HL Deb 07 April 2003 vol 647 cc4-6

2.43 p.m.

Lord Faulkner of Worcester asked Her Majesty's Government:

Whether they will reconsider their decision to deny charities VAT recovery relief.

Lord McIntosh of Haringey

My Lords, the Government recognise the valuable contribution that charities make in delivering services, and realise that the question of irrecoverable VAT provides difficulties for some charities. We have looked at this issue twice since 1997, most recently in the context of the last spending review, to determine whether these difficulties could be overcome. We concluded that no fundamental changes should be made to the way the VAT system operates. Available resources are better deployed through existing tax reliefs and the new £125 million futurebuilders investment fund. This fund will be designed specifically to assist the voluntary and community sector organisations in their public service work.

Lord Faulkner of Worcester

My Lords, I thank my noble friend for that reply. In light of the fact that irrecoverable VAT costs charities in excess of £400 million a year, does he not find it a little perverse that service providers such as the Disabilities Trust, which wrote to me this morning, are obliged to increase the charges they make to statutory local authority undertakings in health, education and social services when they are providing services, thus increasing the cost in that way? Further, has my noble friend seen the report in the March issue of Charity Times in which the head of the indirect taxation unit in the European Commission, Mr Stephen Bill, says that there is no EU requirement that forces us to have uniformity in this area and that if national governments wish to give relief to charities they are free to do so?

Lord McIntosh of Haringey

My Lords, as regards my noble friend's first question, local authorities are encouraged to take account of the VAT situation and to make full cost recovery including overheads when they make payments to charities for providing services. I remind my noble friend that he is right that the figure is estimated at something over £400 million but one has to look at that in the light of approximately £2 billion in tax relief to charities, £2 billion in grant funding and the fact that 30 per cent of charities' income comes from government. As regards my noble friend's second question, that article has been drawn to my attention. We have not received any communication from the Commission on that matter. No doubt if we do, there will be a submission to Treasury Ministers. But I remind my noble friend that I did not refer to the EU in my first Answer.

Lord Phillips of Sudbury

My Lords, I think I am right in saying that the amount of VAT lost to charities is in excess of £4 billion but, be that as it may, is it not a fact that charities reach the parts that others do not reach, if you want to put it that way and, further, that they provide the best value for money that there is in our society? For every pound that a charity gives, the good citizens of this country add several times more in the shape of free volunteer labour currently valued in excess of £15 billion a year. So why is it therefore beyond the imagination of government to realise that they could and should extend the scheme, which I believe currently applies only to repairs to places of worship, whereby there is a grant back scheme for the VAT that is paid in the course of having those repairs carried out? Surely the living are as valuable as the dead.

Lord McIntosh of Haringey

My Lords, I am afraid that the noble Lord, Lord Phillips, lost a zero from his figures. Charities themselves estimate that the cost of irrecoverable VAT is between £400 and £500 million, not £4 billion. I ask the noble Lord to consider those figures in the light of the amount of support which government give to charities. I acknowledge the truth of everything that he said in regard to the value of what charities provide. In terms of support for charitable activity through tax relief, there is a saving of £360 million on inheritance tax, £600 million on business rates, £850 million on income tax and £200 million on VAT zero rates and exemptions for matters such as advertising, construction, disabled access and so on. There is quite rightly a great deal of public support for charities.

Baroness Howe of Idlicote

My Lords, in light of the fact that voluntary organisations probably contribute at least £15 billion to the well-being of citizens in this country, how can the Minister continue to justify no VAT relief for voluntary organisations when the same or equivalent public service provided by the public sector is exempt? Further, in view of the £125 million futurebuilders investment fund which is to last for three years, what is expected to happen after that period? The measure is clearly a sop in view of the irrecoverable VAT situation.

Lord McIntosh of Haringey

My Lords, I remind the noble Baroness, Lady Howe, that the irrecoverable VAT problem has existed for many, many years going back to 1973 under a very large number of Chancellors, mainly from the Conservative Party. As regards the noble Baroness's second point, the £125 million applies to a three-year period. It was allocated under the 2002 spending review and will be reviewed in the next spending review.

Lord Saatchi

My Lords, what is the gain to the charitable sector as a result of the Chancellor's introduction of gift aid? Might the Minister also compare that figure with the loss to the charitable sector as a result of the Chancellor's introduction of an extra 1p on national insurance?

Lord McIntosh of Haringey

My Lords, I think that the noble Lord, Lord Saatchi, in referring to the gain to the charitable sector from gift aid, is talking about the Getting Britain Giving initiative. We are abolishing the £250 minimum limit for gift aid donations and the £1,200 maximum limit for payroll giving, encouraging gifts of quoted shares and securities to charity with a new income tax relief, and modernising the system to allow charities to certify donations over the Internet or by telephone. It is too early to say what the effect of that will be and therefore to make the comparison for which the noble Lord is looking.

Forward to