VAT on Air Ambulance Fuel Payments

Mark Hoban Excerpts

Wednesday 11th July 2012 Commons Chamber

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

I congratulate my hon. Friend the Member for Hexham (Guy Opperman) and the hon. Member for York Central (Hugh Bayley) on securing this debate, and the more than 150,000 who signed the e-petition that triggered it.

I thank my hon. Friend the Member for Chatham and Aylesford (Tracey Crouch), the hon. Member for Bethnal Green and Bow (Rushanara Ali), and my hon. Friends the Members for Leeds North West (Greg Mulholland) and for York Outer (Julian Sturdy) for speaking. When the right hon. Member for Wentworth and Dearne (John Healey) spoke, I was waiting to find out whether he looked at this issue when he was a Treasury Minister, but he did not share that insight. My hon. Friends the Members for Rugby (Mark Pawsey), for South Dorset (Richard Drax) and for Hendon (Dr Offord) also spoke.

The hon. Member for Newcastle upon Tyne North (Catherine McKinnell) showed remarkable restraint in speaking for nine minutes before mentioning the five-point plan. Perhaps she should have shown more restraint and mentioned that this Government are deferring the fuel duty increase for which her Government legislated. She should be careful about the comments that she makes on this matter, because her Government’s record in introducing the fuel price increases that we have deferred or cancelled is nothing to boast about.

This is a good opportunity to explain the Government’s position on an issue that has generated a great deal of public interest. First, I want to reaffirm how much the Government appreciate the commitment of air ambulance charities. Since every other Member has named their local service, I will mention the excellent work of the Hampshire and Isle of Wight air ambulance service. We can all agree that, whether it is in Hampshire, Yorkshire, London, Cornwall or elsewhere, air ambulances play an important role in our society and we are very lucky to benefit from the valuable service that they provide.

I shall remind the House of the current position on VAT. It is a broad-based tax levied on final consumption, and businesses can recover VAT charged on supplies that will be used to produce products that will carry VAT. If a service is not charged for, the provider cannot claim back VAT, and that is the position of air ambulance charities.

Throughout the debate, hon. Members have mentioned their concern about the impact of VAT on air ambulance fuel and asked how it can be mitigated. One suggestion is that we seek an exemption from VAT for that fuel. Members, including the hon. Member for York Central and my hon. Friends the Members for Leeds North West and for Hendon, have drawn a comparison between air ambulance services and the provisions that apply to lifeboat services. The analogy between the critical life-saving services that both provide is clearly strong, but the relief from which the RNLI benefits relates not to charities or to life-saving services but to international transport. The RNLI makes good use of that, but it is not about life saving.

There is no equivalent provision for air ambulance services, or indeed for any other rescue services, and rectifying that would require a change to EU law. That would need unanimous approval by all 27 member states, and I am sure it will not surprise the House if I make the point that that is exceptionally difficult to achieve. The most recent discussions on reduced VAT rates took six years of charged negotiation to conclude. For that reason, I believe that there is little prospect of agreement on new zero VAT rates in the medium term, and the Government cannot legally introduce new zero rates without that agreement.

As my hon. Friends the Members for York Outer and for South Dorset noted, the air ambulance service comes in many shapes and sizes, and the VAT system supports different operating models in different ways. Charities that purchase their helicopters outright benefit from full VAT relief on the purchase cost, saving about £600,000 on the cost of a £3 million helicopter, whereas charities that lease their helicopters benefit from a similar relief on their leasing costs of about £86,000 a year for each helicopter. If the helicopter contractor makes no separate charge for fuel, the whole leasing cost is covered by the zero rate.

That situation has been likened to a zero rate on fuel for some charities and an unfair charge on others, but I disagree. Each charity is free to decide on the commercial operating arrangements it thinks best, so I would not describe the situation as an anomaly. Different operating models have different costs and benefits, and organisations of all kinds often lease their equipment because it is difficult, costly or risky to make a large up-front investment. I have seen no evidence to suggest that significant investment decisions are taken purely for tax purposes, given the many other substantial considerations that go into them.

The majority of air ambulances use aviation fuel rather than diesel, and aviation fuel for commercial flights is exempt from excise duties and taxed at a reduced VAT rate of 5% on each occasion when less than 2,300 litres is purchased. Although that is not specific to air ambulances, it represents a significant reduction in the cost of services for the majority of air ambulance charities, which use aviation fuel in their helicopters rather than diesel.

My hon. Friend the Member for Chatham and Aylesford came up with the typically ingenious suggestion of using the Value Added Tax Act 1994. However, I have to disappoint her, because the exemption to which she referred relates to relevant goods and accessories for ambulances. Relevant goods cover parts and accessories, but not fuel, as fuel is neither a part nor an accessory. It was an ingenious idea for dealing with the matter, however.

The motion suggests that there should be an investigation into what should be done. There are many merits to reviewing the position of air ambulances to see whether some consistency can be achieved, and in that context it is useful to consider two separate reviews that the Government have already conducted. First, on the London air ambulance, which was raised by the hon. Member for Bethnal Green and Bow and my hon. Friends the Members for Hendon and for Brentford and Isleworth (Mary Macleod), the Department of Health is working with other bodies to undertake a review of the capability and funding of emergency medical care of the type provided by the London air ambulance service. That follows the publication of the coroner’s report into the 7 July bombings. It is likely that the outcome of the review will have implications for other air ambulance services operating across the country. I can confirm that my officials will engage with the Department of Health on the review.

[Rushanara Ali]

Will the Minister indicate on what date we can expect the outcomes of the review and the publication of the report?

[Mr Hoban]

I do not have that information available but I will ensure that either my colleagues in the Department of Health or I write to the hon. Lady with it.

The second review that is being undertaken looks at the tax position of health care charities. The Secretary of State for Health is required by the Health and Social Care Act 2012 to lay a report before Parliament on matters that might affect the ability of providers of NHS services to carry out their activities. That report is expected to cover the full range of different providers, including charities, and will include taxation issues. Treasury officials will be actively involved in the review.

I therefore suggest that, rather than having a separate, Treasury-led review, the most efficient way forward is for the existing engagement to continue, and for the Department of Health and the Treasury to work collaboratively to consider the tax impacts of different funding models as part of the wider work already in hand.

[John Healey]

rose—

[Mr Hoban]

Perhaps the right hon. Gentleman will tell us whether he looked at the matter when he was a Treasury Minister.

[John Healey]

The Minister mentions the review under the 2012 Act, but it is a review of charities that carry out NHS services. The whole point about the air ambulance services is that they are not NHS services, although they play a great role in emergency health support. Therefore, they are unlikely to be covered by the second review. The Minister says that the review proposed in the motion is useful, but will he accept the motion and conduct the review it urges on him? I am still not clear about that.

[Mr Hoban]

I appreciate the right hon. Gentleman’s knowledge—he is a former shadow Secretary of State for Health—but my point is that the Treasury is working with Department of Health officials to ensure that the matter is covered by the review. I can confirm that, if it is ultimately not covered, the Treasury will carry out its own review. However, rather than having three reviews into air ambulances, I believe that two are sufficient if the second covers the tax issue. We are working with the Department of Health to ensure that that is the case. I can confirm to hon. Members that there will be a review and that the Government will not vote against the motion. Indeed, we believe it raises valid issues.

It would be possible in principle to introduce a refund system for air ambulance charities’ non-business activities, although it is important to consider that in the context of broader public spending, as I am sure my hon. Friends appreciate.

To refer to a point made by my hon. Friend the Member for Rugby, it is important for us to consider carefully how air ambulance charities can provide a better service by improving efficiency, and not just through refunds and tax breaks. Effective co-ordination of services could bring cost reductions that far outweigh the scale of a VAT refund on fuel. I am sure the House will join me in applauding such innovation and agree that we should continue to do all we can to improve this excellent service further. As my hon. Friend said, the air ambulance based in his constituency delivers a co-ordinated approach to providing the service across Warwickshire, Northamptonshire, Leicestershire, Derbyshire and Rutland. It has made significant cost savings and earned the transformational change award at the Orange national business awards last year.

I hope I have set out clearly my reasoning on why a change to the VAT law is impractical. I believe the best review on a level playing field for providers is being done by the Department of Health, but, as I have made clear, if that does not fully cover air ambulances, the Treasury will conduct its own, separate review.

[Hugh Bayley]

I am most grateful to the Minister for giving—