§ Ms LawrenceTo ask the Chancellor of the Exchequer what changes he proposes to make to the way in which Government departments account for VAT on contracted-out services. [65410]
§ Mr. MilburnThe 1984 Finance Act provided for Customs and Excise to make refunds to departments in respect of the VAT they pay on contracted out services. This was designed to remove a potential disincentive to contracting out services to the private sector, where this represented value for money for the taxpayer. Since 1996–97 these VAT refunds have been netted off against expenditure in departments' Estimates and Appropriation Accounts. The Government have reconsidered this approach and concluded that it is not consistent with the legislation governing the treatment of receipts, which requires most receipts of Government departments to be appropriated in aid or surrendered to the Consolidated Fund. We will therefore revert to the arrangements that applied prior to 1996–97. So long as cash based Estimates and Appropriation Accounts continue to exist refunds of VAT on contracted out services will be appropriated in aid, an approach which provides a greater degree of transparency.