Hospices (VAT)

Debate between David Gauke and Martin Horwood

Tuesday 10th May 2011 Commons Chamber

[Mr Gauke]

If the hon. Gentleman will forgive me, I will come back to that point. It is kind of him to say that I am going through this in a detailed way. If I may, I will proceed and then come back to what we can do. It is worth making the point that the last time we tried to change the list of matters that can be zero rated for VAT, it took six years and some negotiation.

It is worth highlighting the help that Government provide for charities. We are limited in the support that we can give through changes to the VAT system, but it is important to understand that the Government can and do support charities more widely through the existing VAT system and in other ways. We are committed to retaining the existing VAT zero rates that apply specifically to charities, which provide a benefit of about £200 million a year. Those include VAT zero ratings for qualifying charities on sales of donated goods, for medical and scientific equipment, and for goods for use by disabled people. Charities are not charged VAT on the costs of advertising and public media. They also qualify for zero rating on the construction of certain buildings to be used for charitable purposes. All those zero rates are derogations from the normal EU VAT rules and are not enjoyed by charities in other member states. Charities also benefit from the more widely available VAT zero rates that are applicable to purchases.

The UK has one of the most generous tax systems in the world for charities. Our existing reliefs for charities are worth more than £3 billion a year. Gift aid is the largest single relief, and it is now worth nearly £1 billion to charities each year. Our position, which is in line with that taken by successive Governments, is that the most appropriate way of supporting charities is to encourage charitable giving, rather than to create a complex and burdensome system of additional reliefs or refunds.

[Martin Horwood]

As a former director of fundraising for a national charity, I tell the Minister that encouraging giving is easy to say, but more difficult to achieve, whereas a VAT refund would make a substantial and immediate difference. The problem of the burden on the charity would be easily overcome in exchange for the benefit. The important point, which has been made, is that as we commission more health care services, it will not be cost-neutral for the Treasury, but will give a windfall benefit to the Treasury. Surely something can be done so that at least new services that are provided gain a refund for VAT, and do not just deliver a benefit to the Treasury for no benefit to the community.

[Mr Gauke]

Again, hon. Members are raising fair points. To jump to the conclusion, we are looking closely at this area.

The help that we provide to charitable giving is important. Charities are central to our big society agenda. The 2011 Budget announced the most radical and generous reforms to charitable giving for 20 years, including reducing the inheritance tax rate when 10% or more of the net estate is left to charity. From 2013, a new scheme will allow charities to claim a gift aid-style top-up on small donations that they receive without gift aid declarations for up to £5,000 for each charity every year. Overall, 100,000 charities can benefit from the 2011 Budget changes to the tune of about £600 million.

It is also worth mentioning the transition fund that was announced at the spending review. It makes £100 million available to charities, voluntary organisations and social enterprises that are delivering front-line services and are affected by reductions in public spending. The fund provides grants of between £12,500 and £500,000 to help organisations make the changes necessary to thrive in the long term. Funding was made available in 2010-11 and 2011-12, and the fund is focused on helping organisations transit and adapt to the new funding environment rather than merely keep going. The first 18 awards were made on 15 February, with further awards in March, April and May.

The Government continue to examine ways of ensuring that VAT does not act as a barrier to the reform of public services, which was the point that the hon. Member for Cheltenham (Martin Horwood) raised. We are examining such options where they are open to us and affordable within agreed funding arrangements. For example, the Government announced in the Budget that we would continue to consult charities and organisations in other sectors to explore options for implementing the EU VAT exemption for cost sharing. I can tell the House that one of the options under consideration is to issue a consultation paper on the subject within the next two months, and we are exploring that possibility closely.

More widely, there are often ways of mitigating the impact of VAT within the existing system. For example, where local authorities and other public bodies enter into contractual rather than funding arrangements with charitable providers, it can greatly lessen any irrecoverable VAT incurred by those providers in many cases. It has to be acknowledged, however, that such an approach does not offer much scope for services that fall within the health exemption.

As I said earlier, I recognise that there is genuine concern about VAT among people involved in hospices. That was why, in March, I met the hon. Members for Scunthorpe (Nic Dakin) and for Leeds North West (Greg Mulholland) and people working in the hospice sector, including for Sue Ryder. Following that meeting I asked officials to continue the dialogue, and they have met subsequently with the intention of exploring any viable options. I hope that that provides some reassurance, although I cannot give more detail at the moment. I am certainly keen that we explore options.