Hospital Improvement Plans: VAT Rules

Edward Argar Excerpts

Thursday 9th January 2020 Commons Chamber

[The Minister for Health (Edward Argar)]

Madam Deputy Speaker, it is a pleasure to see you back in the Chair in your new role as Deputy Speaker and Chairman of Ways and Means.

I congratulate the hon. Member for Bristol South (Karin Smyth) on securing this debate. I know this is an important subject for her, as she has raised it on many occasions, but she is right that capital—the buildings our NHS operates out of—is actually an important subject for all of us. While it is a shame that there are not many Members in the Chamber, I hope that quality makes up for a lack of quantity. That is certainly the case with her speech, but it is a pleasure to see the hon. Member for Blaydon (Liz Twist)—who, if I recall correctly, held a debate on this subject almost a year ago—here as well.

The hon. Member for Bristol South was perhaps being unduly modest in her opening remarks about her knowledge of this subject and expertise in this area. While it is always a pleasure to see her speak about it, I always watch with a certain degree of trepidation, because she does know her subject extremely well. My knowledge of VAT and tax rules is rather more limited. Although I spent a period of time as a member of a primary care trust board many years ago, I suspect that my knowledge base will not be as deep as hers. However, I will endeavour to respond to all the points she has made. I recognise that the article she wrote that was published this morning on PoliticsHome highlights a number of these issues as well.

I will start by addressing the capital investment programme that the Government have set out and the impact of VAT on that, and then move on to the hon. Lady’s points about wholly owned subsidiaries and some of her subsequent points. In respect of the VAT position with the new health infrastructure plan hospitals—the new 40 hospitals we will be building—under the tax code VAT will be payable by hospital trusts involved in construction, reflecting that these are new builds and we would expect the appropriate HMRC regulations to be adhered to. However, as the hon. Lady touched on in setting out the background to the VAT rules, VAT chargeable on supplies of goods and services in the UK is collected by HMRC on behalf of the Government, so all moneys received in that way are reinvested in public services.

In addition, the funding provided for the 40 new hospital build projects and other capital schemes includes provision for the VAT charged by the suppliers involved in the developments. There may also be scope for an element of VAT reclaim on aspects of those projects, which will be determined and calculated on a case-by-case basis and in line with VAT regulations and rules. The overall funding allocation for the HIP has been built up by overall cost estimates of the schemes, inclusive of VAT. However, the final amount of VAT payable will be determined once the individual schemes have been fully scoped and costed. Current VAT rules will apply, and VAT recovery will be assessed for each scheme in line with the rules set out in section 41 of the Value Added Tax Act 1994 and the Treasury’s “Contracting Out Direction”. In broad terms, we have made allowance for VAT within the estimated costs of those schemes.

As the hon. Lady noted, it was outlined in the spring statement of 2019 that longer-term plans are currently being considered by Her Majesty’s Treasury to review the section 41 VAT rules, to potentially either allow for full VAT reclaim for NHS bodies on all their purchases of goods and services or remove VAT reclaims entirely from them. The VAT review or policy paper will publish a call for evidence in due course. While I know she would like me to give an exact date, I hope she will forgive me for not making announcements that are possibly more appropriate for Treasury Ministers to make. I will ensure that her request to know that date is conveyed to the Financial Secretary to the Treasury, and I hope that he will be able to respond to her swiftly with further information. In the context of the forthcoming call for evidence, I encourage her and others to contribute. She has a lot of knowledge and expertise in this area, and I suspect that in encouraging her to contribute I am pushing at an open door, because she will certainly do that. I know that the Financial Secretary will be pleased to hear from her.

The hon. Lady focused in both her article and speech on wholly owned subsidiaries, as did the hon. Member for Blaydon in her debate a year ago. While there can be VAT advantages of forming wholly owned subsidiary companies, we are clear that they cannot and should not be set up for the purposes of VAT avoidance, and we wrote to all provider trusts in September 2017 to remind them of their clear tax responsibilities. I may provoke the hon. Member for Bristol South, given her plea earlier, by saying that the origins of this position date back to 2004, subsequently consolidated in the National Health Service Act 2006, but she is right to highlight the changes in the 2012 Act. The position has evolved under Governments of both parties, but she is right to look at the future rather than where we have come from.

We expect all NHS providers to follow the guidance when considering any new arrangements or different ways of going down the wholly owned subsidiary route. There can be advantages in that route, as my predecessor, who is now the Brexit Secretary, set out, for employees in terms of flexibility and choice. There can also be commercial advantages for the NHS bodies setting them up, including things such as enabling providers to employ staff on more flexible and, in some cases, more generous terms and conditions—I emphasise the words “in some”; I see the hon. Member for Blaydon watching me carefully—as well as providing more efficient services in some cases to other trusts, being able to attract staff from the local employment market and giving greater flexibility to the operation of that organisation.

[Liz Twist (Blaydon) (Lab)]

The Minister said carefully that “some” staff may be advantaged. Does he accept that the vast majority of staff in low-paid jobs—often women—are not benefiting from this and are in fact losing out in pension contributions? When we met Treasury Ministers last year, we were told that it was for the Department of Health and Social Care to decide what its policy is. Will he now commit to redressing that?

[Edward Argar]

I thought I was going to provoke the hon. Lady to intervene, but it is none the less a pleasure that she has done so. She does highlight disparities, but I would say that it is wrong to suggest—even taking out wholly owned subsidiary companies within the NHS more broadly—that there is an exact commonality of terms and conditions, pension arrangements and so on; there are differences already.

What I will commit to do—I was going to mention this at the end, but I will say it now—is that I am very happy to meet both the hon. Lady and the hon. Member for Bristol South to discuss this more broadly in the context of Department of Health and Social Care responsibilities in the NHS, as well as the point the hon. Lady made about self-employed GPs and independent GPs. I am very happy to have that meeting with them. We may have to revert to the Treasury at some time on technical points, but I am very happy to have that meeting. I am very conscious that, in the two minutes or so I have left, there is a limit to how much I will be able to say, but I am happy to pick up other points in that subsequent meeting.

The hon. Lady is right about buildings. It is right that we are building 40 new hospitals and that we are investing capital in our NHS infrastructure, but she is also right to say that, yes, we shape those buildings, but in talking about place-based approaches, they shape us too and they shape our communities, so it is absolutely right that we get this right. On place-based commissioning, I was a cabinet member on Westminster City Council for many years—in the dim and distant past, when I had more hair and it was not grey—and I sat on the PCT at the same time, and where it works for local circumstances, there are clearly opportunities there as well. However, I do think that autonomy remains important, because while consistency and clarity are vital, so too is enabling local autonomy to address local needs and specific local circumstances, and I think we need to be a little bit careful about that.

I will conclude—with about a minute to go before you stop me, Madam Deputy Speaker—by saying I am sorry that we do not have more time for this debate, because it is an important debate. I am sorry there are not more Members here because it is something that would benefit all Members to be involved in. I look forward to any future such debates. I congratulate the hon. Lady on bringing this forward. She is right to highlight this issue, and I hope she will take an active part in putting forward her views to the Treasury review and call for evidence when that comes forward. As I say, I very much look forward to continuing this discussion—if not on the Floor of the House, in a meeting subsequently—and I hope and believe that we will be debating this at some point across the Floor of the House in the near future.

Question put and agreed to.