VAT on Air Ambulance Fuel Payments

Rushanara Ali Excerpts

Wednesday 11th July 2012 Commons Chamber

[Rushanara Ali (Bethnal Green and Bow) (Lab)]

I, too, congratulate the hon. Member for Hexham (Guy Opperman) and my hon. Friend the Member for York Central (Hugh Bayley) on securing this debate. I also want to echo the congratulations to Ken Sharpe on working so vigorously to get so many people to sign up to the campaign.

I want to focus on the contribution of the London air ambulance service, which is based at the Royal London hospital in my constituency. It was established in 1989 and does incredible work across London, providing critical care to those with serious injuries. The London air ambulance service has completed 26,000 missions since 1989. In March, I visited the service and heard about the amazing work it does. In 2006, the last Labour Government committed £1 billion of much needed funding to rebuild the Royal London hospital in Whitechapel, which included renovation of the helipad. In December 2011, the London air ambulance service moved to its new base, on the 17th floor of the refurbished hospital building.

Last Saturday we marked the seventh anniversary of the 7/7 London bombings, when terrorists detonated bombs on three underground trains, including one near Aldgate in my constituency, and a London bus. We remembered the 52 innocent people who lost their lives in the London bombings and the many more whose lives were changed for ever. It is difficult to forget the harrowing scenes of devastation and chaos across London that day. I would like to use this opportunity to pay tribute to our emergency services, whose response and professionalism following the 7/7 attacks saved the lives of many. In particular, I would like to focus on the work of London’s air ambulance service. Following the attacks, London’s air ambulance staff, who had been attending a monthly clinical governance day, were deployed immediately. London’s air ambulance service flew 26 helicopter missions to deliver urgent medical care and supplies to the scenes of the incidents across London, and the service’s medical teams treated or triaged more than 700 people. The service rightly received praise for its incredible work and quick response in the wake of the attacks.

At the coroner’s inquest into the 7/7 London bombings, Lady Justice Hallet recommended that London’s air ambulance should have its “funding and capacity” reviewed and said:

“Despite current financial constraints, London’s Air Ambulance has, since its formation, provided an invaluable service to the capital.”

The service has been deployed to numerous major incidents in London, including not only the London bombings but the Bishopsgate and Aldwych terrorist attacks, as well as the Southall, Paddington and Potters Bar rail crashes. Yet despite those recommendations, the London air ambulance service has received no increase in major incident funding. The service believes additional funding for major incidents to be a necessity, which would enable it to expand major incident cover.

However, responding to major incidents is just one aspect of the service’s work. It also provides pre-hospital emergency care to victims of serious injuries, attending road traffic accidents, industrial accidents, and stabbings and shootings. The service treats more than 2,000 critically injured patients on the streets of London each year. Without it, patients would not receive the critical care they need.

[Mary Macleod]

I applaud the hon. Lady’s enthusiasm for the London air ambulance service, which I share. The service is also supporting the Olympics and the Paralympics, on top of its normal work load, serving and supporting so many individuals—more than 10 million within the M25—as compared with many other air ambulances, which support far fewer people.

[Rushanara Ali]

I could not agree more with the hon. Lady. She has been working with me to highlight the work of the London air ambulance service. I will talk about the demands in the run-up to, and during, the Olympics in a moment.

The London air ambulance service has a doctor-led team that provides advanced medical procedures and leadership in situations in which a patient might otherwise die before reaching hospital. As London’s only helicopter medical emergency service, the team works incredibly hard to provide 24/7 emergency care services to the 10 million people who live and work in the capital.

Despite the incredible work of the London service, its funding is limited. Many people do not realise that it is a charity, as are many of the other air ambulance services around the country. At a time when it should be expanding its operational capacity, a lack of funding means that it is unable to do so. That will have an impact across London, and, as the hon. Member for Brentford and Isleworth (Mary Macleod) has mentioned, that is deeply worrying in a year in which millions of visitors will come to the city for the Olympics.

Compared with other cities in England and Wales and around the world, London’s air ambulance service lacks resources. It has just one helicopter and one team to serve 10 million people, compared with an average of one helicopter per 1.5 million people across the rest of the UK. Internationally, Paris has 12 teams and at least three helicopters, and Sydney has six helicopters.

London’s air ambulance service is currently funded through private donations and an NHS contribution, but much more work must be done to raise funds if it is to provide the level of service required to meet London’s growing needs. In these tough economic times, it is even more challenging for the service to achieve its funding objectives. As a charity, it relies heavily on donations from the corporate sector, and in 2011 donations and sponsorship made up 45% of the service’s overall income. The donations from organisations, charities and companies are welcome, and donors include organisations such as Virgin, Coutts and the London stock exchange. At a time of economic uncertainty, however, that funding is not stable, and it does not meet the funding needs of the service.

Contributions from the private and corporate sectors play a large part, but it is vital that the Government should meet their obligations to support the charity. The London service has received a long-standing donation of £1.2 million from the NHS, which represented 40% of its overall income in 2011, but I believe that the Government must do more. The impact of the Government’s VAT increase to 20% is being felt by services such as London Air Ambulance, which receives no support to cover the cost of VAT on aviation fuel payments. We are calling on the Government temporarily to reduce the rate of VAT from 20% to 17.5%, which would lessen the VAT bill for charities, including air ambulance services.

The London air ambulance service needs an estimated £3.9 million if it is to enhance and expand the service that it provides in the coming years. The necessity for the service to do that will only increase, and it is important that we take action now to ensure that the service can cope with future demand. The extra funding would enable the service to acquire and maintain a new helicopter in order to achieve 100% “up time”, so that if one helicopter required maintenance, another would still be operational. It would also allow the service to maintain medical and rescue equipment, fund medical innovation and invest in staff training, research and the charity’s infrastructure. That type of expansion would greatly enhance the service, benefiting Londoners and ensuring a sustainable model for the future.

The London Air Ambulance is a service that many of us take for granted. It is a service that many of us do not think of as a charity, and one that we would expect to assist us in an emergency. This is a call to the Government to reduce VAT to 17.5% and give charities such as London’s air ambulance service the support that they need. It is also a call to the private sector and the business community, in London and elsewhere, to invest in the air ambulance services and support their incredible work of saving people’s lives.

--- Later in debate ---

[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.