VAT (Listed Properties)

Lord Mackinlay of Richborough Excerpts

Wednesday 4th March 2020 Westminster Hall

[Craig Mackinlay (South Thanet) (Con)]

I beg to move,

That this House has considered VAT on listed properties.

It is a pleasure, as ever, to serve under your chairmanship, Sir Christopher. I apologise again to the Minister, whom I seem to drag to Westminster Hall on a fairly regular basis on tax issues. This debate is about VAT on listed properties, which come in all shapes and sizes. They can be modest country cottages, terraced houses, farmhouses and former industrial buildings being brought into some other type of use. They are spread across the entire UK.

[John Howell (Henley) (Con)]

To that list, I add churches, which are also listed buildings. Does my hon. Friend think that the grant scheme is adequate and properly replaces VAT in the way that it is carried out?

[Craig Mackinlay]

The listed places of worship grant scheme has been in place since 2001. It has been taken up by 89% of churches; one third take up the scheme every year; and most churches, over the cycle, have used it six times. It is working quite well, but obviously it is not as clean as a pure exemption. I will come on to analyse that further.

Listed properties are owned by the normal cross-section of the population. The beautiful town of Sandwich in my constituency is home to more listed properties than any other town in the country. It is one of the best-preserved medieval towns in England. I want to do everything I can to help to preserve it and the other great medieval towns across our country.

[Philip Dunne (Ludlow) (Con)]

I congratulate my hon. Friend on securing this important debate for those of us who represent areas like Sandwich that have a high preponderance of listed buildings. There are more than 3,000 in my constituency. They are often in rural areas where properties are remote, isolated and, in many cases, hard to heat. I hope that he will talk about the opportunity to reduce VAT to, say, 5% on renewable energy initiatives in listed properties, which the Minister might want to take into account in the forthcoming Budget or the comprehensive spending review later this year.

[Craig Mackinlay]

My right hon. Friend makes an important point for people who have older properties, which are expensive to heat. We have ambitions to be carbon neutral by 2050, so the current regime of charging full VAT on trying to do the right thing for the Government’s other ambitions seems somewhat perverse.

[Philip Dunne]

My hon. Friend will remember that it was introduced by the EU. We had to reduce the previous concession as a result of an EU directive. Now we are free from EU directives, we may be able to be more liberal in our interpretation of VAT laws.

[Craig Mackinlay]

We are branching into another area, but my right hon. Friend is correct. Just a few months ago, we were forced to raise the rating on small renewable units from 5% to 20% because we lost a European Court of Justice judgment. That is quite perverse in the current environment.

[Hywel Williams (Arfon) (PC)]

Does the hon. Gentleman agree that there was a missed opportunity in 2008, when the ECOFIN conference in Helsinki agreed that VAT could be reduced to 5% on labour-intensive industries, which include building repair and renovation? Despite the best efforts of hon. Members, successive Governments have refused to take advantage of that opportunity, which would have been of great benefit to areas such as his constituency and mine, where there is a high concentration of listed buildings, very low incomes and a reduced ability for people to renovate their houses.

[Craig Mackinlay]

I was not aware of that ECOFIN conference. Any country under the EU VAT regime has always had the ability to reduce VAT to 5% on items, but the problem is that it is a ratchet, so once VAT has been implemented on something, it can never return to zero. That has been a feature and problem of our VAT membership. We have had various discussions about that in the main Chamber on the so-called tampon tax.

[Hywel Williams]

That particular dispensation was for labour-intensive industries and, at that time, certain countries reduced their VAT. For example, France reduced VAT on restaurant meals; Italy reduced VAT on building renovation and repair; and Belgium reduced VAT on bicycle maintenance and repair. The reduction in Italy was an alleged example—a rare or perhaps unique example—of the Laffer curve in operation in that, when VAT was reduced, receipts to the state increased massively as people moved out of the dark economy.

[Craig Mackinlay]

The hon. Member shows his great wealth and breadth of experience of international VAT matters, and I stand educated.

I want to do everything that I can to help preserve our great medieval towns. Listed properties are not grand ancestral piles; a huge majority are very modest properties that are owned and loved by normal people. Private listed property owners are protecting the vast majority of Britain’s built heritage out of their own pocket, but the costs for doing repairs and renovations have risen sharply in recent years.

[Sir Oliver Heald (North East Hertfordshire) (Con)]

Does my hon. Friend agree that one of the great challenges with climate change and pollution is tackling some of the problems with the heating and insulation of such properties? If they are listed, there are features that have to be protected in the process, so it is an expensive business. It is very much in the national interest that these changes should be made, and it is only right that the Treasury should consider whether previous concessions could be reintroduced.

[Craig Mackinlay]

My right hon. Friend makes a very good point. There have been certain schemes over the years for wood pellet-type boilers, and grants have been available, but he highlights the unique features of older properties. It is often not feasible or possible to put in a cheap, efficient gas boiler, which other property owners might be able to do.

I turn to the obvious desire to insulate homes and make them more energy efficient. It is a very reasonable desire, because a lot of listed properties are draughty and old and do not have modern insulation. They are expensive to heat, which adds to the costs of being a listed property owner.

[Sir Oliver Heald]

My hon. Friend will be aware that North East Hertfordshire is one of the constituencies that has a high number of listed properties, many of them modest. Does he agree that the situation in urban areas is different from that in rural areas? If someone lives in a rural area with a significant number of listed buildings, there has to be some sort of level playing field to try to help them make the relevant changes.

[Craig Mackinlay]

My right hon. Friend makes a perfect point about country living, as opposed to living in towns, because cheaper piped gas is often not available. People might have Calor-style units in their garden, or they might rely on solid fuels such as coal. We had discussions, dare I say, with the Government last week and advanced various measures that I cannot say I fully agree with at this time.

In 2012, we got to the point where the zero VAT rating for authorised alterations to listed properties was removed. The owners of 500,000 listed buildings across the country, 98% of which are privately owned, then suffered a potential increase of 20% in anything that they do to keep their properties in a good state of repair. As listed property owners often say, an individual never really owns a listed property, but is merely borrowing it.

Before the 2012 Budget, the zero VAT rating was available as long as people had applied for the proper listed property consent with the local authority. As hon. Members know, such consent is often costly to obtain and requires input from specialists, including architects and building control, the navigation of the local planning system and a variety of interpretations by conservation officers. All of that is on a scale that is wholly different from that of people who do not live in listed properties, and such requirements all add costs—even before having the bespoke works required.

The all-party parliamentary group on listed properties, of which I have been the chairman, is currently being re-established. It has evidence that the addition of VAT reduced the number of recorded works being carried out to protect and maintain listed properties by some 30% in the first four years, between 2012 and 2016. There was a notable and recorded drop in applications for proper conservation works. One can only guess what was happening. Were people simply not bothering to go through the process? Owing to the extra cost, were they simply deciding to make do with where they were? There was a full 75% drop in applications over just three years, subsequent to the change in the VAT rules.

These works will be of ongoing economic benefit, often creating a new home where one did not exist before or converting an older property into a business premises. They are positive goods that would perhaps take pressure away from new builds on green spaces. I have spoken to many listed property owners who face financial hardship. Many have been forced to sell their home as a result of costs increasing by 20%. It has to be said that a tax on listed buildings is not a tax on the wealthy, but a tax on attempts to protect our cultural heritage.

I secured the debate to join thousands of listed property owners in calling on the Government to introduce a form of VAT relief. Preferably, let us go back to where we were: a reduction from the 20% rate back to zero, which would be a great place to be. That will be possible in the post-Brexit world, but we are currently in our implementation period, so 5% could be achieved at the Budget next week.

Maintaining listed buildings has a lot more in common with other kinds of building work that has a lower rate of VAT. Some energy-efficient measures qualify for the 5% rate—obviously a restriction was introduced recently, which seemed rather perverse. Converting houses into flats, and renovating empty properties that have lain empty for two years qualify for a lower VAT rate of 5%. The Government and Treasury quite rightly want to encourage bringing such properties into use, and that nudge effect is advanced through the lower VAT rate.

Of course, the biggest anomaly of all—a correct anomaly, in my view—is that we have had a zero VAT rating on new builds since we became a member of the EU. There is a long history to this type of debate, going back to the 1940s. We had the Town and Country Planning Acts 1944 and 1947, which implemented the listing system that we know today. Even back then, the Government knew that they were imposing upon listed property owners a new range of probably unwelcome regulations, and that they had to give something in return. The something in return was a zero VAT rating or, before 1972, sales tax exemptions for this type of work. It is essential that we have a lower rate of VAT on listed properties, because we want to give people the opportunity to make the necessary improvements to this country’s built heritage.

In the 2012 debate—that year’s Budget did not go down too well, because there were quite a few VAT measures in it—the then Prime Minister, David Cameron, said that the reason for the change was to prevent an exemption for a

“big swimming pool in a listed Tudor house”.—[Official Report, 18 April 2012; Vol. 543, c. 319.]

That was a fairly thin argument, because I do not think it was taken up by too many of the 500,000 listed property owners. If such behaviour was going on, we could have exempted that from the zero VAT rating in isolation.

[Hywel Williams]

Perhaps I can reinforce the hon. Member’s point by declaring an interest. When I bought my listed house some 20 years ago—very cheaply, I should say—it came with a name from my children. They called it the pizza house, because it came with added mushrooms growing out of the walls. It certainly did not have a swimming pool, but I, like everyone else, had to pay 20% VAT on the renovation. I think that strengthens the point that he is making.

[Craig Mackinlay]

The hon. Member makes that point well. Such properties need significant renovations that are not the norm when buying newer-type properties. We need to make listed buildings properties that people want to own, to spend money on, and to do the right thing by maintaining them. Maintenance costs for those properties can simply huge, so offsetting some of that cost would make a meaningful impact.

What is VAT there for? It was always designed to be a tax on consumption. Painstakingly maintaining a national heritage asset should not be considered consumption, but action in the national interest. Not only is the economic cost of the work often more expensive than other work, the VAT is an additional tax for doing the right thing. Removing the VAT does not give money back to the owners; it simply means that the Exchequer does not gain a little bit from the maintenance of the fabric of the nation.

Across the country, the built environment of our great towns and cities drives tourism and the continuation of many historic building skills. Government policy in the national policy planning framework, as well as guidance from Historic England, state that heritage protection must enable buildings to stay in active use and alterations can support that. If owners make changes to their properties without any impact on historic features that is considered a positive outcome, as it enables the continued use of such properties. The old way of removing VAT by zero-rating the renovation was simple, easy and reasonable. There is no reason not to return to that pretty simple scheme.

Hon. Members have mentioned energy efficiency. The type of energy efficiency required of older buildings is vastly different from more modern buildings. Materials are likely to be different, and the skills required to make such properties more energy efficient are different. We do not want those listed properties to fall out of use, and support would help to keep them in use. As has been accepted within other parts of the VAT code, renovations can be at a lower rate of VAT if properties have been out of use for two years, so reductions are not unusual.

Works on listed buildings are often carried out by tradesmen who specialise in conservation work. They are often small local businesses, rather than big corporates, so a reduction in VAT would increase correspondingly the amount of activity and would be a boost to a small and declining sector. Cutting VAT would encourage investment in skills in those types of artisanal works, and could encourage more young people into a sector that struggles to recruit. The increased taxable profits in those businesses would benefit the Treasury in corporation tax and income tax receipts. Cutting VAT would prime the pump in that whole area.

It is estimated that, through tourism, heritage across the country contributes £31 billion of value added to the economy. Those homes make our towns desirable places to visit, whether they are in Sandwich or in the constituency of Bath, which is represented in the Chamber. Who benefits from that tourism? Local businesses. There is not much in it for the public, who are busy maintaining their own properties rather than attracting tourists.

An interesting example is the Isle of Man, which has been through a similar process, following an argument similar argument to one that I am advancing. The Isle of Man has reduced VAT on such repair work to 5%, but only for the labour element. Some 96% of the Isle’s construction firms have reported increased workloads; 43% have reported taking on more staff; and 40% reported that their clients were having work done that they would otherwise have put off or not had done at all. There was a significant move away both from the owners having a go and carrying out work with which they are not fully conversant, and from rogue traders and cash-in-hand deals, which are not too far away from most street corners. The Isle of Man scheme was meant to be an experiment but, owing to its success, it is now permanent.

The Listed Property Owners Club keeps vast records on activity in the listed property market. There has been a drop in listed property applications to local councils and in works being undertaken. Figures from Historic England show that cost was one of the biggest reasons for works not being carried out. The numbers are significant: in 2017, 30% of people said it was just too costly and that they were not going to do the work at all. Another reason is that specialist local skills are dying out. In 2017, 17% of people could not get works done because they simply could not find a qualified trader. Historic Houses suggests that £1.3 billion of outstanding work to listed properties is being put off or not carried out at all. That is money that people would want to spend if they could afford it and if VAT were reduced.

I have not been quiet on this topic. I corresponded with the Minister just a few weeks ago, and I can anticipate some of the arguments that he may make in response. He might say that the rationale for the removal of the zero rating was to restore or to address a VAT anomaly, but we already have anomalies, with zero-rated new builds and the two-year lower VAT rate for bringing a property back into use. He might say that it was unfair that some people got a relief, while others did not. We are not talking about normal properties, however. We are talking about unique skills, because very expensive bespoke repairs are often required.

Getting new PVC windows done is VAT-able, but there are a vast number of companies that can do that and it is a cut-throat industry. The approach to a listed building is different, because it will often need bespoke wooden frames made at three or four times the price. That is an anomaly, and I am asking for an exemption from VAT on those bespoke works. Even without the VAT, those bespoke works would still be far more expensive than most standard products that are taxed at the 20% rate.

The old VAT relief used to nudge people towards the painful experience of applying for listed property consent, because saving 20% on a repair bill was seen as a good thing. That made sure that conservation works were up to the proper local standard, because there was an incentive. A worry is that people are undertaking inappropriate repairs to their properties to save money and, because enforcement by the local authority is highly unlikely, they are willing to take that risk. That is not a good place to be; I want to encourage people to do the right thing with their properties.

Another scheme that has been running for a very long time is the listed places of worship scheme, which was mentioned by my hon. Friend the Member for Henley (John Howell). Through Government grants, the scheme pays for the VAT that listed places of worship suffer—that could be implemented in lieu of a full zero rating. The scheme seems to work, and 89% of such places have used it. Over the period, many churches have used it five or six times, and a third of all churches use it annually. The Treasury might say, “It’s complicated and cumbersome”, but 13,000 applications have been managed effectively. It seems to work—if that is a method HMRC will consider—but the simpler method would be to go back to what we had before, which was zero rating if the proper listed property consent had been granted by the local authority.

To summarise, we can achieve what I would like to achieve by two means: either we go back to where we were before the 2012 Budget; or we go to a scheme akin to the listed places of worship grant scheme—so by means of a grant, which might make it targeted and would certainly prevent the swimming pool in the Tudor mansion. Now we are not so bound by rules on VAT, we have an opportunity. We can create our own framework that is right for our country, and I would like the Treasury to be part of people doing the right thing—improving, maintaining and repairing their properties. I have heard no great reason why the perceived anomaly was an anomaly at all, given that many charitable institutions receive VAT relief and other building works have a variety of VAT reliefs. We could push training, skills and profits into declining trades, and unleash a lot of pent-up expenditure into a market that is part of the good fabric of the country. Next week, I will be delighted to hear about some movement of support.

--- Later in debate ---

[Craig Mackinlay]

I thank all Members who took part in the debate. I want to clarify one area: the Minister said that a lower rate of VAT applies to certain energy-saving measures, but, according to my understanding of the types of properties under discussion, that is available only to those in receipt of a broad range of benefits. I understand that the lower rate is not available to those not in receipt of benefit.

[Anneliese Dodds]

My understanding is that there is still a reduction but it relates to the labour-materials ratio in the cost of the overall installation. There is a question about how many schemes fit within that, and the answer is possibly not very many.

[Craig Mackinlay]

I thank the hon. Member, who has clarified that it is a complicated area. I thank the Minister for his comments. Dare I say it, but I think I will be disappointed next week.

Question put and agreed to.

Resolved,

That this House has considered VAT on listed properties.