Hospital Construction by Charities: VAT (Hansard, 24 March 1994)

§ The Parliamentary Under-Secretary of State, Department of Employment (Lord Henley)
My Lords, none. There are no plans to refund to charities any VAT that has been paid on the construction of hospital buildings. The Government already provide reimbursement of the VAT paid by hospitals on their capital projects within the overall annual NHS funding. That calculation includes an element of VAT paid on buildings funded by charities.

§ Baroness Robson of Kiddington
My Lords, I thank the noble Lord for that very unsatisfactory reply. I know that he is aware that since April 1990, health authorities have been awarded £187 million per annum to compensate them for the imposition of VAT on hospital construction. However, they have been charging charitable bodies, such as the leagues of friends, VAT on their voluntary contributions towards the costs of building hospitals. Therefore, they have compensated themselves twice. Are the Government not prepared to do something about that?

§ Lord Henley
My Lords, I believe that that is a matter for the two parties—the health authorities on one side and the charities on the other. It is a matter for 740 discussion and agreement between those two parties at the planning stage. I believe that the noble Baroness will be aware that the Department of Health has recently issued a reminder in the form of guidance to the health service that funding includes VAT on buildings, including those wholly or partly provided by charitable donation. That £187 million added originally and added to the base line since then includes a certain amount to cover VAT paid on charitable works with regard to the building of hospitals.

§ Lord Eatwell
My Lords, is it not clear that the levy of VAT on charities to fund the construction of hospital buildings is likely to be a major deterrent to charitable giving? Therefore, that will act to the severe detriment of the National Health Service. Given that the Treasury has made those compensatory payments to health authorities, would it not be appropriate to issue an instruction that charities should not be invoiced for VAT so that everything is clear; there is no confusion; and charitable giving is encouraged?

§ Lord Henley
My Lords, I do not believe that it will discourage charitable giving. We believe that the guidance that we have given to health authorities is sufficient. As I have said, we have made available considerable extra resources to the health service to deal with the VAT which will have to be paid on new buildings. That also includes an amount for any charitable building which takes place. That can be taken into account as and when charities offer to fund any building work in their area. As I said, I believe that it should be a matter for discussion between the relevant health authority and the charities at that stage.

§ Lord Swinfen
My Lords, my noble friend will be aware that the Government really extremely heavily on charities to implement their care in the community policy. In order to make certain that that policy works properly, does he not consider that charities should be exempt from value added tax?

§ Lord Henley
My Lords, charities are exempt from value added tax in certain circumstances. However, following a decision of the European Court of Justice in 1989, it was decided that all hospital buildings would be subject to VAT. I am afraid that the Government have no say in that. For that reason, the Government added £187 million to the funding available for capital projects in the National Health Service. That includes an amount to cover buildings provided by charitable organisations.

§ Lord Murray of Epping Forest
My Lords, will the Government not consider extending to local authorities the same capacity to compensate charities which provide public buildings for the use of local authorities as is provided as regards respite care provided by charitable organisations? If it is done for that category, why can it not be done also for the category that has been referred to?

§ Lord Henley
My Lords, I am not sure that I heard the noble Lord correctly as regards the kind of building to which he was referring. If he was referring to buildings used for residential purposes—for example, care in the form of sheltered housing—I understand that 741 they would not attract VAT. I shall read carefully what the noble Lord said. If I am wrong, I shall write to him. Only hospital buildings are mentioned specifically in the European Court of Justice judgment, and we are bound by that.

§ Lord Skelmersdale
My Lords, is there any rule that says that charities in that particular situation—for example, the leagues of friends of hospitals—should not be registered for VAT and therefore be able to claim it back?

§ Lord Henley
My Lords, I shall have to take advice on that and in due course write to my noble friend.

§ Lord Stoddart of Swindon
My Lords, is it not unfortunate that Parliament's ability to determine who shall be liable to tax is now decided not by Parliament but by the European Court of Justice sitting in a foreign land?

§ Lord Henley
My Lords, the noble Lord's views are well known in the House. We are members of the Community. We went into the Community many years ago, and we agreed 10 be bound by the decisions of that court. 1 believe that most people would agree with that sentiment.

§ Baroness Elles
My Lords, is the noble Lord aware that the finding of the European Court of Justice was an interpretation of the sixth VAT directive, which was adopted in 1977 by a Labour Government?

§ Lord Henley
My Lords, my noble friend is absolutely correct. However, to be fair to the party opposite, I did not notice any particular dissent from its Front Bench. It is only certain elements on the Benches behind.

§ Baroness Robson of Kiddington
My Lords, will the Minister accept from me that those involved in charitable fund-raising for hospitals are grateful for the memorandum published on 9th February and sent to health authorities explaining the situation as regards VAT? Does he further accept that that memorandum was sent as a result of two years' work by the chairman of Blandford Community Hospital League of Friends? Can the Minister tell the House what happened to the VAT that was paid by charitable authorities up to the time that the memorandum was published?

§ Lord Henley
My Lords, the noble Baroness is perfectly correct about the memorandum. However, before the memorandum went out, it was entirely a matter for discussion between the two parties—that is, between the health authority and the charitable organisation that wished to make appropriate provision. As I said, Her Majesty's Government made £187 million available in 1990. That money has since formed part of the base line, has been up-rated and includes an element for the VAT paid by charities.

§ Lord Peston
My Lords, can the Minister further clarify the matter because he has left some of us completely puzzled? I assume that the Treasury is receiving the VAT that it believes it ought to receive. There is no problem in that respect. However, the noble 742 Baroness, Lady Robson, is suggesting that the health authorities are claiming from charities something that is called VAT but that it is not going to the Treasury. Therefore, it looks as if something is being done which, to say the least, sounds like sharp practice; but I take it that that cannot be the case. Can the Minister tell us what happens to that VAT?

§ Lord Henley
My Lords, a charity will offer to build a building for an individual hospital. It will then pay for the building work and, in the way of things, VAT will be levied upon it and will come back to the Treasury. To compensate for that, Her Majesty's Government made the money to which I referred available to the health authorities some years ago so that they could pay part of the bill. As I said, it is for the health authorities and charities to agree such matters beforehand. I hope that the issue is now clearer. The noble Lord still looks slightly puzzled. If he wants, we can discuss it outside the Chamber.