VAT (Listed Properties)

Wera Hobhouse Excerpts

Wednesday 4th March 2020 Westminster Hall

[Wera Hobhouse (Bath) (LD)]

I congratulate the hon. Member for South Thanet (Craig Mackinlay) on securing this debate, which is very relevant to my constituency. I have already had many discussions with relevant bodies, in particular the UNESCO world heritage site body, on the need to get to net zero. I am especially worried about listed buildings in the context of the climate emergency.

That is an important issue, particularly for my constituency. With about 5,000 listed buildings, Bath has the highest concentration in the UK other than here in Westminster. The Bath and North East Somerset—or BANES—Council has the highest number of listed building consent applications, at 700 last year. In Bath, the wish to continue and maintain our built heritage is very much alive, but there is a burden on those who own the buildings. I am very much aware of that.

That situation is not a coincidence. I am proud that Bath has been a pioneer in protecting buildings of interest since the 1880s. Listed buildings and how to maintain our built heritage is very much a Bath issue. As the buildings age, the challenges of preserving them have grown. In addition, we now face the challenge of the climate emergency, so the urgency of upgrading listed buildings has only grown.

The housing stock in this country is our largest producer of carbon emissions and millions of homes will need to be made much more energy-efficient over the coming decades if we are to have any chance of achieving net zero. That poses a significant enough task for most homeowners but, for those who own the 2% of total housing stock that is listed, the challenge is greater and more expensive, as we have heard. This debate has to be about not the swimming pool, which might add value to a property, but the maintenance of heritage and tackling the climate emergency.

Listed buildings are likely to be older and therefore less insulated, and to have less efficient heating systems than other properties. Coincidentally, though, older properties keep cooler, so if we look at the climate emergency and overheating, sometimes the listed building might provide an answer. Previous generations knew well how to keep cool. I have the privilege of sometimes being invited into beautiful properties in Bath, and have talked about the shutters that still exist in some of the older buildings. Previous generations knew how to use shutters effectively. It is important to work with people who own listed buildings and are interested in the history of how we used to live, and for people to put their mind to understanding the history and often the benefits of what previous generations knew about healthy living.

If the Government are to take their net zero obligations seriously, financial support and incentives are vital to reduce carbon emissions from listed buildings. The simplest way, and a necessary first step, for the Government to ease this financial burden is for VAT relief to be extended from simply covering alterations to applying to all renovations and improvements in listed properties, especially where aimed at reducing carbon emissions and getting to net zero.

Extending VAT relief would help the thousands of private owners of listed buildings in Bath and beyond to preserve important historical properties and to tackle the climate emergency. I do not want to argue with the hon. Member for South Thanet about whether it was worth leaving the European Union so that the 2%, the listed building owners, can get VAT relief, but it would be somewhat perverse—or hypocritical—of the Government not to use their freedom to look at VAT relief on listed properties in this country. Britain attracts thousands—millions—of tourists every year because of its wonderful built heritage. We need to ensure that we preserve it and, at the same time, to take our climate change and net zero obligations seriously.

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[Anneliese Dodds (Oxford East) (Lab/Co-op)]

I thank the hon. Member for South Thanet (Craig Mackinlay) for securing today’s debate, and for his work in the all-party parliamentary group on listed properties to highlight the issues faced by people who own such homes. This interesting and well-informed debate has made it clear that the treatment of construction work is one of the most complicated areas of VAT law, where there is a lot of confusion that produces, no question, a lot of transaction cost and issues for people interested in trying to repair their homes.

It has cropped up a little in the debate that there are still certain circumstances in which the 5% VAT rate applies to construction work on listed properties. VAT relief may be possible for VAT-registered contractors on a conversion of a non-residential property into a dwelling; where a domestic property has been empty for two years prior to the work; for conversions where the number of residential units changes and becomes more intensive; where there are changes to introduce mobility aids for the over-60s; and for changes linked to a social purpose, for example if social housing is put in listed properties. Zero per cent. VAT also applies to certain kinds of work for disabled people. All those reliefs are targeted; they ensure that properties do not go unused and can be properly adapted for elderly and disabled people.

The debate has been about whether we need a targeted change in relation to repairs to listed properties. On a bit of a tangent, there was a little discussion about VAT on the installation of energy-saving technologies. I agree with the comments of the hon. Member for Glasgow Central (Alison Thewliss) in that regard—she was spot on. The comments by the hon. Member for Bath (Wera Hobhouse) about the listing system in Bath and what it has achieved were very interesting, but I question whether a high cost for introducing energy efficiency and renewable energy is unique to the listed sector.

Others mentioned their personal circumstances; I live in an ex-council property that cannot have cavity wall insulation because it does not have cavity walls. The only thing that could be done would be to clad it in brick, which would be pretty expensive. I will not say that that is of the same complexity as many of the changes that might be needed in listed properties, but we need to look at energy saving overall.

[Wera Hobhouse]

rose—

[Anneliese Dodds]

I am not implying at all that the hon. Lady would be against broader changes for other housing, if that is why she wants to intervene. I know that she is a champion of those schemes in Parliament.

When it comes to this specific relief, I share the concerns of the hon. Members for Arfon (Hywel Williams) and for Glasgow Central about the impact of the changes on low-income areas—also picked up on by the hon. Member for South Thanet—and the lack of a level playing field between new build and existing listed buildings. Again, because of the existing relief system, if they have been lying unused for a couple of years, or if they are conversions from industrial use, they would already be covered by reductions.

I have a question for the Minister about another aspect of the current regime: I understand that there is a zero VAT rate for substantial reconstructions of listed properties if they proceed from a shell. I would like him to tell me whether HMRC has done any work to consider whether that might have led to the kinds of activities that, sadly, are too well known to us as MPs, whereby a listed property ends up having a strange fire at some point and its insides are gutted. It would be interesting to find out whether HMRC has done any work on that.

There have been a lot of changes to VAT over recent years. Any further changes need to be extremely well evidenced and justified. VAT is the third biggest revenue raiser of the different kinds of tax. We need to consider the dead-weight from proposals of this sort and whether they are appropriately targeted. I accept that reducing VAT probably would be an incentive for additional repair work, but we need to consider whether that is the right mechanism. I was pleased to hear the hon. Member for South Thanet compare this proposal with the system for churches, which does seem to be appropriately targeted. We would need to look at that in relation to questions about, for example, repairs in low-income areas or among people who do not have the means to make such changes.

On the hon. Gentleman’s comment about the reduction in the number of firms that can carry out specialised repairs to listed properties, we have seen a reduction in the number of small building firms generally. It could be that that is correlated with what has happened more broadly in the economy. That is a worrying development whatever part of the building trade it occurs in, but we may need to parse the reasons for that reduction, which may be tied to the general state of the property market and the recovery from the financial crisis.

Finally, I am sure the Minister is sick of me saying this, but we need a better evidence base generally for whether tax reliefs perform what they were set out to do. We have figures for about only 111 of the around 326 tax expenditures that are set out by the Government; it is likely there are more that are not covered. Bodies such as the International Monetary Fund state that we should have as much scrutiny of tax reliefs as we have of spending proposals. I think that is sensible. Although I accept that applying for a grant scheme requires bureaucracy, claiming many of those tax reliefs requires an accountant, which is an additional cost for people. We must consider carefully whether the proposed relief would be appropriately targeted.

Again, I congratulate not just the hon. Member for South Thanet but all Members who participated in the debate. I found it illuminating, and I hope that the Minister provides answers to some of the questions that were posed.

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[Wera Hobhouse]

Would not it therefore make sense just to define a little more what the VAT relief is for, rather than scrapping it for everybody?

[Jesse Norman]

Of course those are two entirely separate things. To remove a relief is to remove a very blunt and general instrument that is, by its bluntness and generality, open to abuse. In this case, it had the contradictory effect of potentially disincentivising repairs, because people focused on extensions, which was directly contrary to the purpose of the legislation. However, as has been recognised with the listed places of worship fund, there can be scope for a more targeted intervention through funds rather than tax reliefs. That is the other option we were given by my hon. Friend the Member for South Thanet.

As my hon. Friend knows better than probably any other Member, VAT is a broad-based tax on consumption, and the standard rate of 20% applies to the vast majority of goods and services. There are exceptions to the standard rate, but they are strictly limited by domestic law as well as by fiscal considerations. Hon. Members will appreciate that we are not short of requests for VAT relief in the Treasury. We have VAT reliefs for repairs and improvements, but of course that includes repairs to damage caused by floods or by the desperate events that have necessitated re-cladding of buildings for health and safety reasons. In total, we are presently dealing with about £40 billion of requests for relief, many of them triggered by the recognition that we are leaving the EU and seeking to exploit that fact for other purposes. We must place this proposal in that category.

It is estimated that introducing a relief for the repair and maintenance of all buildings would cost the Exchequer something like £4 billion a year. We do not have an estimate for listed buildings, but, as was pointed out, there are more than 450,000 of them in the UK, so such a relief would undoubtedly be very substantial in quantum. Of course, that is a constraint on what we can do.

Let me address the remarks by the hon. Member for Oxford East (Anneliese Dodds), who was commendably direct and straight about what exists: the 5% rate for the recovery of properties that have been empty for two years. She is absolutely right to point out the target issue versus the dead-weight cost, which I also highlighted. She is also right about our concerns, reflecting wider considerations on the state of the economy, and the need for a better understanding of the factual base for reliefs. Perhaps I can give her some comfort.

As the hon. Lady pointed out in response to my right hon. Friend the Member for Ludlow (Philip Dunne), who is no longer in his place, there is a relief available for the installation of energy-saving materials on residential properties, whether listed or unlisted. As she mentioned, we have measures to incentivise the use of listed buildings for residential purposes, as well as to increase the overall number of dwellings. Those measures cover listed buildings, so there is scope to support them in some circumstances.

I turn to some of the specific points made. My hon. Friend the Member for South Thanet pointed out that the relief is not directly comparable to its predecessor. The question of targeting is therefore central to what we have discussed. There is fairness, because listed and unlisted buildings are treated in the same way. The hon. Member for Glasgow Central (Alison Thewliss) said that the task for us all is to protect the homes that people live in, and of course an enormously larger number of people live in unlisted homes than in listed homes. The tax system tries to respect and acknowledge that intuition. It would be difficult to narrow the scope of a relief. Therefore, if one was to go down the path of a fund—my hon. Friend could raise that for a future fiscal event—such an approach could be a much closer fit and be accommodated within existing planning frameworks.

A point was made about anomalies. Of course, the tax system is full of anomalies and the question in many ways is which anomalies one seeks to eliminate—my hon. Friend wryly chuckles. Many of those anomalies exist in the nature of reliefs, and it would be an odd Financial Secretary indeed who wished to resolve an anomaly by creating another relief.

As a Government, we are committed to supporting the preservation of historic buildings and homes and the social and cultural contribution they make to our shared history. It is boilerplate but important to say that the Treasury keeps all taxes under review and is always willing to hear the case for what can be improved and refined. Even though we do not, at this time and for the reasons given, plan to change the VAT treatment of renovations or repairs, I thank everyone who has contributed to the debate.