Charitable Healthcare Providers (Value Added Tax Relief)

Nicholas Dakin Excerpts

Tuesday 8th March 2011 Commons Chamber

[Nic Dakin (Scunthorpe) (Lab)]

I beg to move,

That leave be given to bring in a Bill to provide for charitable healthcare providers taking on new responsibilities from the National Health Service to be able to recover value added tax on the same non-business supplies as the NHS in respect of those responsibilities; and for connected purposes.

I am delighted to have secured strong cross-party support for this Bill. This demonstrates how important the issue is, and how serious the House is about the crucial role that charities play, alongside the public and private sectors, in our society. Estimates suggest that the total spend by primary care trusts on outsourcing to third-party service providers is approximately £80 billion per annum. A significant proportion of those services will be delivered by the charity sector, and that proportion will increase in the coming years as the big society and public service reform agendas increase.

Health care charities such as hospices have a strong history of building relations with local communities and the Government in order to provide care for people who are nearing the end of their lives. This applies to independent hospices and larger hospice providers such as Marie Curie Cancer Care and Sue Ryder Care.

At this point, I must commend the work of Lindsey Lodge, the independent hospice that serves local people in the Scunthorpe constituency, which I am proud to represent. It provides a wide range of services for people living with life-limiting conditions such as cancer, multiple sclerosis and motor neurone disease. More than 300 volunteers from the local community donate their time and skills to support the work of the hospice and many more make voluntary financial contributions.

It will cost Lindsey Lodge hospice almost £2 million to provide its services this year. Two thirds will come directly from the local community through fundraising, legacies and donations. This funding picture is typical of the majority of hospices, with varying proportions of voluntary funds required. Charities such as the Lindsey Lodge hospice do not operate within a vacuum, but within their community context in partnership with local government, health and other agencies. Those partnerships are what create the climate for success. On average, adult charitable hospices receive 32% in statutory funding and they provide 80% of palliative in-patient beds in the UK. The passage of this Bill would show that the Government are serious about recognising the importance of such charitable services.

In a recent written question, the hon. Member for Keighley (Kris Hopkins) drew attention to the fact that, unlike the NHS or his local council, Manorlands, the Sue Ryder hospice in his constituency, cannot reclaim the VAT it has paid on non-business supplies. He rightly called on the Prime Minister to create a level playing field for health care charities. Under current legislation, the NHS is able to recover value added tax on non-business supplies, yet the charity sector is not.

In the rhetoric of the big society, the Government appear optimistic, encouraging the voluntary and community sector to take a larger role in society through the delivery of public services. This offers opportunity for new types of service delivery, building on the best that already exists, but we must not expect charitable agencies to do this for free or effectively to subsidise the Government from charitable donations. Figures produced by Sue Ryder Care suggest that for every £10 million spent by the NHS on outsourcing to the third sector, the additional cost burden will be in the region of £400,000. That burden will need to be absorbed by the charity.

I am sure all hon. Members will join me in applauding the contribution charities make to their communities. Under current rules, if services are transferred from the NHS to charities, their VAT bills will increase. This provides a VAT dividend to the Treasury from charities at the point of transfer, which is surely not fair.

Currently, when services are transferred from the NHS into the charitable sector, allowances for irrecoverable VAT are not made in the contract. This finds the charity in the perverse situation of having to cover VAT costs with charitable donations. Any efficiency savings finance the VAT gap first before benefiting patients and their local community. A recent example can be seen in the transfer of services from an NHS hospice to the charity, Sue Ryder, in West Berkshire. Services are due to begin transferring to the charity on 1 April.

The transfer will result in streamlined palliative and end-of-life care services for all those living in the area. The hospice will work alongside Sue Ryder’s existing hospice to provide integrated services. Figures produced for Sue Ryder show that the transfer will add 4% to the cost of delivering the services as a result of the different VAT recovery for the NHS and charities.

Sue Ryder projects efficiency savings of £0.3 million in the first year, yet these efficiencies will not all be invested in improvements in service delivery. Half the savings will be swallowed up by the Treasury as a result of the new VAT burden placed on the charity, which did not apply to the NHS as a provider. If efficiency savings are not realised, charitable funds will need to be used to plug the gap.

As the economy stagnates or contracts and consumer confidence falls, there is a very real danger that charities will be hit by decreasing donations and cuts in local government and national Government grants. Now is not the time to punish those forward-thinking charities that are willing to expand their services into new, innovative areas, formerly delivered by the NHS.

It is, of course, unrealistic to ask the Treasury to write a blank cheque and allow all charities providing NHS services to recover VAT, but it is realistic to look forward and level the future playing field. The proposals in the Bill will not cost the Government any more than the costs that are currently in the system. If the Government are serious about this aspect of big society thinking, they should welcome these proposals, supported as they are by Members in all parts of the House. Transfers of services to the charitable sector should not bring a tax dividend to the Treasury, but should bring an innovation and investment dividend to patients and their local communities.

The Government should stop the problem from worsening by allowing charities to which services are transferred in future to recover the same VAT on non-business supplies as the NHS. The proposals in the Bill are fiscally neutral. On Shrove Tuesday of all days, they represent an opportunity for the Government to give something up for the wider good and not just for Lent. In his Daily Telegraph article on 20 February, the Prime Minister said that the Government

“will still have a crucial role to play”

in

“ensuring fair funding”.

I am therefore sure that he will want to examine this funding anomaly.

The way in which the Government should address the anomaly is to amend section 41 of the Value Added Tax Act 1994 to put charities and the NHS on a level playing field, or to consider a form of compensation scheme for those taking on NHS services. That would create a level playing field in VAT between charities and the NHS. As things stand, the Treasury is set to make money from charities that choose to take on public services. Sue Ryder has called that

“an unintended consequence of the ‘big society’ and public service reform agendas”.

At present, I am inclined to agree. It is effectively a tax on the transfer of services from the NHS to the charitable sector. I urge the Government to address this inconsistency and thereby avoid the risk that charities and the public will start to view it more cynically.

Question put and agreed to.

Ordered,

That Nic Dakin, Stuart Andrew, Mr Kevin Barron, Chris Evans, Julie Hilling, Kris Hopkins, Martin Horwood, Greg Mulholland, Paul Murphy, Andrew Percy, Bob Russell and Jim Shannon present the Bill.

Nick Dakin accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 17 June and to be printed (Bill 159).