Listed Building Repairs: VAT (Hansard, 22 July 1999)

§ Lord McIntosh of Haringey
No, my Lords. European agreements mean that we cannot introduce a reduced VAT rate for repairs to listed buildings as such. It is Government policy to offer financial assistance to the heritage through targeted conservation grants and capital taxation relief.

§ Viscount Gage
My Lords, does the Minister agree that the charging of the full rate of VAT on the repair of listed buildings which do not generate profit is an anomaly compared to the zero rating on improvements where there is a potential for gain? Does he further agree that this anomaly is responsible for the lack of viability of the built heritage? Does he think that that may have some bearing on the development of brownfield sites?

§ Lord McIntosh of Haringey
My Lords, the noble Lord suggested that it is an anomaly for VAT to be charged on repairs where there is no opportunity for gain and for no VAT to be charged on improvements where there is an opportunity for gain. It could be argued that it is an anomaly to charge VAT on repairs where there is no opportunity for gain or on improvements where there is an opportunity for gain.
1126 The distinction is not between greenfield or brownfield sites, or whether or not there is an opportunity for gain, but between repair and improvement. That distinction goes back to the noble Lord, Lord Lawson of Blaby, in 1984.

§ The Lord Bishop of Hereford
My Lords, is the Minister aware that the VAT burden on repairs to church buildings is currently running at approximately £18 million a year, which is almost as much as the £20 million a year which the Churches are receiving in state aid? It makes very little sense in a partnership between Church and state for the state to take away with the one hand almost as much as it is giving with the other. Is the Minister able and willing to further qualify his Answer about European directives? Will he commit the Government to supporting the proposal, when it comes to the Council of Ministers, which has been adopted by the European Parliament of adding repairs to church buildings to the list of labour-intensive services covered by Annexe H to the Sixth Directive, which entitles lower rates of VAT to be charged? Is the Minister further aware that the present heavy burden of VAT on church repairs is encouraging the replacement of ancient fabric, rather than the much more to be preferred policy of conservation?

§ Lord McIntosh of Haringey
My Lords. I am grateful to the right reverend Prelate for drawing attention to the £20 million which has been offered to churches by English Heritage and by the Heritage Lottery Fund in the current financial year. He could have added to that amount—as he did not, I will—the £2.4 million which has been offered to the Churches Conservation Trust by the Department of Culture, Media and Sport. From a heritage point of view, we do not see any reason why there should be a distinction between listed churches and other listed buildings; all are valuable. Annexe H to the Sixth Directive cannot be applied retrospectively; in other words, it is not possible for us to add to the list of exemptions which existed before 1992, when Annexe H was adopted. The exemptions which existed at that time were exempted on a transitional basis.

§ Lord Saatchi
My Lords, does the Minister's reluctance on this issue stem from his statement earlier this week that: The Government do not like abolishing taxes if they can possibly avoid it". Does not this highlight people's anxieties about tax harmonisation? Whenever a tax increase is proposed the Government accept it and blame it on Brussels; whenever a tax cut is proposed the Government reject it on the same grounds. Is not the charm of this procedure from the Government's point of view that it enables them to accept or reject any legislation from Europe—on tax, unions, working practices or whatever—while shrugging their shoulders and saying, "Not me, Guv"?

§ Lord McIntosh of Haringey
My Lords, what I actually said was that the Treasury does not like it. That is what is being corrected in Hansard. It will teach me not to make jokes.
1127 On the second point, there is a limited number of European provisions, notably in VAT legislation, which we are obliged to adopt. Where we are not obliged to adopt tax or any other legislative provisions, we consider them carefully on their merits before making a decision in the best interests of this country.

§ Lord Kennet
My Lords, this matter has now rumbled on for more than 30 years. Is my noble friend aware that I have recently received a letter from his colleague, a Treasury Minister in the House of Commons, not praying in evidence that we cannot change the position because of Commission rules, but saying that we do not want to change it because there is no obvious gain in productivity if we do. Does my noble friend agree with that judgment? Will he accept that the main purpose of such a change would be to benefit the heritage and therefore—to be grasping about it—to bring in more tourists and more money from them?

§ Lord McIntosh of Haringey
My Lords, I cannot comment on a letter that I have not seen, particularly when I have not seen the letter from my noble friend to which it is a response. It sounds from what he is saying as if it refers to the proposal for an experimental reduced rate for building work. But that has not been agreed. If it were agreed, it could exist for only three years. As I made clear, we believe that targeted conservation grants and capital taxation reliefs are a more appropriate method. We do not believe that there will be a significant employment benefit from the proposal to which my noble friend refers.

§ Baroness Maddock
My Lords, I hear what the Minister says about VAT and older buildings. However, does he agree that it is urgent that we examine the discrepancy of nil VAT on new build, but VAT on the refurbishment of all types of older buildings? If we are serious about urban renaissance and protecting our countryside, we need to examine this issue. I am sure that the Minister is well aware of the recommendation in the report of the noble Lord, Lord Rogers of Riverside, Towards an Urban Renaissance, that VAT should be harmonised across the two sectors and that some of the money raised should be put into urban renaissance projects. Will the Minister reassure the House that the Government will examine the matter urgently?

§ Lord McIntosh of Haringey
My Lords, indeed I am aware of my noble friend's Urban Task Force report and of the recommendations contained in it. The Government's response to the report will have to take account of the realities of European VAT legislation. I repeat what I said to the noble Viscount, Lord Gage. The distinction between repairs and improvements, although it may be anomalous, is not a distinction between greenfield and brownfield sites. It is not an urban/rural issue. It is an issue that arose because the then Chancellor, after 10 years' experience of the tax, 1128 came to the conclusion that it was not possible to make a realistic and firm distinction between repairs and improvements which was enforceable in law.