§ Mr. David Rendel (Newbury)
I am delighted to have the opportunity to initiate the debate for two reasons. The first is to press the Government to introduce a long-delayed reform that they have been promising for some years but which has failed, inexplicably, to materialise. Secondly, I hope that the Minister will use his response to give some reassurance and to promise some recompense to one of my constituents, who faces severe personal financial strain because the reforms are not yet in place. Indeed, my constituent's clients face the prospect of losing the services that the business supplies and perhaps even of ending up as more of the hospital bed blockers whose numbers the Government rightly are determined to reduce.
§ Mr. Alan Hurst (in the Chair)
Order. I remind hon. Members of the words of the Speaker as to dress in the Chamber. For that purpose, Westminster Hall should be treated in the same way as the Chamber.
§ Mr. Rendel
Let me start by describing my constituent's case and then I shall fit it into the wider picture of desperately needed Government reform, which has been so long delayed. My constituent, Mrs. Angela Reed, runs her own business providing infirm and disabled people with care, much of it of a medical nature, in their own homes. She trades in her own name as a sole proprietor and employs staff to assist her in the provision of services. Like others working in the field, she provides valued services, often on behalf of the local authority, to some of the most vulnerable people in our community and, because the services are provided in the home, they maximise the independence of the individuals concerned.
Given that the Minister is doubtless a proponent of joined-up government, this seems an ideal opportunity to remind him and his colleagues in the Department of Trade and Industry of the words of the Department of Health's 1998 White Paper "Modernising Social Services", which stated thatwhen people need social services help, that help will be arranged in a way that lets them do as much as possible for themselves; and allows them wherever possible to live in their own homes.The type of care provided by Mrs. Reed is VAT exempt if it is provided by or supervised by a medically qualified person such as a nurse or doctor. Since the beginning of the year, Mrs. Reed has employed medically qualified staff in a supervisory capacity. However, that was not the case earlier, so her services did not fall under the statutory VAT exemption, despite the fact that they were often recommended by medical practitioners who knew of her great and long experience in providing such services.
Accordingly, when it emerged that her turnover had exceeded the VAT registration threshold in early 2001, she was obliged to commence charging VAT to her clients, the elderly people who benefited from and were happy with her care services, which they desperately needed if they were to be able to remain in their own homes, but which many of them could afford only with difficulty. Many were unable or unwilling to pay the extra amount, and custom was lost as a result.
235WH Moreover, because it was not immediately apparent that she had exceeded the threshold, Mrs. Reed faces retrospective registration and VAT payments amounting to approximately £10,000. The situation has placed her and her business under considerable strain. Mrs. Reed's accountants—James and Cowper, a local firm—have been in correspondence with Customs and Excise in the hope of persuading it that the VAT exemption should apply in her circumstances. They have not been successful. I shall not argue today that that is an incorrect interpretation of the legal position, but there is a strong case for arguing that the situation conflicts with stated Government principles and policy.
I come to the general position to prove my point. If Mrs. Reed operated as an agency, not a proprietorial business, to provide the services of her staff, she would be in a much more favourable position in relation to VAT. Agencies are not regarded as supplying the full service of the staff whom they place, so VAT is due only on their placement commission. That is due to change. The Department of Trade and Industry proposes to change the status of workers placed by such agencies so that they will become full employees of the agency. The contractual relationship will therefore be with the bureau or agency that supplies them, not with the client who hires them. However, there has been a severe delay in implementation. Changes to the employment status of temporary workers supplied by employment bureaux were first announced more than three and a half years ago in September 1998. Eight months after that, on 31 May 1999, a consultation document entitled "Regulation of the Private Recruitment Industry" was published. In its business brief 13/99, dated 18 June 1999, Customs and Excise indicated that the regulations were expected to come into force at the beginning of 2000.
In an Adjournment debate on 29 October 1999, my hon. Friend the Member for Sutton and Cheam (Mr. Burstow) and others expressed the concern that the changes would increase the amount of VAT charged to people buying care in their homes, some of whom are often the most vulnerable members of our society, as hon. Members said. In another business brief 3/2000, dated 22 February 2000, Customs and Excise reported that there would be an extra-statutory concession for home care services. The brief makes it clear that the main reason for the concession was that Customs and Excise and the DTI recognised that the changes wouldplace an increased VAT burden on some of the most vulnerable people in society".The concessionwill be introduced to coincide with the introduction of the DTI changes in the Summer.The summer of 2000 has come and gone, and two years and a general election later we are still waiting. The extra-statutory concession will be welcome when it is introduced. Business brief 3/2000 makes it clear that the concession will apply to non-agency care providers, such as my constituent. It will also apply to home care 236WH services, including personal care such as bathing, and help with practical tasks such as house cleaning where there is an obvious client need.
As the Paymaster General, in a written parliamentary answer on 29 January 2001 in response to a question from my hon. Friend the Member for Sutton and (Cheam) said:Customs will implement the Extra Statutory Concession to coincide with the changes in the Department of Trade and Industry regulations on the private recruitment industry. A side effect of these changes could have been an increase in the VAT paid for necessary home care provided by employment bureaux. The concession will mean that the VAT burden on those least able to look after themselves is not increased as a result of the DTI changes, and in many cases will actually go down."—[Official Report, 29 January 2001; Vol. 362, c. 39-40W.]I welcome the Government's clear statement of intent, and their commitment to ensure that there is no inequity of treatment on VAT between agencies and proprietorial businesses providing similar services in competition with one another. However, will the Minister account for the extraordinary delay in implementing the proposals? Hon. Members will note that the Paymaster General's parliamentary answer is dated one year after the announcement of the extra-statutory concession. Why have those changes still not come into effect?
In another written parliamentary answer, dated 25 January 2001, my hon. Friend the Member for Sutton and Cheam asked the Secretary of State for Healthwhat discussions he has had with the Chancellor of the Exchequer and the Secretary of State for Trade and Industry on the implementation of the proposed extra-statutory concession on VAT and home care; and if he will make a statement.The Minister of State at the Department of Health replied:The Department has been liaising closely with my right hon. Friend the Chancellor of the Exchequer and the Department of Trade and Industry on their proposals since 1997. The proposed Value Added Tax concession will mean that people receiving care in their own homes will not pay VAT on the wages element of that care. We will continue to make every effort to promote home care as a choice for individuals in need of support."—[official Report, 25 January 2001; Vol. 361, c. 689-90W.]Therefore, this matter has been under discussion since 1997. The Government are committed to promoting home care as an option for the individuals concerned, but no action has been taken for five years.
One year further on and the Treasury was repeating the same mantra. The hon. Member for Runnymede and Weybridge (Mr. Hammond) asked the Chancellor of the Exchequerwhen he expects Customs and Excise to issue details of the proposed extra statutory concession in respect of VAT on supply of services agency workers for domiciliary care.The Financial Secretary replied:Details of the proposed extra statutory concession on the VAT liability of home care will be available when the Secretary of State for Trade and Industry lays before Parliament revised regulations governing the conduct of the private recruitment industry."—[Official Report, 25 January 2002; Vol. 378, c. 1150W.]So details will be announced when they are announced. That is very helpful.
237WH If the new regulations had been introduced in the summer of 2000, the timing initially announced by Customs and Excise, my constituent would not be in the position she is in now. This is not simply a case of a particular business reporting a grievance to the local Member of Parliament and calling for a change in the law. This is a case where the Government have been promising to change the law for several years, but have failed to fulfil that promise, to the great disadvantage of my constituent.
I hope that the Minister will today be able to announce when those changes will be introduced. Meanwhile the delay has had severe consequences for my constituent and her business. Her business provides important care services for many elderly people, in keeping with the principle of independent living, which is rightly at the heart of the Government's thinking on social care. Under those circumstances, can the Minister provide an assurance that the needs of care providers who have fallen foul of the existing VAT regulations will be taken into account when the expected reforms are finally announced?
Given that my constituent would never have got into her present financial difficulty had the Government brought in the relevant legislation according to their original timetable, it seems only fair that the retrospective VAT that my constituent is now being asked to pay is either waived or counterbalanced by a compensation payment to her of the same size paid on the grounds of the Government's maladministration of their own legislative programme. The local council and the local medical services value my constituent's work, and so, very much so, do her clients. The Government's policy, quite rightly, is to enable people to obtain the care they need to remain in their own homes. It is also the Government's policy therefore that VAT should not be charged on the provision of home care services. For the sake of my constituent, but above all for the sake of her clients, she should not have a VAT bill to pay, just because the Government have failed, after five years of waiting, to get their act together.
§ The Economic Secretary to the Treasury (John Healey)
I congratulate the hon. Member for Newbury (Mr. Rendel) on securing the debate on such an important issue. It is a reflection of his strong track record in the House. He speaks up on such issues both in policy terms and to make active representations on behalf of his constituents, including individuals who are sometimes affected by residential care matters. The constituent in this case has been affected as a provider of services to people in their own homes.
The hon. Gentleman raised some important matters, and I am glad of the opportunity to reply, because improving the standard of care for elderly people in care homes and their own homes is a priority for this Government. I am sure that the hon. Gentleman will agree that the national service framework for older people, which was published last year, is a significant step forward. With the new National Care Standards Commission now being merged with the social services inspectorate, an important element of protection and consistency for elderly people, many of whom are very vulnerable, has been introduced into the system.
238WH The hon. Gentleman will also know about the significant additional spending that the Government have put into personal social services. It is available to support the services to take care of people in their own homes and in residential care homes. Nationally, resources have increased on average in real terms by 3 per cent. a year between 1996–97 and the current year. In addition, as we recently announced, the real terms increase between 2003–04 and 2005–06 will be the equivalent of 6 per cent. per year. That is in stark contrast o the record of the previous Government, who between 1992 and 1997 oversaw a real term's annual growth of 0.1 per cent. It is an important context for what will be a more technical discussion.
The Government are keen to see initiatives for the development of not only better standards in care homes but intermediate care services of rehabilitation and support, which can increase individuals' independence and help them remain in their own homes and out of institutionalised care homes for longer. I welcome the hon. Gentleman's greeting for our proposals for an extra-statutory concession, and it may be helpful to give some background detail to our decision to introduce it. I will then explain why I dispute his contention that there has been a long delay in the introduction of the measure per se, by explaining its crucial link to the proposals for amending Department of Trade and Industry regulations for governing the activities of employment agencies.
The activities, nature and regulation of employment agencies and bureaux are at the heart of the proposal to introduce an extra-statutory concession. At present, employment bureaux can arrange their affairs for VAT purposes so that they act as either an agent or a principal in supplying staff. The hon. Gentleman touched on that point. For the sake of clarity, an agent is someone who makes arrangements for the supply of goods and services by another person. When care services are arranged through an agent, even though one invoice and charge may be raised, there are two distinct supplies: the agent's services—the making of arrangements for the supply by someone else, such as a self-employed worker—and the care service itself, which is supplied by the worker.
As in the case of Mrs. Reed in the hon. Gentleman's constituency, who had to make a choice as part of setting up and running her business, personal businesses must choose either to use an agent to arrange for the supply of an exempt service on their behalf or to act as a principal. A principal is a person who makes or receives a supply, so when an employment bureau is a principal, for VAT purposes it is akin to an employer of staff in that it is responsible for providing the services carried out by them. A principal does not therefore merely make arrangements for the supply of a third party, but supplies the services carried out by its staff.
The introduction of the extra-statutory concession is crucially linked to the proposals that were produced by Government and led by the Department of Trade and Industry and which, as the hon. Gentleman rightly said, were published in 1999. The amendments and reform of the regulation of the private recruitment industry were aimed at providing employee protection to temporary workers supplied by employment bureaux. It was thought that a side effect of those changes would be that employment bureaux acting as agents, which previously 239WH had to charge VAT only for the service of making arrangements, would have to charge VAT on their total fee, including the agency worker's salary costs. Following close scrutiny by the Treasury and on the Chancellor's initiative, we investigated ways of minimising the potential VAT impact of the DTI's proposed changes on home care services so that people in their own homes were not faced with increased VAT payments—hence the extra-statutory concession.
The concession means that when the new DTI regulations come into effect, people in their own homes who are in need of care will not pay VAT on the wages element of taxable care. The arrangement fee will, however, remain taxable in the same way. The hon. Gentleman quoted correctly our intention of introducing the concession to coincide with the DTI regulations. The DTI is considering the many responses to its consultation document. As the hon. Gentleman will appreciate, several complex issues—not least the tax dimensions—are connected with the proposed changes. I hope that the hon. Gentleman will regard what he rightly described as our "clear statement of intent" as our determination to introduce an extra-statutory concession when the regulations are introduced and for the purpose that I explained earlier.
There is therefore no sinister reason for the delay in introducing the extra-statutory concession; the matter is perfectly simple. We announced that we would introduce the concession when the DTI regulations are laid before Parliament and that position remains. The concession is being introduced to offset the danger that people who purchase care that enables them to continue to live in their own homes will be liable for extra VAT, particularly on the costs of the care services and the relevant worker salaries. I hope that the hon. Gentleman recognises that our statement of intent in that regard remains clear and strong.
§ Mr. Rendel
I quite believe the Minister and the Government when they say that they will introduce that concession when the DTI changes its rules. The danger for people like my constituent is not that they might be charged VAT and have to pass that charge on to their clients because they already have to do so as they are not bureaux and agencies that work in the way that will be affected by the DTI change. They have to charge VAT now and their clients already have to suffer, and they will go on doing so because the longer the DTI takes to make its changes, the longer it will take for the extra-statutory concession to come in—unless the Minister can do something about it straight away.
§ John Healey
The hon. Gentleman makes a fair point but if my memory serves—I will check the Official Report—he said that Mrs. Reed had altered the way in which she provides her services and that they are now supervised by a nurse. The key element for the provision of care is therefore not liable to VAT, although the commissioning or arrangement fee still is, as I have explained. The hon. Gentleman will correct me if I am wrong, but I believe that that is, understandably, the position that Mrs. Reed has taken.
§ Mr. Rendel
The Minister is right that, because Mrs. Reed changed her arrangements, she has got round the problem. However, there will be other people throughout the country who are still providing services directly, without medical supervision. Mrs. Reed has had to employ people deliberately to get round the VAT problem, which seems an absurd way to do it.
§ John Healey
We concur at least on the way in which Mrs. Reed organises her business. It is a quite sensible adaptation to the provision of services. Clearly, the quality of services that she offers to people living in their own home cannot be reduced or damaged by the involvement of a qualified nurse.
We are discussing the territory of VAT in care services, and the hon. Gentleman has made a number of powerful points. I hope that he at least recognises that the Government are aware of the impact that VAT can have on care services and vulnerable or sick people, both in their own home and in care homes.
VAT is not chargeable on care services that form part of the care or treatment of a person in a nursing or similar residential home. That includes care provided by staff employed by the institution, and care provided by contracted staff. Nor is VAT chargeable on medical, personal or nursing care services provided or supervised by a nurse, whether they be provided in a nursing home, another home or someone's own home. We have just discussed that point. VAT is not chargeable on any welfare service, including care services, in a residential home or at a home that is provided by a charity or a local authority under a statutory duty. Mrs. Reed is clearly running an agency that is a business. She now delivers such services under the supervision of a nurse, so the workers' salaries are not subject to VAT.
As the hon. Gentleman knows, we are constrained to some degree by long-standing agreements with our European partners. The United Kingdom can maintain existing VAT zero rates and exemptions but, under the same Community agreements, we may not introduce new reliefs or make anything more than marginal adjustments to existing reliefs. Currently, there is no exemption for the services of employment bureaux, so there is a significant constraint on our ability to reduce the VAT chargeable on the arrangement fees or commission services of agencies such as that of the hon. Gentleman's constituent. Clearly, it would be more than a marginal adjustment to try to shoehorn such an exemption into an existing relief.
That does not mean, however, that we can do nothing in this sector. Indeed, I hope that the hon. Gentleman recognises that we moved rapidly in March when a High Court judgment on VAT and residential care threatened to limit the exemption for residential care. We immediately put VAT exemption beyond question through the Value Added Tax (Health and Welfare) Order, which was statutory instrument No. 762/2002. I hope that the hon. Gentleman sees that as evidence of decisive and prompt action to confirm that vulnerable people will not face VAT on residential care. We are determined to ensure that vulnerable people do not face a greater VAT burden than is absolutely necessary.
241WH I end by confirming the timing of the extra-statutory concession, as the hon. Gentleman requested. We still intend to introduce the concession immediately the new Department of Trade and Industry regulations are laid. I cannot, however, assure him on the retrospectivity that he seeks on the VAT payable by people such as his constituent at present. I hope that he feels that this short 242WH debate has been valuable. Our general approach to social care is that we are committed to increasing the level of funding, and determined to raise standards of care and to ensure that tax, as a proportion of costs, plays no greater part than is necessary.
§ It being Two o'clock, the motion for the Adjournment of the sitting lapsed, without Question put.