its wholehearted support for a fairer VAT system.

The hon. Member for Vale of York (Miss McIntosh) may wish to deal with those matters, given her membership not only of this place, but of the European Parliament. Her views might be of some interest to the House and I am glad to offer her part of my time.

In Spain and Italy, the maintenance of historic buildings relying on craftspeople such as stonemasons is already subject to a lower rate of VAT, at 4 per cent. In France, repairs to Church buildings built before 1904 are financed from the public purse, even though it was about that time that the French state and Church ceased to be as one. Belgium announced in June 1999 that it would seek to use the provisions of a European draft directive to lower the rate of VAT on the renovation and repair of private dwellings and, in typical European fashion—not a trend followed by our Government—extended the directive to the renovation of the artistic heritage. The Government examined the directive and considered the advisability of reducing the rate of VAT on labour-intensive services, which might have included the repair of churches as part of our artistic heritage, but decided not to take it further.

I welcome the support for charities that will be targeted through relief on the taxation of income. I note that steps have been taken towards that in the November pre-Budget statement, which talked about removing limits on payroll giving and gift aid. Those are welcome changes, but they are not of great significance to the Church, because they bring the tax treatment of those items into line with the treatment of covenants, which are a far more important source of income.

My intention tonight is to lay before the House the consequences for the Church of England and other charities of leaving our VAT system unreformed and not recognising that as the burden of taxation has changed, its tilt has placed enormous additional burdens on our Churches and their parish communities. That applies to all Churches.

I wish to put on record the concern of my hon. Friend the Member for Glasgow, Springburn (Mr. Martin), who takes a strong interest in these matters and who would wish to be associated with the debate. I am also grateful to those present tonight who have expressed a strong interest in the subject. I am only sorry that this is an Adjournment debate, which does not allow many interventions, because I am sure that they would wish to make their own points. The points that I am making have all-party support from hon. Members who have come to register their views with me.

As we have seen from today's Queen's Speech, we are dealing with a Government who seek fairness and social justice. They have already embarked on large measures of reform. Our VAT system on church repairs and charities may well be a suitable case for reform. I am sure that the Church of England and other denominations and charities would be grateful and relieved were the Government to consider such reform.

10.14 pm
Miss Anne McIntosh (Vale of York)

I congratulate the hon. Member for Middlesbrough (Mr. Bell) on securing the debate and putting forward his case so eloquently. I thank him warmly for giving me permission to speak. I am also grateful for his continuing support for my campaign. He kindly said that I started it some years ago, when I was, among other things, a Member of the European Parliament, which was a great privilege.

I am delighted to welcome the Paymaster General. The hon. Member for Middlesbrough admitted that the sixth European VAT directive was passed under the previous Labour Government. Annexe K would allow a derogation, which four member states have taken up positively, while a fifth has announced its intention to do so. The all-party support to which the hon. Gentleman referred is demonstrated by the exceptional number of hon. Members present.

The all-party arts and heritage group has campaigned on the issue for more than 25 years, and my hon. Friend the Member for South Staffordshire (Sir P. Cormack) has long been actively involved. Belgium has already said that it wants to extend the application under annexe K of the sixth VAT directive to old houses and artistic workplaces.

The annexe is specific. The work must be labour intensive and must not prejudice the smooth running of the internal market. I hope that, in this evening's spirit of generosity, the Paymaster General will make the greatest contribution that any Government could make to the celebration of the millennium, and boost Christianity, by applying the derogation.

I take no comfort from the pre-Budget statement, because the support for charities, targeting tax relief on taxation of income, is no substitute for the reduction that has been applied elsewhere. In Spain, the rate is 4 per cent.; in Italy, 6 per cent.; in Luxembourg, 3 per cent.; and in Finland, 0 per cent.

On the eve of the millennium, we should put church alterations and repairs on an equal footing throughout the European Community. Other member states have successfully applied the derogation, and there is strong all-party support for it. I urge the Paymaster General, in a spirit of Christianity and sisterhood, to apply annexe K.

10.17 pm
The Paymaster General (Dawn Primarolo)

I want to respond to the hon. Member for Vale of York (Miss McIntosh), before coming back to the substantial comments of my hon. Friend the Member for Middlesbrough (Mr. Bell) and congratulating him on securing this debate. In all sisterhood, she is mistaken to say that the definition of labour-intensive services can cover repairs and renovations to Church buildings. The reduced rate for such services provides for repairs and renovations to private dwellings. Whatever the Belgian authorities have told her—I am happy to pursue the matter on her behalf later and to write to both her and my hon. Friend—it is not the case that the reduced rate for labour-intensive services applies to repairs and renovations to Church buildings. It is important that we should not mislead people outside the House into thinking otherwise.

Miss McIntosh

Will the Minister give way?

Dawn Primarolo

The hon. Lady spoke with my agreement, and I am afraid that I must press on to get some of the points on the record. I am sure that she will continue to pursue the matter with me after this debate, and I am happy for both her and my hon. Friend to do that.

My hon. Friend started with a catalogue of grievous errors by the previous Government, who removed zero rates and increased the VAT levied. He spoke specifically about going back. That fits in with the point that both he and the hon. Lady made about Spain, Italy and other member states that apply lower rates. I will double-check the facts and write to them both.

Once the zero rate has been relinquished, there is no returning to it under current European Union legislation. At a certain point, it was decided that lower rates could not be used. Before that barrier came down, member states that were operating lower rates, of which Spain and Italy were examples, were allowed to persist with them, but under European legislation, no other member state could introduce a zero or reduced rate. VAT is a tax based in European legislation, and there are certain basic rules that cannot be breached.

In responding to the points made by the hon. Member for Vale of York and my hon. Friend the Member for Middlesbrough, it is important to set out how much relief, in total, goes to churches and charities. It would be wrong to pick on one area and make it sound as if the Government are not doing anything and have not done anything since the 1997 election because, in practice, churches are generally exempt from direct tax on all their income and gains and enjoy business rate relief, which also extends to religious bookshops run by a church or other religious charities. I shall briefly set in context that total help to charities and churches.

Before I move on, I say to my hon. Friend that I am aware of the report, "VAT and the Built Heritage", to which he referred. My officials are studying its conclusions, and of course we shall respond to the Joint Committee of the National Amenity Societies as soon as we can.

The Government want to create an environment in which charities can succeed, not by raising money for them, but by creating a framework in which they can concentrate on their core activities. The tax system already recognises the vital role that charities play. Charities receive over £2 billion of tax reliefs every year—a substantial amount of which goes to churches—including more than £1 billion of relief from direct tax and £200 million of relief from VAT. It is simply not correct to make it sound as if we are imposing VAT and doing nothing to assist churches.

As I told my hon. Friend, existing European tax law does not currently let church repairs qualify for a reduced or zero rate of VAT. He rightly referred to the £20 million in conservation grants being offered to listed churches by English Heritage and the heritage lottery fund joint church grants scheme. Since the launch of the scheme, assistance has been given to several churches. In addition, if a church is holding a one-off fund-raising event—for example, to repair the church steeple—the event will be covered by a tax exemption.

VAT covers everybody, including businesses, charities and churches. It is important that the tax works fairly for everyone and that we do not, with good intentions for some people, build into the system ways in which others have access to relief when they should not. So, as the Chancellor announced in his pre-Budget report last week, we are introducing a wide range of direct and indirect tax benefits for charities. "Getting Britain Giving" is a major new package of tax incentives aimed at encouraging more people to give to charity. Those are the result of extensive and lengthy consultation with charities and churches, so that our proposals reflect many of the ideas received.

On direct taxes, we are extending the incentives for giving, and we are sweeping away the existing rules and regulations that place limits on people's generosity. For example, we are abolishing the £250 minimum for gift aid donations and enabling people to join the scheme by phone or through the internet, so we are broadening the ability to join the scheme.

At the moment, although around two thirds of people give to charity in a typical month, fewer than 10 per cent. do so in a way that makes use of tax incentives. Our challenge is to ensure that existing provisions are properly used to benefit charities. The new gift aid scheme will extend the incentives to all donations, large or small, regular or one-off. The new scheme should give tax relief for a further £750 million a year in donations, making them worth more than £1 billion to charity. That is a huge commitment.

Most respondents to our charity tax review expressed concern at the administrative burden of dealing with deeds of covenant. The churches are very efficient at ensuring that they receive such deeds, and the new scheme will help them by removing burdens from the operation of new deeds of covenant schemes. It will make it easier for the churches to run schemes, lifting some of the burdens in the tax system from the organisations referred to by my hon. Friend. We must ensure that payroll giving schemes are encouraged and that they grow. The Government are making sure that they are well advertised, and a take-up campaign is taking place to ensure that people can make contributions.

There is far more to what the Government are doing to assist churches and charities than the measures being taken on VAT. We have done all that we can within the law to ensure that we give relief. We shall ensure that we continue to assist in the renovation and repair of churches and the facilitation of charities in our communities. We cannot return to zero rates. Nor can we introduce reduced rates where they have not operated previously. We cannot stretch a directive on labour-intensive services to cover areas for which it simply does not provide.

I shall consider the points made by the hon. Member for Vale of York and my hon. Friend the Member for Middlesbrough, and I shall write to them about whether Belgium may be taking the labour-intensive services directive beyond its legal limit. I do not believe that Belgium can do so. I shall look into the areas where reduced rates apply and into whether such rates applied before the changes were made to European law. My officials and I will also consider the report referred to by my hon. Friend, and I shall respond to the relevant individuals and committees.

The debate has concentrated on VAT, but our assistance to churches and charities must be seen in its totality. I have made it clear that far from shirking any challenge, the Government have listened to consultation and introduced many mechanisms to the direct and indirect tax systems that will help the churches and charities enormously in the next millennium.

Question put and agreed to.

Adjourned accordingly at twenty-nine minutes past Ten o'clock.