Adult Education Classes and VAT (Hansard, 16 June 1982)

§ Baroness David
My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

§ The Parliamentary Under-Secretary of State, Department of Health and Social Security (Lord Trefgarne)
My Lords, there has been no change of policy by Customs and Excise on the value added tax treatment of adult education classes provided by local authorities since the tax first started. The Government do not propose to take any action to alter the present arrangements.

§ Baroness David
My Lords, while I thank the Minister for that reply, I must admit that I am not very clear about what is going to happen. Would the Minister not agree that it is entirely inappropriate for part of the statutory education service to be subjected to investigations by officers of Her Majesty's Customs and Excise as if adult education were not a statutory provision? Would he not agree that Sections 41 and 53 of the Education Act 1944 impose a duty on local education authorities to provide: adequate facilities for further education, that is to say … leisure-time occupation, in such organised cultural training and recreative activities as are suited to their requirements?

§ Lord Trefgarne
My Lords, doubtless the noble Baroness is correct in her quotations from the Education Act 1944. But the question of whether VAT should or should not be charged of course stems from the provisions of the Finance Act 1972. In essence these are that VAT should be charged only where the courses are run for a financial profit or where they are for sporting or recreational activities.

§ Baroness Phillips
My Lords, is the noble Lord the Minister aware that the VAT authorities—although I am bound to say from my experience that they seemed to make up their rules as they went along—actually issued guidelines to adult education outside these statutory authorities, in which they indicated that no VAT was chargeable on activities concerned with statutory authorities? Why has there been a change of action here?

§ Lord Trefgarne
My Lords, there has been no change of action, as the noble Baroness puts it. The situation has not changed since the statutory provision was first made in 1972. What has happened recently— 634 and I think that this is what has caused some anxiety and brought the matter to public attention—is that some local authorities have ceased to subsidise some of their courses, no doubt for reasons of financial stringency, and that means that the courses are now being operated for cost or at a small profit, and thus fall into the VAT net.

§ Lord Jacques
My Lords, is not this tax on this kind of thing completely undesirable and unforeseen, and should it not be put right in some future Finance Act?

§ Lord Trefgarne
My Lords, what is important is that courses operated by what I might call the private sector, which have for long been subjected to tax because, of course, they are more generally operated for commercial reasons, should be treated in the same way as the local authority courses or any other public body courses operated on the same basis, and that is what is now happening.

§ Lord Jacques
My Lords, is it not reasonable to take the corporation's activities in education as a whole? They arc not for profitable purposes. Is it not right that, as they are statutorily bound to provide these courses, they should be exempt from tax?

§ Lord Trefgarne
My Lords, courses of the sort that we are discussing are not those which the authorities are statutorily bound to provide. For example, they include a course on witchcraft, which I do not think can be regarded as a statutory requirement.

§ Lord Alexander of Potterhill
My Lords, am I correct in understanding that, where a local authority provides these classes, VAT will not be charged, but, where pressures of an economic nature make it impossible to do so, the Government will gain by applying VAT?

§ Lord Trefgarne
My Lords, if I may say so, that is not quite correct; the position is not quite so simple as that. It is that, where courses of a sporting or recreational nature are provided by the local authority, they are, in general, excluded from the exemption and, again, where courses are operated on a commercial basis, they are excluded from the exemption. But, on the other hand, where courses are included as part of a wider educational course—for example, by a university or a school—then they attract exemption.

§ Lord Howie of Troon
My Lords, what other courses, apart from witchcraft, are included in this?

§ Lord Trefgarne
My Lords, the list of those courses that might be regarded as recreational and, therefore, not exempt from VAT, could, of course, be a very long one. But in addition to witchcraft, yoga and ballroom dancing are possibilities.

§ Baroness David
My Lords, is the Minister aware that some of these courses are extremely therapeutic? Why should we distinguish between flower arrangement and ballroom dancing, which are the sort of courses which are thought to be entirely frivolous, and other 635 subjects? These can be of just as much use to people as weaving, English language or French. I do not see how we can differentiate. There is always some sort of subsidy on local education authority courses. There are the buildings; there is the heating and the lighting. Even if we pay the teacher the full cost of the course, there will still be some subsidy behind it. I totally disagree with a great deal of what the Minister has said, and I think it is absolutely monstrous that these courses should be included.

§ Lord Trefgarne
My Lords, I am sorry that the noble Baroness, Lady David, feels so strongly about this matter, but, as I say, the circumstances have prevailed since 1972, including the years 1974 to 1979, for which she and her honourable and right honourable colleagues had responsibility for these matters. Nothing has changed in that time. If the noble Baroness and her friends thought that there was a problem then, they could have changed it.

§ Lord Howie of Troon
My Lords, as the Minister has put on record those courses which he thinks are frivolous, will he also put on record the rest?

§ Lord Trefgarne
My Lords, I did explain that the list could be and, indeed, doubtless is a very long one. Of course, in the end if anyone wishes to challenge the suggestion that his course is or is not of a recreational or sporting nature, I suppose it is open to him to go to the courts to do so.

§ Lord Elwyn-Jones
My Lords, is not witchcraft an important part of Government policy?

§ Lord Trefgarne
My Lords, that depends which Government.

Lord Bruce of Donington
My Lords, is the noble Lord aware that the guidelines that are from time to time issued by HM Customs and Excise have no force in law, and that occasions have been known when reference to the various Finance Acts themselves has proved that the guidelines have not always been correct?

§ Lord Trefgarne
My Lords, as I said just now, I presume that it is open to anyone who thinks that he is being treated other than in accordance with the law to challenge the fact at court.

§ Baroness Phillips
My Lords, is the Minister aware that he is not strictly correct in that assumption? The guidelines are the means by which the VAT officers impose what is seen by adult education authorties—and I speak as one who has had many years in the women's movements—as a tax on genuine activities of an adult educational nature. When you challenge it, you are told that they have certain other guidelines which are not revealed to the ordinary individual. Perhaps the Minister can tell me how this can be dealt with within the law.

§ Lard Trefgarne
My Lords, I am not aware that there are any secret legislative provisions by which VAT 636 is imposed and which are not available to practitioners or to those who have to pay the tax. In the words of the noble and learned Lord, Lord Denning, if I remember him right: Be you ever so mighty, the law is above you ". So, even if you are a VAT man, you still have to comply with the law.

§ Baroness David
My Lords, I should like to ask a final supplementary question. Is the Minister aware that, although it may have been possible to do this since 1972, I believe it is only very recently that there have been threats to do this? Essex, Humberside and Haringey are three authorities where there have been such threats. I do not think that it has been done prior to the last year or so.

§ Lord Trefgarne
My Lords, as I said earlier, what has happened recently is that some local authorities have chosen to withdraw the subsidy for some of the courses that they offer. They are now in direct competition with organisations in the private sector, which, in many cases, also offer similar courses on which they have to charge VAT, and the customs—rightly in my view—think that in those circumstances local authorities ought also to charge VAT.