VAT (Hansard, 6 February 1989)

§ Mr. Lilley

I told the House on 21 June 1988 at column957–58 that the Government would propose legislation to implement the judgment of the European Court of Justice affecting certain of the United Kingdom's VAT zero rates. As I also promised at that time, there has been an extensive consultation. The Government are very grateful to the many organisations and individuals who have responded. Some matters are still under discussion, but I am now able to announce decisions on most features of the implementing legislation which the Government will be proposing to the House as part of this year's Budget and Finance Bill. I am taking this unusual step in order to allow the maximum feasible time for technical consideration of the clauses and preparation on the part of those traders who will have to operate them, in many cases from 1 April 1989.

As I made clear in my statement to the House on 21 June, this adverse judgment is based on an interpretation of existing Community law to which the United Kingdom gave its assent in 1977. We are obliged to comply with it. This means applying VAT to a number of goods and services at present excluded. Our aim has been to implement the ruling in a way which, while respecting the terms of the judgment, minimises the burgen of tax and compliance. The Government have in large measure been 549W able to meet the legitimate demands of the construction and property industries, by introducing the option to tax rents and devising suitable transitional arrangements, consistently with the obligation to implement the judgment promptly. And we have had particular regard to the potential impact on charities. I regret that they cannot be wholly shielded because many of them have activities which constitute "business" for VAT purposes and therefore come within the ambit of the judgment. But we have done as much as we can to safeguard their position.

I am including several minor changes from the current provisions for construction and property in zero rate group 8 and exempt group 1 which do not flow directly from the European Court judgment. These have been inserted to rectify weaknesses in the law which have become apparent in recent years, often as a result of litigation. These changes are marked with an asterisk in the explanatory notes to the draft clauses.

The provisional draft clauses with explanatory notes on their effect are contained in Customs and Excise documents which I am placing in the Library of the House.

On non-domestic construction, most of the changes that I announced on 21 June are confirmed in the draft legislation but I am glad to say that as well as retaining zero rating for new housing it will also he retained for most new communal residential accommodation such as old people's homes, hospices and boarding accommodation at boarding schools. It will also be retained for new churches and other buildings for non-business use by charities. It has not been possible to retain zero rating for premises used for business, including private hospitals and fee paying schools, which the judgment explicitly ruled were too remote from the final consumer. The change to standard rating for buildings which cease to qualify for zero rating comes into effect from 1 April 1989, although there will be some transitional relief. As I announced last June, this will preserve zero rating for agreements entered into, in writing and for a price, before 21 June 1988. Additionally, it will allow some relief for supplies made before 21 June 1993 in connection with developments that are the subject of a binding legal obligation as a result of an agreement entered into before 21 June 1988 between a developer and a landowner or planning authority.

The option to tax rents, which comes into effect on 1 August 1989, is being extended to agricultural land. Building land will not be taxed, except in defined cases where this is necessary to ensure fair competition.

Table 1
Civil Service non-industrial elected union representativesEstimates of numbers with paid time off for industrial relations duties and trade union activities (as at 31 March 1988)
Departments	5 per cent. and less	6 to 10 per cent.	11 to 20 per cent.	21 to 30 per cent.	31 to 40 per cent.	41 to 50 per cent.	51 to 60 per cent.	61 to 70 per cent.	71 to 80 per cent.	81 to 90 per cent.	91 to 99 per cent.	100 per cent.	Total	Full tune equivalent
1. Ministry of Agriculture, Fisheries and Food	474	44	16	1	3	0	1	0	2	1	0	4	546	19
2. Customs and Excise	632	84	41	27	13	6	5	8	5	10	8	0	839	72
3. Ministry of Defence	876	157	64	21	9	12	2	2	1	1	1	23	1,169	93
4. Department of Employment Group	1,491	276	114	39	12	7	5	5	6	1	0	15	1,971	93
5. Department of Transport/Transport ExcPSA	417	56	37	9	3	2	2	1	2	2	0	16	547	41
6. Foreign and Commonwealth Office including Overseas Development Administration	85	13	3	3	1	0	1	1	0	0	1	3	111	11
7. Department of Health and Social Security	1,323	481	216	65	23	31	18	20	29	27	21	25	2,279	301
8. Home Office including Prison Department	806	155	154	37	16	7	5	1	0	6	7	12	1,206	96
9. Department of Trade and Indusiry	449	31	26	4	5	6	1	2	2	0	3	6	535	28

550W

I am now able to announce decisions on the other groups affected by the judgment.

The fuel and power changes will be effective on 1 July 1990. Zero rates will continue for domestic consumers, and for charities for non-business purposes. Domestic use will include not only private dwellings, caravans, houseboats and self catering holiday accommodation but also communal residential homes, hospices, school and student boarding accommodation but not private schools and fee paying hospitals.

The water and sewerage services changes will be effective on 1 July 1990. All supplies of services of emptying cesspools, septic tanks etc to industrial users for use in connection with the carrying on of a business will be standard-rated. Similarly so will all supplies of water to industry. Industry means any activity described in divisions 1 to 5 of the standard industrial classification. All other supplies will be zero rated.

News services changes will be effective on 1 April 1989. The zero rating will be repealed, and the standard rate thus applied to all news services. This includes supplies to newspapers and individual members of the public (hut the Court ruling did not extend to newspapers themselves).

Protective boots and helmets supplied to employers will become standard rated from 1 April 1989.

The estimated yield from the private sector of the proposals contained in the draft clauses will be some £55 million in 1989–90, rising to about £165 million by 1992–93. This includes some £110 million from application of the Court ruling to non-domestic construction. Without the measures to mitigate the impact, the yield from construction would have been £450 million.