HL Deb 27 July 1972 vol 333 cc1627-56

9.20 p.m.

THE EARL OF KINNOULL rose to ask Her Majesty's Government whether they will reconsider the case of charities being zero rated for certain welfare activities in the social field under the current proposals of value added tax, in view of both the very widespread concern that has been expressed and the fact that parallel services organised by local authorities are proposed to be zero rated. The noble Earl said: My Lords, after listening to my noble friend the Leader of the House in his admirable and powerful wind-up last night at the end of the marathon debate on the Common Market, I was a little anxious, with specially charitable thoughts in mind, on the condition of his over-taxed voice and whether he would be able to take part to-night. I am very pleased to see him in his seat, and may I say to my noble friend, and to other noble Lords and the noble Baroness who have been kind enough to put down their names to-night and who have also been kind enough to remain in the House, how very much I appreciate their taking part this evening. I would say also that if the question could have been put off for an earlier hour on another day it certainly would have been.

My Lords, in raising this subject to-night it is perhaps significant to note that the Finance Bill received its Royal Assent to-day. So the value added tax now becomes a reality, and unless something is done before next April, and unless the Government are prepared to take some action on the further consideration which they have promised, charities right across the board from giants to the pygmies will find themselves facing the effects of that tax next April, whatever these effects may be.

The purpose of raising this question to-night is not just to repeat the many arguments that were raised in some depth and detail in another place, both in Select Committee and at the Report stage of the Finance Bill, nor was it to ask my noble friend simply to repeat the sympathetic understanding that was expressed by the Chancellor on that occasion. The purpose, in the first place, is to express a certain disquiet between the apparent gulf of thinking that at present exists between the Board of Customs and Excise and charities as to the likely effect of the value added tax on charities. And, secondly, in raising this question I was hoping that the Government may have the advantage of listening to the views of certain other distinguished noble Lords and Ladies who devote a great deal of their time to charities and who would speak on their behalf with authority, experience and wisdom.

My Lords, that is why I am particularly grateful for those present to be taking part. The question I put down on the Order Paper concerns specifically those charities involved in running welfare services such as the homes for the aged, the homes for the sick, the orphans and the drug addicts. Many, as noble Lords will know, are parallel services to local authorities. They are a vital addition to our national welfare service. Other societies act, as we know, as agents to local authorities. All of these give enormous service to the community and no one, I am sure, would wish to hinder their work, reduce their capacity, sap their strength, or stifle their enthusiasm. Yet as the Finance Act stands these charities, along with others, appear possibly in danger of this very thing and liable for purchase tax on their operations.

Many of these charities, as we know, provide parallel services to the Welfare State. Many receive local authority grants. We know that the reason why local authorities have been zero rated on their similar services is simply to withdraw any extra burden on the rates. To many it may seem a gross iniquity that the parallel services in the charitable field should be faced with not having the benefit of zero rating. I believe that the case for these services being zero rated is extremely strong. The other point I should like to mention is that if the additional cost on charities reduces the facilities they are able to provide, then, of course, the ultimate responsibility goes back on to the rates.

As one would expect, the Government showed a great deal of sympathy in another place to the position of charities under the new V.A.T. system. Indeed, the Chancellor gave a clear undertaking that if any particular charity suffered unduly he was prepared to consider the merits of the case. The Government also expressed the view that, taking charities as a whole, what with the removal of purchase tax and selective employment tax, plus additional benefits they would be receiving in estate duty legacies and exemption of gifts from capital gains tax charges, they would substantially benefit under the Finance Act. The Chancellor appeared to anticipate that only a minority may have a case for special consideration. I believe that the charities themselves consider that the opposite will prove the case. Although they will warmly welcome the benefits given by the Chancellor under the Finance Act, it is estimated that they will benefit only a minority of charities, whereas the majority will suffer losses of income on their covenants and in increased costs of their operations.

In another place, the Government seemed to indicate that they were coming to the view that, while they were wholly against across the board zero rating for charities on the grounds of administrative problems and the fact that many charities had very limited charitable purposes, they were possibly sympathetic to the imposition of categories of zero rating. If one accepts categories, and I know there are many who do not, one realises the difficulties of drafting such categories so as not to exclude any deserving case. If the Government move on categories, and I hope they will, I hope they will move as quickly as possible to remove the worry that faces many of our charities. Another category for zero rating would clearly be the churches. I am sorry that no Bishop is present here to-night. One of the factors which is perhaps disturbing is the figures produced by the churches. One reads the figure of £800,000 per annum that would fall on the Church of England if they did not get zero rating on their buildings. If this figure is correct, it seems quite inequitable.

If I may stray briefly from the Question I would ask my noble friend three other questions of which I have given him notice. First, there is, I believe, general confusion, particularly among the smaller charities, as to precisely how the value added tax will affect them. I am sure that it would be of great help to them, and would be welcomed, if the Board of Customs and Excise could publish in the very near future a simple man's guide for charities, showing the effects of value added tax. I should like to ask my noble friend whether this is planned in the near future. Secondly, there has, as many noble Lords know, been published an enormous number of figures which various charities claim will arise from the V.A.T. One understands that the Customs and Excise have also produced figures. I think it would be of general interest to know whether they are different from the charities' figures. Are the figures the charities claim wildly wrong, due to some misunderstanding of how the V.A.T. will work? Had they been advised of the figures by the Board of Customs and Excise.

Lastly, I should like to raise with my noble friend the question of covenants. Between 1970 and 1973, the covenant income of charges will have dropped some 18 per cent., as I understand it, and dropped in global figures to £3.6 million a year. This is entirely due to the change in the structure of tax and the change in the structure of tax rebates. We know that these covenants provide a vital pillar for charities in giving them continuity for their services. I should like to ask my noble friend whether the Government would consider, first, the single donation system as exercised in America and, secondly, whether they will consider raising the tax rebate for the benefit of charities under the new unified system.

My Lords, the work of charities in our country is unique. It has been said of their role in our Welfare State that no Government and no local authority can ever wholly replace the particular advantages of voluntary service. I hope Her Majesty's Government will firmly watch that both now and in future no penal tax will be allowed to cloud, impair, restrict or stifle the splendid work charities perform throughout the country year after year. I believe that one way to do this would be if my noble friend could rise to-night and say something encouraging towards those deserving charities and that they will be considered favourably for rating.

BARONESS PHILLIPS

My Lords, may I first of all express my appreciation to the noble Earl, Lord Kinnoull, for putting down this Question. I have often listened to him speaking on Unstarred Questions and admired the way in which he has taken up quite unpopular and lesser-known causes and remained to the end of the debate and waited patiently for the reply from the Government. I hope that this will he one of his more successful evenings. I think there would be no need to try to make out a very long or complicated case for this. My own case will be a direct appeal to the goodness of heart of the Minister who is to reply on behalf of Her Majesty's Government, because during the debate on the voluntary social services he said: May I emphasise the high value which this Government places on the voluntary social service movement and of the partnership between the movement and the statutory services". I have spent all my working life in the voluntary social services and I can assure your Lordships that this is one field where you do not receive high salaries—you are never attracted for any high monetary gain. But you do get the devoted service of so many people giving their services freely and voluntarily. I feel that this new tax is going to have a very adverse effect in several ways. If we are going to have the tax on some of the smaller nursing homes, for example, there will be a necessity to add V.A.T. to the charges made for the services to the beneficiaries. If we think of the rehabilitation centres, the youth hostels or day centres or, indeed, if we think merely of the way people have to raise funds on the sale of donated or second-hand goods; if we think of charity first nights—all these things have become an accepted part of fund-raising; indeed, they are a vital part, because it becomes increasingly difficult to find ways of extracting money from people who are already being appealed to from all sides.

I notice that the noble Lord mentioned the reply of the Chancellor in another place, and I hope with him that the Minister in his reply will be able to assure us there will be categories of charities. It is not always desirable to place the onus on the charity to be the suppliant. It is much better if they are able to plan their budget knowing precisely what is going to happen during the year. I could select various figures that I have been given, but I will merely select one to give some indication of what V.A.T. could mean. There is a small group which I have known for many years, called the Over Forty Association for Women Workers. This little group have placed many people who were unable to get work anywhere else. Indeed, they also provide hostel accommodation. Under the existing system they would be asked to pay £67 on their expenditure which is liable for tax; with V.A.T. at 10 per cent. they would be asked to pay £767. This may seem a small sum if you are dealing in millions; to an organisation which is struggling eternally to raise funds for perhaps not the most popular of causes, this can be a vast sum. I have merely selected that one to show your Lordships, but it is very typical, and I know that many of your Lordships who follow me will be able to give other examples.

May I conclude with another statement from the Prime Minister, when in the very inspiring speech which he gave to the National Council of Social Service, which I had the pleasure of hearing, he said: Voluntary effort not only helps us to right social wrongs, to widen and improve services, to protect and care for people, it enriches the life of the community as a whole. May I add my plea to the Government to look again at V.A.T.?

9.37 p.m.

LORD FRASER OF LONSDALE

My Lords, may I thank my noble friend Lord Kinnoull, and the noble Baroness, Lady Phillips, for what they have said in this matter. I am interested in a number of charities, mainly charities concerned with the welfare of the blind. At this late hour I do not want to repeat any argument, or emphasise any point, except just to say that I fully support what has been said by my two noble friends. What I want to do is to call attention to one particular activity, which I will do as briefly as possible. First, may I apologise for my "sad" voice, which is a bit of a "lame duck" to-night.

This is an example of the way in which Parliament, or the Governments of both main Parties, voluntary agencies and the B.B.C. have co-operated in order to produce an extremely good result, and a result which has been maintained for nearly half a century. My plea is to ask that it shall go on, and not be thwarted or handicapped at this stage by a change in the method of tax collection. This is very briefly the story: In 1926 I introduced in another place a Bill the purpose of which was to give a free wireless licence to every blind person. The Government of the day gave it the very few minutes of time that was required, the Postmaster General backed it, the two Houses expressed their sympathy, and it became law, so that for 43 years every registered blind person has had a free wireless licence. Even though the method of licensing has changed that is still valid, because, by a subsequent amendment, it was arranged that of the money which the person would pay for a television set, there would be a deduction of the amount which had previously been given for a free radio set.

Forty-three years ago—that is two years after the Act of Parliament to which I have just referred—the Royal National Institute for the Blind, St. Dunstan's, and the county charities for the blind throughout the land, came together. I happened to be chairman of the committee at that time—and still am—and we founded a charity called the Wireless for the Blind Fund. The B.B.C. gave us their help from that date onwards, and have given it us every year, in a single appeal at Christmastime on radio, and sometimes an additional appeal on television. But that is the only appeal that we make, because we do not want to conflict with other charities for the blind or for other people. Roughly speaking, in all these years we have had an average income of £112,000—our only income being from this one appeal plus a few legacies. At the price at which we can buy radio sets we are able to buy about 8,000 wireless sets a year, and 8,000 happens to be the number of new persons each year who go blind, in middle age or old age, mostly, plus the number of sets which get out of order after long use. So we have just been able to keep this thing going, and for 43 years the boast, generously made by Mr. Churchill when he made one of our very early appeals, that it was the custom of this country to see that every blind person had a wireless set, has been kept; and, in fact, up till this day this has been the case. This year, the cost of a wireless set will have gone up owing to wage increases, other overheads and general inflation, and unless we can raise another £20,000 a year we cannot supply the 8,000 sets that are required.

I will now tell your Lordships that in 1946. when the war was just over, the then Government included a clause in the Finance Bill passed in that year which freed the wireless sets I have been talking about entirely from purchase tax. It will be remembered that purchase tax was introduced only during the war. In 1946 it was completely abolished so far as these sets are concerned; and there are proper safeguards against abuse which, in order to save time, I need not go into now. The sets remain the property of the Fund, and are lent to the blind persons for life, which is a safeguard against a tax-free set getting into unauthorised hands or being sold. But now instead of being free of purchase tax, these sets are going to be subject to V.A.T. This will mean that some 800 to 1,000 blind persons will have to go without wireless sets this next year unless we can raise the difference. Seeing that Parliament—Governments of both great Parties—and the B.B.C. have co-operated for nearly half a century to give every blind person a wireless set, I express the hope that my noble friend may be able to tell us that the Chancellor will between now and the time when V.A.T. comes into operation, make some arrangement whereby these sets are excluded, or at least that he will put the matter down among the smaller but nevertheless important items which he will consider in his next Budget.

My Lords, my last plea will be very brief, because the story almost speaks for itself. Blind men and women pay taxes, as others do, for general amenities. But there are many amenities which they cannot enjoy by nature of their disability. This particular amenity might have been invented for them. After all, those who listen to ordinary radio are, for the purpose of their receiving information orally, in the same position as the blind person. There seems therefore to be every reason now (as in the last 45 years) that this particular gift from those in the nation that can see to their blind brothers and sisters should continue. I ask the Government therefore to give us an assurance that, if they cannot do this between now and the time when V.A.T. comes into operation, they will at least put it at the top of their list of minor matters for consideration in the next Budget.

9.46 p.m.

VISCOUNT SIMON

My Lords, I rise warmly to support the appeal to the Government to reconsider the position of V.A.T. in relation to charities which has been so ably put by the noble Earl and supported by the noble Baroness, Lady Phillips, and the noble Lord, Lord Fraser of Lonsdale. I think we are all grateful to the noble Earl for raising this matter which, unless something is done about it, is likely very grievously to affect a large range of charities which provide welfare services to the less privileged people of this country.

I think it should be unnecessary in this House to argue the value of the services provided by charitable organisations. They have been widely accepted everywhere. They supplement and fill gaps in the welfare services provided by the State and they have, in the nature of things, a special advantage in that welfare organisations have a greater flexibility than any State scheme in dealing with the almost infinite variety of cases where individuals stand in need of help from the community. Again there is the case where a pilot scheme can best be organised and tried out by voluntary organisations and then, perhaps, if it is a great success, it can be applied in due course nationally by the central Government or local authorities. It is to some of this type of scheme that I intend to refer briefly in a few minutes.

As the noble Earl has said, it is surely anomalous and unfair that voluntary organisations performing services of this nature should find themselves in a worse position tax-wise than the local authority performing similar services. Yet that seems to be the result of the law as it will stand when V.A.T. comes into force under the Finance Act. Happily, the Act itself provides for modification by Treasury order of the Schedules of zero-rated and exempt supplies. That is in Schedules 4 and 5 of the Act. So, we are able to take action to correct the position without further legislation.

I hope that your Lordships will forgive me if I speak briefly from the point of view of a particular charity with which I have been closely associated. It is not, of course, that I would seek or expect special consideration for it, but rather because the problems we are concerned with are, I think, more easily understood and brought into focus if they can be presented in a concrete form. The Royal National Institute for the Deaf maintains, among many other activities, an establishment for the training of profoundly deaf young men, most of them deaf from birth and therefore backward in education. Also, because of the frustration caused through all their earlier years by their inability to communicate, a frustration which not only arises in them but in their parents and a frustration of the parents which reacts on the children, it has to be accepted that their personalities are often seriously maladjusted.

At the establishment of which I speak the institution seeks to turn these young men into useful citizens. This is a difficult task involving immense patience and skill. It also involves, among other things, trying to make up to whatever extent is possible the deficiencies in their education, and training them for some occupation that they can perform satisfactorily in spite of the crippling disability which will follow them all through their lives. I think the extent of this disability is often not fully appreciated by people who have the inestimable blessing of good hearing.

Most of these youths come to this establishment from local authorities who pay fees for their training. These fees are deliberately fixed at a level which leaves the charity to meet a substantial deficit. How is this sort of activity affected by V.A.T.? I confess that I find the interpretation of the relevant sections of the Act not very easy, and I dare say in that I am in good company. I should like to ask the noble Earl a few questions of which I have given him notice, although I know it was very late and I shall quite understand if he is not able to reply. Although these questions relate to a particular charity I hope that they may be of interest because there will be many charities carrying out analogous duties in other fields.

My first question is this: if a charity provides a welfare service and recovers payment, still however leaving the charity with a substantial deficit, is this providing a service in the course of business carried on", to quote from Section 2(2) of the Act? In another place there was some discussion about the sale of goods for charity. I think I should make quite clear that the mere fact that sales might be of a fictitious value does not affect the situation. If it is right that this is a service in the course of business carried on, as I understand it, the service is a taxable supply and V.A.T. has to be charged. The fact that the purchaser is in most cases the local authority who can recover tax under Section 15 is, I understand, irrelevant. It is conceivable, though I think unusual, that the purchaser of the service may be another charity. For example, a young man might be the son of an ex-Service man's widow and the British Legion might want him to be given the advantage of this training. Or there might be a case where the young man's parents were prepared to pay. I should very much like to know whether this is in fact a taxable service. The implications of it will not have escaped the noble Earl, the Leader of the House.

My other questions relate to the interpretation of Schedule 5 and particularly the items in Group 6 headed " Education ". First, does education which is mentioned in item 1 of Group 6 include training? There is a note which says that education includes training in any form of art. I suppose, by implication, that excludes any other form of training. Is not this rather a curious distinction to make? I wonder what is the reason for it. What is the exact implication of the words which appear in item 3, "instruction supplemental to" education or to the provision of education? I think that "supplemental to" must mean something different from "other than" but I wonder what it does mean. Does this phrase by chance embrace training? In any event, does it include, as in the case of the institution that I have been talking about, instruction designed to remedy the deficiencies in earlier education? Because even if the noble Lord tells me that training as some form of art is not included, there is clearly an element of education in the service which the institution provides.

My last question is really in two parts. I would, first of all, direct the noble Earl's attention to Group 6, item 2, which exempts from V.A.T. the supply of goods incidental to education included in item 1. I am not clear whether this exempts, for example, desks supplied to a school or whether, for example, it exempts only books supplied by a school for students. It seems to me that the former are "goods incidental to the provision of education", and I hope it may be held that they are therefore exempt. Finally, is it intentional and, if so, why, that this item, in exempting goods incidental to the provision of education, appears to apply only to goods and services incidental to the provision of education in item 1, and not to similar goods and services incidental to the provision of supplemental instruction? Is that a distinction which is made and, if so, is there any reason for it?

In the case I am talking about, of the burden falling on the charity in respect of these activities, a great deal obviously depends on the answers to these questions. In asking them I would not wish the noble Earl to think that I am not wholeheartedly supporting the noble Earl, Lord Kinnoull, who asked this Question, in urging that all welfare activities of charities should be zero-rated, so that, in effect, charities offering welfare services can be put effectively into the same position as local authorities offering the same services.

9.57 p.m.

LORD GORE-BOOTH

My Lords, I wish to associate myself very warmly with other noble Lords and with the noble Baroness in expressing appreciation to the noble Earl for having given us this opportunity to discuss this very important and very human subject. I should also like to join with him in thanking the noble Earl, Lord Jellicoe, for being with us, because I, like many others of your Lordships here, was present last night at his very lengthy ordeal and we all very much appreciate his coming to help us on this occasion. I must also declare an interest here in that my work is very much concerned with the Save the Children Fund and I must say that, listening to other speakers, and particularly to the noble Baroness, I feel modest because I am very much a neophyte—and if I am a newcomer to this, I doubt whether I shall ever be a "comer" in fiscal matters, with which this is very much concerned.

May I say, first, that it is very important that one should not approach this subject in a spirit of "nagging" the Government. If one reads the report of the Proceedings in another place, it is very clear that the Government, from the Chancellor of the Exchequer downwards, are acutely aware of the complications of this problem and that great thought has been taken about it, so that we have much to be thankful for. There has, as noble Lords have mentioned, been the abolition of S.E.T., the invitation to "talk it all over with Customs and Excise"—though there I have one small qualification. It was said during the debate that further guidance would be sought from Customs and Excise, which means that this is a matter for ministerial decision if anything more is to be done than what we know about already.

There is one point on which the noble Earl may be able to help us, and if he cannot do so to-night it may be my fault, because I have not given him notice of my intention to raise this matter. However, it arose in another place. I assume that it has to be the policy of the Government, so far as possible, to equate our taxation with that of the rest of the Economic Community. In this particular field which we are talking about, of course, voluntary activity is something which is peculiarly British in its inspiration and inception. Anybody who was abroad and saw the results from this country in the International Refugee Year was extremely proud of one's countrymen, and one knew how much this activity belonged to this country.

I wonder if the noble Earl could say whether there will have to be an equalisation of taxation in this respect, or whether there is any means by which we can, within the framework of the E.E.C., take special notice of our own unique national voluntary service effort. The nub of the question that we are discussing, as I see it, is the matter of classification. The Save the Children Fund is, I understand, to be zero rated in respect of operations overseas, but is to be exempt—which we know means to be half exempt—in the matter of operations at home. We shall benefit very much indeed by zero rating for operations overseas, because we carry out work in nearly 50 countries. Insofar as exemption in respect of operations at home means that we do not pay output tax but pay input tax, then by the normal process of logic the children are paying for some of the work that is done in playgroups and other work for children at home. Not only that, it must be the case that if an organisation is to proceed under two different forms of tax at once, as it were, which is what this means, there will be a problem of administration. I know that the idea of exemption, as defined in paragraph 12 of the White Paper Cmnd. 4929, is to minimise administrative complications. None the less, this double form of administration means more of precisely that kind of expense which any charity is proud to see at the lowest possible figure. I am authorised to say that I know that this matter of administrative complication is also causing concern to our friends of the Red Cross.

With this brief intervention, I should like to support those noble Lords and the noble Baroness who hoped that the question of the zero rating of charities might be reconsidered. There is one last point in connection with this. One speaker has mentioned that there is an administrative problem for the Government; namely, the categorising of charities, the selection of charities under the Act who are suitable for zero rating treatment. All these things are a matter of judgment and I cannot believe that it is beyond the judgment of Government Departments, or the Government itself, to make the right selection of organisations who rate at least as much as those on the list of bodies, in what is, I believe, Clause 15(3) of the Finance Bill, who come in that category. Many noble Lords have given reasons for this that on the straight merits voluntary organisations do work which would otherwise be done by public bodies, and they deserve consideration on that level. Once again, I should like to underline the point, both in my capacity as working for the Save the Children Fund, and in my individual capacity, that I have no wish to nag at the Government in this matter, for the Government have shown considerable sensitivity and understanding. But I should like to express the hope, as other noble Lords have done, that the Government can go a little further still.

10.4 p.m.

THE EARL OF SELKIRK

My Lords, I should like to add my thanks to by noble friend Lord Kinnoull for asking this Question. I hope that the noble Earl the Leader of the House will go away with the clear feeling that there is real anxiety on this subject everywhere. This is partly due to the very large increase of administrative costs on the one hand, and substantial uncertainty as to exactly what is meant by these proposals on the other hand. I should like straightaway to thank the Government for Clauses 119 and 121. Both help in regard to capital grants to charities, one from the living, one from the dead. We are very grateful for these concessions which have been made by the Chancellor. I think they are of great importance. But let us be quite clear on this: You cannot change your fund-raising methods overnight. If one organisation has been raising funds in a certain way they cannot suddenly switch away to another one. The benefits which will come from the two clauses will only come after some years and will not operate straight away.

This is where the new arrangement for V.A.T. comes into operation. The theory behind V.A.T. is excellent. It is dis-inflationary, it is an encouragement to saving; but the rub is that it is directed against final consumption. But who are the final consumers in charities? They are the beneficiaries. So the whole of this part of the Act is directed towards the beneficiaries, the charities. This is the difficulty which the Government have to face. I must say, reading Hansard, that my impression is that the Chancellor has been misled by Customs and Excise. From figures made available to me I cannot believe that it is true to say that charities, by and large, will not suffer. This, it appears, is the advice which was given to the Chancellor.

In the first place, I do not think anyone can tell very well what the future is going to be in regard to new forms of taxation. In any case it affects different charities in different ways. If I may give the figures which the National Council gives—this is allowing for changes which have taken place—when you have taken away purchase tax Dr. Barnado's Homes will have to pay an additional £30,000. This is the nearest assessment which the National Council can give. The Spastics Society will double the tax it formerly paid in purchase tax. The National Trust will pay an additional £50,000. The National Children's Homes will probably pay twice as much as they did in purchase tax. These are big figures, and I think the Government must think seriously whether this is right or not. The burden on administration is very disturbing. This is the point which the noble Lord, Lord Beveridge, made when he wrote on voluntary service many years ago, that people will not give for administrative services; but they are essential and in most charities are done on a shoestring. One to whom I spoke this morning said that V.A.T. will kill the treasurer; he is already almost under the water and this will be the final act which will bring an end to him. In many charities organisation will positively break down. This is a matter which the Government must look at very carefully indeed.

If I may go a little further, it seems to me to break the first canon of taxation which Adam Smith mentioned: that it ought to be certain and not arbitrary. I hope that the Chancellor will bear in mind that this tax is very unpleasant indeed. May I give one or two examples which I think are important? I understand that what is produced from Sheltered Workshops will be liable to 10 per cent. tax. That means that the poppies we buy on Armistice Day will be subject to tax. The Government realise that this is too bad, so now they have undertaken to increase the capitation grant to the Sheltered Workshops. That is one way of doing it. But what about the old lady who knits a jumper and takes it to a jumble or local sale for sale? Is she to be charged a licensing fee of 10 per cent. before she can legally sell that jumper on behalf of a charity? The noble Earl may say that the organisation sales are under £5,000. Some are, some are not. Some are associated with bigger associations in which case to be within the law, the lady will be charged 10 per cent., in order to have the honour of selling her own material, her own labours, on behalf of charity. This is something that requires further examination. I asked the noble Lord for some more information; but this point is really about "disaggregation." That is a word used by the Chancellor and not invented by me. I should like to know what is meant by it. Is this a geographical term? Is it a legal expression, a separate body corporate, or a functional expression? Can it be organised in any other way? It will be tremendously important to many charities to know what this means.

Passing from that, let us suppose that a charity raises more than £5,000. Is it then liable to 10 per cent. tax over the whole of the amount, or only for that part which is over £5,000? If one subscribes to a charity or is a member of, for example, the R.S.P.C.A., is the contribution liable to value added tax? It is important that we should know the answers to these questions. One of the things in which I am particularly interested is hostels for students. What will be the effect on them? Here again, they are very often run at a loss. They are all subsidised. Making them subject to V.A.T. will only increase their losses. We are proud of the number of students who come to this country to seek many different forms of education and training. We try to find as good accommodation as we can for them. It is a very difficult task because there is never enough; we should like a great deal more. I do not know whether this can be brought under education just as life boats have been brought under transport. Perhaps there are means of doing this. If the noble Lord could help here I should be grateful.

The noble Viscount, Lord Simon, mentioned the subject of homes for the old which are free of tax if run by local authorities, but not if run by the Red Cross. This is a matter which should be sorted out. One of the things which emerges from this is that because the Chancellor does not like some charities—perhaps he is right—he is making a division between those which he wants to help and those which he does not. There may well be a case for redefining a charity, but I do not think it should be done as a side effect of the Finance Act. The question needs to be looked at more closely. Those who work in charities have to work according to the law. If the law is to be changed let us know how it can best be done.

Zero rating as asked for in the Question is not an unreasonable request. If one look at the Finance Act one will see the items for which special arrangements are being made. These are not just things like food, power, rent or wages, but lighthouses, crematoria, caravans, newspaper advertisements, broadcasting, gambling and lotteries. I do not think that the standard of the special arrangements for all those items would be reduced in any way by bringing in charities. It might increase the quality.

I shall only add that if one thing that we need today is greater human understanding. This is the great purpose which, in one way and another, charities have. They try to help people to understand the problems of others. If anyone thinks that this is competing with the Welfare State let me end with what Lord Beveridge said 20 years ago; he said that the State should make amends for the damage to voluntary efforts by generous agreed measures of legislation opening the road to new services in future. That is what we are asking the Government to do.

10.14 p.m.

LORD JANNER

My Lords, I apologise for intervening at this late stage and I do not propose to keep your Lordships very long. I rise to endorse what has been said very well by other noble Lords and by the noble Baroness who have spoken before me and to congratulate the noble Earl who introduced this subject. The last remarks of the noble Earl, Lord Selkirk, ought to be carefully studied, as I am sure they will be. Because it seems to me that voluntary organisations—this, of course, is very well known to everyone here and to most people throughout the country—have contributed, and are contributing, to a very large extent not only towards relieving distress, but also towards relieving the Treasury and municipalities of the burden of meeting commitments. I hope that when the noble Earl the Leader of the House replies he will keep this point in mind.

Perhaps your Lordships will forgive me if I say that I happen to belong to a community, the Jewish community, which regards voluntary service as one of the primary duties of the community, not only in so far as its own charities are concerned but outside charities also. Within our own community I know organisations which have existed for many years and which have to a very considerable extent relieved general rates and taxes of quite a heavy burden. The human element which is prepared to sacrifice its time and its finance ought to be drawn on, and I think is drawn on to a considerable extent in this country; and it should be encouraged to extend its efforts rather than have barriers placed in the way of its extension.

I know that the noble Earl the Leader of the House has a very warm concern for these matters, but there is grave concern among charities on grounds which have already been expressed in this House. One could continue to give examples of the various types of charities involved, but I do not propose to do so tonight. However, I hope that in considering this new tax the Government will go the full way towards granting relief to the charities concerned. Not only is it a humane matter for them; charities encourage members of the public to assist in a hundred and one—a thousand and one—directions which would otherwise have to be attended to from public funds, from taxation and rates. My Lords, I make this strong appeal because I feel that to-day we are dealing with the lives of men and women and with a large variety of help. It would take weeks of debate to refer to them in detail. In these circumstances, may I, knowing what is done by charities, and as one who participates in a fair amount of their work, appeal that this matter be considered. I do so in view of that background, and that background alone.

10.19 p.m.

BARONESS HYLTON-FOSTER

My Lords, I apologise for not putting down my name to speak, but I was not sure that I should be able to attend this debate and did not know what time it would begin. A problem about this tax is that the situation is very complicated, and it is difficult to understand how the tax is going to affect the charities. I should declare my interest, which is of course the Red Cross. One of the things the Red Cross is concerned about is disaster relief. Probably as regards relief for disasters overseas we may be exempt but for disasters in this country it is not at all clear what the position will be. It may be that we shall be able to reclaim the input tax, but this raises the question of all the administration involved in reclaiming it. Another problem, which was touched on by the noble Viscount, Lord Simon, is the question of training, and what happens with regard to the sale of equipment and manuals for courses for teaching not only members of voluntary aid societies but also the public. Will these items be subject to tax, and will it be possible, or necessary, to reclaim the input tax? That, too, would be an awful waste of time for our volunteers.

I should also like to reinforce what was said by the noble Baroness, Lady Phillips, about residential homes, because homes and day care establishments, if they are run by the local authority, are completely free of any tax, but if they are run by voluntary societies they are not. This does not seem to be fair because we—the voluntary societies—are doing the job for the local authorities. The problem is not only that of having to pay the tax but also, as has already been said, of all the paper work connected with it. It is bound to be a great waste of time for the volunteers who will have to be deflected from doing the worthwhile job they would otherwise be doing. There is the further problem of having to employ probably a highly professional person to deal with it. I hope that the Chancellor of the Exchequer will be sympathetic about this and that the noble Earl, Lord Jellicoe, will be able to give up some encouragement.

10.22 p.m.

EARL JELLICOE

My Lords, I think we all owe a real debt of gratitude to my noble friend Lord Kinnoull for giving us the opportunity, in one of our short debates on an Unstarred Question, for dealing with the impact on charities of value added tax. I must once again apologise to your Lordships—and I do so in a somewhat smaller House than I did last night—for the fact that my voice this evening may be rather basso, although if the noble Baroness, Lady Phillips, provokes me I may become suddenly castrato, because my voice is in a most erratic state at the present time.

My Lords, last night we were discussing the not unimportant subject of the historic step which our country may or may not be taking into Europe. Tonight we are discussing a subject which is a great deal closer to home but also one of significant importance. I think that what underlines our discussion here tonight is our general standpoint towards charitable endeavour within our society and, within that general context, our fiscal policy towards charities. As noble Lords have generously recognised I have a certain personal commitment in these areas, and therefore I am very glad that recently another place has given a great deal of attention to this matter. For that reason, too, I am very glad that my noble friend has given us the opportunity of discussing the subject this evening. I think that in so doing he has established something of a precedent for your Lordships' House. It is rare indeed that your Lordships should be discussing the Finance Act and how it bears on organisations, so soon after its enactment. It is almost equivalent to turning Mr. Lloyd George on his head.

This particular subject is rather close to my heart, and it is also something to which the Government attach great importance. And perhaps I may just say this by way of introduction: in our Election Manifesto we pledged ourselves to encourage the flow of private funds to charities, including voluntary social service; and in his speech to the National Council of Social Service (as the noble Baroness, Lady Phillips, has reminded us) last December the Prime Minister explained how the Government intend to give practical effect to this pledge. There are the increased grants to voluntary organisations, the details of which I will not trouble your Lordships with at this late hour. These increased grants should make it possible for voluntary organisations to do a lot more in the spheres in which they work. I know, too, that my right honourable friend the Chancellor of the Exchequer had our commitment to the stimulation of the voluntary services very much in mind when considering his fiscal policy in general and his fiscal policy in particular towards charities. This was one of the factors he had in mind in framing his last Budget.

As for the impact of V.A.T. on charities, it is easy at this rather early and uncertain stage, when we are dealing with something of a novelty in taxation, to overstate the case. We are walking across a very unfamiliar field and I appreciate that people find this a complex subject. I am aware of the complexities in a field which I can only barely understand.

I assure your Lordships that, while I understand the apprehensions which the voluntary organisations may feel, it is my right honourable friend's belief that the impact of V.A.T. will be more than counterbalanced by the trio of measures which he introduced in his last Budget and to which reference has not been made in this debate. I refer of course to the abolition of purchase tax, the abolition of S.E.T. and his very significant concessions on capital gains tax and estate duty so far as charities are concerned. These, taken together, are important in the charitable sphere. I have seen it stated that the effects of these, and particularly the concessions on estate duty and capital gains tax, may have a greater impact on larger than on smaller charities. The answer to that suggestion is that we shall have to wait and see. However, they are very important measures.

It will be within the recollection of noble Lords who are interested in these matters that the National Council for Social Service made some valuable proposals earlier this year about the precise subject of capital gains tax and estate duty. Whatever apprehensions may exist about V.A.T. and its impact on charitable endeavour, I believe that any fair-minded person will be glad to concede that the Chancellor of the Exchequer in his Budget has gone a long way to meet the N.C.S.S. in the particular areas to which attention has been drawn.

That said, this debate is of course primarily concerned with V.A.T. and charities. By way of background I am sure that most noble Lords will agree that many charities have substantial trading interests. The Chancellor of the Exchequer therefore came to the conclusion that the trading interests of charities should be treated in the same way as those of commercial enterprises and that the rest of their activities should be right outside and, in effect, exempt; and that is the position.

My noble friend Lord Kinnoull asked whether the Government would reconsider the position and provide full relief from V.A.T. for certain welfare activities in the social field. Charities will not, of Course, be accountable for V.A.T. on welfare activities such as homes for children, old people or the disabled; but in the same way as purchase tax is at present charged they will bear a certain amount of V.A.T. on their expenditure.

Relieving a section of charities (those engaged in welfare work) from this tax of course raises the question of how they are to be defined. Noble Lords who have spoken on these matters are very well informed about them and, that being so, they will know that the Advisory Group of the National Council of Social Services which was chaired by the noble Lord, Lord Heyworth, recomended in their Report at the beginning of this year, that all charities should be entitled to recover V.A.T. charged on that part of their expenditure which is designed to further their primary purpose.

When we debated charities and charity law on June 30 last year, my noble friend Lord Belstead reminded us that when the Charities Act was passing through Parliament an attempt was made to define "charity" and "charitable purposes" and that it really proved to be impracticable. Your Lordships will appreciate the parallel difficulty of distinguishing welfare activities in the social field from the many other kinds of work carried on by charities, and you may come to the conclusion that charities do not easily lend themselves to classification according to their purposes. The reason for this, my Lords, is because, however carefully various categories of charities are defined, some charities could well be placed in more than one category.

I know that this is a very difficult area and one which is very open to argument and further looking at. But this is one of the great difficulties of categorisation in this field. Yet, if all charities were relieved in this way we would be bound to be faced with serious anomalies between organisations which straddle this borderline—such as bodies which perform valuable social service but which are not, at the same time, charities in the legal sense. I have in mind the friendly societies and industrial and provident societies whose work is of very great value to our community.

I should like now to turn straight away to some of the specific questions, and if I do not answer all of the specific questions—and some of them are rather detailed—put to me by noble Lords I hope they will forgive me now at this rather late hour. I shall have a look at this discussion and I will certainly endeavour to answer—though whether or not to the satisfaction of noble Lords, I do not know—those questions which I fail to answer this evening.

The noble Viscount, Lord Simon, whose interest in this field I should like to acknowledge, asked me a number of questions. The first was—if I remember correctly—whether a charity providing training for disabled persons and charging part of the cost (the charity bearing a substantial deficit out of the funds) is providing a service in the course of business carried out so that the fee charged is subject to tax. I think that was his question and I am grateful to him for giving me previous knowledge of it. We think it extremely unlikely that this would be a business activity within the terms of the Act. I can give the noble Viscount that assurance. But if necessary we—that is, the Customs and Excise—should be very pleased to look into any individual cases; but if that were the case, then very full details would be needed. That is the position as I understand it.

The second question which the noble Viscount, Lord Simon put to me was whether the exemption in Schedule 5, Group 6, includes training as well as education. No attempt has been made in the Act to provide a detailed definition of education and it is my understanding that this would, if necessary, be a matter for the courts.

The third question he put to me was: what precisely is the significance of the words "supplemental to" in Schedule 5? This item, as I understand it, exempts the provision by or on behalf of an institution within Item 1 of this group of instruction, such as music, dancing, typing or swimming, which supplements the main curriculum. It does not include activities clearly distinguishable from the normal activities of the institution: activities such as, following the analogy, driving or flying instruction.

The fourth, and I think the final, specific question the noble Lord put to me was this: Does the exemption in Schedule 5, Group 6, Item 2—and I apologise to noble Lords for these details, but I am bound to use them as these were the specific questions put to me—apply, for example, to a desk supplied to a school, or only, again for example, to books supplied by the school to pupils? The position is that this item exempts the supply of equipment and materials and services by any institution or person whose education is exempted under Item 1. If the equipment, material and services are provided in connection with the provision of that education, it does not apply to the supply of goods or services to the institution or person providing the education. I think that is clear; at least. I hope it is clear. Again, if the noble Viscount, Lord Simon, is unclear about these answers—we are very technical here—I hope he will get in touch with me, and that I shall be able to give him satisfaction.

My noble friend Lord Fraser of Lonsdale—and we acknowledge all that he has contributed in this field—asked about wirelesses for the blind. I wish that I could give him satisfaction here, because I listened very carefully and with great sympathy to what he had to say. But at this stage, at least, I am not able to give him satisfaction. I know that my right honourable friend the Chancellor feels that he must draw a clear distinction between the items which my noble friend instanced—wirelesses for the blind, and more specific devices such as talking books for the blind. The reason for this is that a talking book for the blind is designed exclusively for the use of the blind, but a wireless to which the blind may listen and from which they may gain great pleasure and delight is not designed exclusively, and cannot be so easily distinguishable, for the use of the blind. In resting on this point, which is really one of being able to draw a clear distinction, I hope the noble Lord will not feel that I am without sympathy for those whose case he has so eloquently represented, and if he would like to come back to me on this point I should be very glad to look at it in correspondence with him.

The noble Lord, Lord Gore-Booth, also asked me a number of questions. He asked about the problems of harmonisation with taxation in the European Economic Community. Here we follow on naturally from our debate yesterday evening. The answer is that this, of course, is a long term aim; but we shall have our opportunity of taking part in the discussions which will be going on in the Community in this area, and I think it would be a mistake for me to pre-judge in any way the outcome of those discussions. But I have noted clearly what the noble Lord had to say.

He also asked about administrative difficulties for charities. I would like to say something very clearly on this. Finding the complexities of V.A.T. so considerable myself, I am very much aware how complex voluntary organisations and charities, especially the smaller ones, particularly those who cannot call upon a great deal of advice, must find them. But what I should like to tell the noble Lord is that the Customs and Excise are very much alive to this problem, and they have taken great care in working out the accounting arrangements to keep them as simple as possible for all businesses, and not least for the voluntary organisation. Here again, the proof of the pudding will be in the eating. That is the position as I understand it, and I can assure your Lordships that the Customs and Excise are very much alive to this problem.

My noble friend Lord Selkirk asked a number of specific questions, and I am grateful to him for giving me prior notice of them; I hope that it will enable me to answer them in terms. The first question bore on the difficult issue and terms of aggregation. The position, as I understand it, is that a charity whose turnover in taxable goods and services, such as the selling of greeting cards, for example, exceeds £5,000 per annum is registrable for V.A.T. purposes and accountable to Customs and Excise for V.A.T. on supplies of this type of goods. Some charities, such as OXFAM, have numerous branches, and as the organisation is legally one entity the turnover of branches is aggregated towards the £5,000 limit, though some individual branches may have a turnover below this particular and important threshold. It has been argued in another place that the turnover of such branches should be disaggregated, so that each individual branch would stand on its own feet for this purpose, and if its turnover did not exceed £5,000 per annum it would be exempt. The Chancellor of the Exchequer has agreed to look into this possibility very carefully and has asked any charity which might be affected adversely in this way through aggregation to get in touch with Customs and Excise. This is the position. I hope that my explanation is clear to my noble friend. Again I shall be glad to follow it up in correspondence if this will help.

He also asked me whether hostels for students and accommodation for students in halls of residence or houses administered by an exempt educational institution—which includes a school, a university or a polytechnic—would be exempt from V.A.T. I can give my noble friend that assurance. However, accommodation provided in private "digs" will be taxable at the standard rate, though there is a provision in the Government's proposals for a reduced value base to apply to accommodation where it is occupied for more than four weeks. I am wondering whether my noble friend Lord Selkirk asked me any other questions. I hope that I have replied to the specific question he asked.

My Lords, I do not think I should detain your Lordships much longer, but I should just like to add this. I have listened with considerable interest and a lot of concern to what my noble friend Lord Kinnoull has said, and what other noble Lords have said. In what I am saying in these last few minutes I should like to make it clear where we stand on this matter, and where the Government stand. I hope that in my opening remarks I was able to bring it home to your Lordships that the Government are committed and have acknowledged a commitment to the furtherance of doing what they can to encourage charitable endeavour and to the fostering of the ethos of voluntarism in our society. I am not prepared to walk back one step from our general standpoint on this issue. I hope that our public declarations, the real and dramatically expanded grants to voluntary organisations, what the Chancellor has done in his Budget, and indeed the appointment of my noble friend Lord Colville as a Minister to help co-ordinate activity in this field, all help to demonstrate that this is in fact our position.

That, my Lords, is but one side of the coin. The other side is that we are committed, for what we believe to be very good reasons, to introducing a new and rather special measure of taxation: V.A.T. This poses—and I fully recognise this—special problems, both for my right honourable friend the Chancellor and for those who are taxed, and not least the charities whom we have been discussing this evening. I hope I have made it clear that we recognise that in this matter there may be special problems. I hope, too, that I have made it clear that we are very willing to look at those special problems. The Chancellor has already made concessions, as have Treasury Ministers in the course of debates in another place.

That said, I would only assure your Lordships that we are very willing to continue to look at these problems with an open mind and, bearing in mind what has been said in this short debate this evening, in the interests of charities; in the interests of the voluntary spirit in our society, and, if I may be allowed to say so, in a real desire to see that a fair deal is given to people and to organisations whose only desire is to give a fair deal to others. That is our standpoint on this matter. If there are issues arising from this short debate which noble Lords who have spoken in it would wish to follow up with me, or with my noble friend Lord Colville, who has special responsibilities in this field, I shall, I repeat, be very glad if they will get in touch with me or my noble friend.