Charities: VAT

Lord Sassoon Excerpts

Thursday 13th January 2011 Lords Chamber

[Baroness Royall of Blaisdon]

To ask Her Majesty’s Government what steps they will take to allow Sue Ryder Care and other charities to recover VAT in the same way as other bodies providing public services.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, although local authorities, government departments, the NHS and certain other public bodies incur irrecoverable VAT, just as many charities do, on certain of their activities, it is the case that a small number of VAT refund schemes operate in the public sector. Charities already benefit from a range of tax reliefs and it is not proposed to introduce any general VAT recovery scheme for the sector.

[Baroness Royall of Blaisdon]

My Lords, I thank the noble Lord for his Answer and for the information that he provides. I understand that this is a long-standing problem, but it has been exacerbated by the rise in VAT to 20 per cent. Does the noble Lord agree that in the context of charities such as the excellent Sue Ryder Care, whose centre in Leckhampton I know well, being asked to provide additional public services as part of the big society initiative, some solution should be found to ensure that there is a level playing field between charities, local authorities and the NHS, when all are delivering the same or similar public services?

[Lord Sassoon]

My Lords, I certainly take the opportunity to commend the work that Sue Ryder and many other charities do. They are facing a tough time, as are many parts of society. We find ourselves in the regrettable situation that charities will be bearing the additional VAT. The whole of society is bearing the burden of the difficult decisions on deficit reduction. The charitable sector of course benefits from significant VAT and other tax reductions and exemptions to the tune of £3 billion a year. The question of a level playing field is important, but it is of a level playing field with the public sector, which itself cannot recover all its VAT. For example, in the National Health Service, only about 20 per cent of the irrecoverable VAT is refunded, and only on outsourced services. Equally, we must remember that there are commercial providers of social care and other services who would be disadvantaged if there was a special scheme for charities.

[The Countess of Mar]

My Lords, is it not rather unfair to people who donate to charities from their taxed income that, in effect, the income is being taxed twice? They feel that they are doing a good deed and can be rather unhappy that the money is going into the Treasury coffers.

[Lord Sassoon]

I reiterate that it is important that we recognise that there are significant benefits within the VAT system for charities and that we have exemptions from the general EU rules on VAT that are not enjoyed by charities anywhere else in Europe. It is also the case that other proposals for increases in taxes would have hit charities significantly higher. If, for example, the previous Government’s proposals on increases in national insurance contributions had not been reversed by this Government, there would have been a significantly higher burden on charities than the regrettable increase in the level of irrecoverable VAT. I do not think that we should take this issue in total isolation.

[Lord Lawson of Blaby]

Does the Minister agree with the principle that I set out when I was Chancellor that if one wishes to encourage charities through the tax system, which I approve of, it should be through concessions for charitable giving, not through relieving particular charities from tax?

[Lord Sassoon]

I agree that tax relief related to charitable giving is a critical part of the piece. Indeed, gift aid is running at some £1 billion a year and is a very successful and important scheme.

[Lord Morris of Manchester]

My Lords, the Minister will have seen my Question on the Order Paper on this important issue. Can he say now how much was raised from charities in irrecoverable taxation in the last year for which figures are available? What kind of inducement is it to charitable giving when moneys intended for deprived and often severely disabled children go instead to the Billy Bunters of the Treasury?

--- Later in debate ---

[Lord Sassoon]

My Lords, the increase in taxation from charities, as from other parts of hard-pressed society, including working families and businesses, is regrettably necessary to reduce the enormous deficit that the country has to bear. That is the regrettable state of affairs. It is not easy to consider where the burden should fall. Charities are, in this respect, sharing part of the burden. As I said, there are other tax proposals that the previous Government had that would have hit the charity sector, in this respect, harder. Charities get tax relief of the order of £3 billion through VAT, gift aid and other provisions.

[Lord Eatwell]

My Lords, I declare an interest as the master of a Cambridge college that is registered with the Charity Commission. I am sure that all noble Lords will know that changes in fiscal policy, with respect to both irrecoverable VAT and the fall in the standard rate of taxation, which has reduced the return on gift aid, have made considerable inroads into the support that government has in the past provided for charities through the fiscal system. We on this side quite understand that these are unintended consequences of fiscal policy, but we do not accept the negativism and complacency that the noble Lord has displayed. There is an easy answer to this question. He usually asks for policies because the Government cannot think them up themselves, so I will give him one: why are charities not allowed to make a return to the Treasury of the VAT paid, so that the Treasury can then apply a clear discount for charities, thus making its revenue from charities transparent, not disguised as it is at present?

[Lord Sassoon]

My Lords, we look at charitable-related VAT schemes and have a number under consideration at the moment. I am always happy to look at schemes. I stress that the Government have made special recognition of the importance of the charitable sector through the tough spending review. The Office for Civil Society will be spending around £470 million on programmes supporting the voluntary and community sector over the spending review period. The big society bank will have a further contribution to make and my right honourable friend the Chancellor announced a £100 million transition fund for those voluntary and community sector organisations that are affected by spending reductions. The Government absolutely recognise the support that is needed for this sector.

[Baroness Howarth of Breckland]

My Lords—