VAT Relief (Talking Newspaper Associations)
(Limited Text - Ministerial Extracts only)
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The Economic Secretary to the Treasury (Andrea Leadsom)
I am grateful for the opportunity to speak in this debate. I would like to start by congratulating my hon. Friend the Member for Milton Keynes South (Iain Stewart) on his kindness and generosity in securing this Adjournment debate on a very important area of support for people who are vulnerable by virtue of being visually impaired. It is very important that we do all we can to support them. The Exchequer Secretary would normally respond to a debate on VAT. I am speaking on his behalf, but I will do my best to answer my hon. Friend’s questions.
The Government value the important contribution talking newspaper associations make to ensure that blind and severely disabled people can independently remain informed and up to date on current affairs. On the issue of tax itself, I reassure hon. Members that charities are at the heart of the Government’s ambition to build the big society, enabling people to play an active role in their community. To help support this, the Government provide support for charities primarily through more than £4 billion a year in tax reliefs, of which VAT relief makes up £300 million.
Reliefs from VAT are strictly limited under EU law. As hon. Members may know, when the UK joined the European Community in 1973 we successfully negotiated to keep our existing zero rates on items such as children’s clothing, most foods and physical books, newspapers and journals—a derogation from which most other member states do not benefit. Two zero rates of VAT are relevant to talking newspapers. First, a zero rate of VAT is applied to talking books and newspapers for the blind. However, this zero rate is limited strictly to specifically adapted magnetic tape and apparatus designed to reproduce speech for the blind and severely disabled people in our community. Many talking books and newspapers for the blind, as my hon. Friend pointed out, are no longer produced on magnetic tapes and so this relief cannot apply to them. EU VAT rules do not permit member states to extend the scope of existing VAT reliefs or to introduce new ones. As such, it is not possible to amend this zero rate to include talking newspapers that are not on magnetic tape.
My hon. Friend asked whether we can just change that. The European Commission is undertaking a review, including a public consultation, of member states’ application of reduced VAT rates. Among other matters, it is looking into the principle that similar goods and services should be subject to the same VAT rate, and that progress in technology should be taken into account in this respect so that the challenge of convergence between the online and the physical environment is addressed. This principle is regarded as an openness to consider a reduced rate for goods and services such as e-books and newspapers. However, if the Commission did decide to take this view, article 98(2) of the EU VAT directive, which currently excludes electronically supplied services from a reduced rate of VAT, would need to be removed. As most talking books and newspapers now use mainstream technology, I have to tell my hon. Friend that they cannot easily be distinguished from other sound reproduction equipment that is used by the general public. Talking books and newspapers for the general public do not benefit from a VAT relief and therefore attract the standard rate of VAT.
The EU has challenged and commenced infraction proceedings where it has identified member states that have allowed reduced rates, including zero rates, on general purpose products, or where they have extended existing reliefs to include them. However, the Government considered that it was important to ensure that talking books and newspapers for blind and disabled people continued to benefit from a VAT relief. Her Majesty’s Revenue and Customs therefore reviewed the legislation and considers that talking books for the blind could come under an alternative zero rate of VAT: group 12(2)(g) in schedule 8 to the UK Value Added Tax Act 1994, under relief for aids for the handicapped. The zero rate of VAT applies to talking newspapers and books if: they are supplied to a blind or disabled person for their personal or domestic use; or if they are supplied by a charity that makes them available for such use by blind or disabled people. This relief applies to items of equipment such as CDs and memory sticks for books and newspapers that are designed solely for use by a handicapped person. This relief is limited to supplies of physical goods and cannot be extended to downloaded newspapers where the supply is a digital service. This is, as I said, because article 98(2) of the EU VAT directive specifically excludes “electronically supplied services” from a reduced or zero rate of VAT.
Turning now to the progress in technology and electronic newspapers more broadly, EU VAT law does allow member states to implement reduced rates of VAT of no less than 5% for certain goods and services listed in annexe 3 of the EU VAT directive, at the discretion of the member states.
One of those reliefs is the supply of books on all physical means of support, newspapers and periodicals other than material wholly or predominantly devoted to advertising. This may sound like it should include electronic newspapers, but, as I mentioned, the EU VAT directive specifically excludes electronically supplied services from the reduced rates of VAT. This means that, where talking newspapers do not fall under the zero rate of VAT as an aid for a disabled person, the UK charges the standard rate of VAT, at 20%, on electronic newspapers and the zero rate of VAT on physical newspapers.
On the related and very important topic of electronic or e-books, many Members will probably be aware that, since 2011, France and Luxembourg have chosen to levy a reduced rate of VAT of 7% and 3% respectively to bring them in line with their VAT rates on physical books. This is creating competitive distortions to economic operators in other member states, and there has been pressure from the industry for the UK to reduce its VAT rate on e-books alongside them. The EU Commission, however, has begun European Court of Justice infraction proceedings against France and Luxembourg and has formally instructed them to apply their standard VAT rates to supplies of e-books. If the UK were to reduce or zero rate e-newspapers, it is extremely likely that we, too, would be infracted.
Furthermore, reducing the rate of VAT on e-books or e-newspapers would be likely to create borderline issues in the wider electronic services market because problems of definition could lead to a widening of the relief through legal challenge and industry changes. This would put revenue at risk in the UK market, which is currently worth over £2.5 billion a year.
The Government remain firmly committed to our ability to maintain the UK’s existing zero rates as we recognise their importance for social reasons. EU law does not permit member states to extend the scope of existing VAT reliefs or introduce new ones. Zero rating all talking newspapers that might be used by the general public, as well as by blind or disabled people, would be an extension of the relief. The EU Commission’s position is clear that talking newspapers, which do not fall under the existing zero rate of VAT, attract the standard rate, as they are electronically supplied services. The UK’s rates of VAT on talking newspapers are therefore in line with EU law and there is no intention to change that, other than in tandem with the Commission’s own review that I mentioned.
I hope that my hon. Friend the Member for Milton Keynes South will now have more clarity about when the zero rate of VAT can be applied to talking newspapers for blind and disabled people, and that he and other hon. Members will be reassured that we support the sector and that we will continue to do everything we can to support it.
Question put and agreed to.