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Value Added Tax (Historic Buildings)

Volume 19: debated on Friday 12 March 1982

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1.57 pm

I beg to move,

That this House believes that the impost of a 15 per cent. value-added tax levy on repairs and maintenance of historic and listed buildings should be removed since the charge discourages owners from carrying out essential repairs by raising the overall cost to far too high a level to be afforded; causes the owners to carry out repairs without seeking grant aid in order to minimise the scope of the work which they would have to carry out in order to qualify for a grant and which thereby puts the fabric of the listed building concerned at risk and encourages owners 'to make do and mend' without regard to permanency or appearance and which gives added incentive to demolish and rebuild, particularly in the light of the anomaly whereby new construction and alterations are free of this levy.

I hoped that I might not have needed to move the motion and that the Chancellor might have withdrawn the tax on the repair of historic buildings. I telephoned the Treasury to see whether I had misread the documents and whether the Chancellor was to withdraw the levy, but, unfortunately, he is not.

Following the election victory in 1979, in the Queen's Speech the Government promised to
"bring forward proposals to safeguard our national heritage of historic buildings and artistic treasures."—[Official Report, 15 May 1979; Vol. 967, c. 50.]
I welcomed the promise, but was soon disillusioned when the Treasury raised VAT from 8 per cent. to 15 per cent. on the repair and maintenance of historic and listed buildings.

The Treasury produced a bodgers' charter—the VAT guide to alterations, repairs and maintenance of historic buildings. The Government should be ashamed of it. It encourages moonlighting—amateur repairs of historic buildings to dodge VAT. It has been attacked by conservationists, spearheaded by SAVE, which wishes to abolish the tax on repairs of historic buildings.

Sir David Stephens, chairman of the Redundant Churches Fund and a leading conservationist, has said that the United Kingdom's VAT system actively discourages conservation. I believe him. I shall attempt to prove that it actually pays to pull down a fine historic building that is not in a good state of repair and to put up a modern building in its place. It is a stupid anomaly of this bodgers' charter that new constructions and alterations are free of the VAT 15 per cent. levy.

I should like to give some examples of the anomalies in the charter. It states that the creation of an integral garage out of a ground floor room in a building does not attract tax. One can change the character of a Georgian building by putting in such an alteration. One can build an extension to it or remove a staircase and reconstruct it in a different position. There is no VAT on those repairs.

If one wishes to repair or renew faulty or damaged items in a building, such as woodwork, flooring, guttering, slates, tiles and windows, if one wishes to treat timbers to eliminate or prevent woodworm or dry rot or if one wishes to repair or renew plumbing or drainage, VAT is added to the cost. The situation is too silly for words. Under the VAT system, one can build a swimming pool, a new construction, at a cost of £100,000 and the VAT is nil. However, if a cathedral appeals for £3 million for repairs, it has to pay a VAT levy of £391,000. It would be too silly if it were not so serious.

In January 1980, The Sunday Times reported that the villagers of Warborough in Oxfordshire had raised £2,000 towards repairs of their seventeenth century church tower at a local fete. Added to previous contributions, the proceeds of the fete brought the villagers within sight of the £40,000 that was needed. Three days later, the Chancellor of the Exchequer, in his first Budget, raised VAT from 8 per cent. to 15 per cent. The right hon. and learned Gentleman therefore increased Warborough's repair bill by £3,000. All the villagers' work at the fete, and more, went to the taxman.

St. Mary Magdalene, at Whipsnade, Hertfordshire, a fine small church dating from the sixteenth century, needed to raise almost £20,000 for repairs. The architect for the building estimated that VAT would fall on about three quarters of the cost. Yet the congregation collecting towards the restoration numbered only 40 people. The almshouses at Castle Rising, Norfolk, are listed grade 1 buildings dating from 1623. Urgently needed repairs to the medieval girdle wall are expected to cost £26,000. The whole of the work is subject to VAT.

The Redundant Churches Fund is effectively a national trust for redundant parish churches. By the end of 1979, 148 churches were vested in the fund. A sum of money jointly provided by the Church Commissioners and the Department of the Environment for the repair and maintenance of the churches totalled £2·9 million. But, following the increase of VAT to 15 per cent., £435,000 will have to be paid to the taxman.

There are other anomalies. A parish church, a group of almshouses or an educational institution does not receive any VAT relief. Potentially insensitive and unsympathetic alterations are encouraged by exemption from VAT while careful repair and maintenance is penalised. It is not only smaller buildings and churches that are affected by VAT. Some larger buildings, both in London and our larger cities, are affected. I take London as an example. Repairs to the fabric of all the buildings that make up the British Museum are met by the Property Services Agency of the Department of the Environment. Yet VAT is paid on all maintenance work on the museum, which seems rather silly. One Department gives money for repairs and another takes it back.

Most of the buildings of the British Museum date from the nineteenth century and large parts are at least 150 years old. The main building is of exceptional historic and architectural importance, being listed as a grade 1 building under the Town and Country Planning Act 1971.

The total floor space of the British Museum at Bloomsbury is almost 1 million sq ft and contains 70 galleries. Its contents are of inestimable value. Many of them are extremely vulnerable to damage by adverse environmental conditions, especially rainwater. The PSA spends about £1 million per annum on building maintenance work at the museum, of which £130,000 is paid in VAT leaving only £870,000 for repair work. Again, that is part of the silly system of one Department giving the cash and another taking it back.

The scale and age of the British Museum create many problems, as does the sheer volume of visitors, who create a great deal of wear and tear. To take only one of the problems, the roof area of the museum covers about 7 acres and varies greatly in age and method of construction. Most of the roof is more or less flat and there are numerous roof lights and junctions to the structure, any one of which may at any time develop a leak, and very often does. It is not surprising that as one leak is traced and repaired others appear elsewhere. Buckets and bowls are often seen collecting water; that is one reason why galleries are often taken out of commission.

If the roofs present one problem, the drainage system presents another. Over past years, the system has suffered disproportionately from a shortage of maintenance funds. The flooding in the bad weather of 1981 closed the basement area, which proves the point.

The British Museum occupies old buildings of great historical and architectural importance, but because of their scale they are difficult and expensive to maintain. Unless the building fabric and its services are properly maintained, serious damage could occur both to the building itself and to the valuable objects which it contains.

Furthermore, any deterioriation in the general appearance of the building will detract from its importance as a focus for the tourist trade and will diminish foreign visitors' image of Britain. At the height of the tourist boom in 1978 almost 4 million people visited the museum. In 1981 the figure was still as high as 3 million. Fifty per cent of its visitors come from abroad to look at our heritage. The British Museum is a major attraction to foreign visitors, whose impressions are greatly influenced by the general appearance of the building as well as by the quality of the exhibitions. It is not possible to calculate the total income from foreign visitors that is generated indirectly by the museum, but the museum's publications company has an annual turnover of about £1·25 million, of which some 15 per cent. is in direct exports.

The British Museum needs a considerable and continuing injection of funds to bring the building up to, and to maintain them at, modern standards. If those funds are not available, the buildings will deteriorate and the museum will be less attractive to tourists. To bring the buildings up to the standard that the nation and the collection deserve would cost an initial £4 million, excluding VAT. In the present economic climate that sum would be difficult to find, but as the museum is a registered charity it would benefit enormously from any relaxation of the rules relating to the payment of VAT.

If we wish to see how that tax has affected other large cities outside the capital, we can do no better than to turn to Manchester. Manchester is a go-ahead city, but it has great financial problems—many not of its own making. The city art galleries own seven major historic buildings, which house the magnificent city art treasures. Incidentally, Manchester could do with more buildings in which to exhibit such works. The Manchester fine art collection of oil paintings and water colours is rich in British art, particularly of the nineteenth and twentieth centuries. In total, there are about 14,500 works in the collection.

The gallery of English costume at Platt Hall has about 17,700 costume and textile items and the reference material in the library totals 17,500. The military collection is composed of the two regiments affiliated to the Manchester area and the collection is displayed at the Queen's Park museum. It was proposed that the military collection should be housed in a large building—built in 1906, as an extension to Heaton Hall—which has served in recent years as a large cafe. It could be adapted into a military museum, but unfortunately, because adequate finance has not been available for a variety of reasons, it has proved impossible for the city to repair adequately that spacious building. Its existence is threatened because it would cost £275,000 to repair it.

The beautiful main hall at Heaton Park was built in 1602 and it, too, has suffered over the years from lack of finance. It would cost a fortune to repair and restore the hall to its former glory. Needless to say, any materials used to repair the roof or to treat the rising damp would be taxed at 15 per cent.

Manchester has the expertise to repair and restore the building, but it does not have enough money to spend on those repairs, particularly with the extra VAT burden. Again, Manchester city owns the beautiful Wythenshawe Hall—a fifteenth century hall that has dry rot, wet rot, rising damp, penetrating damp and infestations of beetles of all descriptions. Much restoration work needs to be done, particularly as it has recently been the target of vandals, who have taken the lead from the roof.

Fletcher Moss, a small art gallery in Didsbury, has been closed for two years because it is in need of urgent repairs. Whatever the cost of those repairs, 15 per cent. VAT must be added to the total. In all, the Manchester galleries house, throughout the city, about £25 million of art treasures in beautiful historic buildings which need large sums of money spent on them for repair and upkeep.

Manchester does not have the cash. For the past four years the arts budget has been cut. This year, the financial situation was so grim that it was proposed to mothball the galleries to save cash. However, I am glad to say that that did not happen. It would be a tragedy if the galleries were to fall into the same neglect that caused the demolition of the Horsfall museum and which faces the Georgian house in the Round, known as the Round house settlement in Ancoats.

A conservative estimate of the cash needed to carry out immediate and necessary repairs and restoration work to the Manchester galleries has been put at £2 million. Even if the money could be found—and the Manchester authority certainly cannot find it—VAT would be imposed at the rate of 15 per cent.

Only this morning, prior to the debate, I received a letter from the Association of County Councils, which expressed its support for the motion. It told me that it had pressed the Government to rectify the anomaly by which VAT is chargeable on the repair and restoration of historic buildings, but not on new building. It agrees that the full charging of VAT for repairs to historic buildings acts as an obvious deterrent to carrying out work and reduces the effectiveness of grant given by local authorities. For example, an application was made to a county council for grant towards the cost of restoring a grade A building, which included the sum of £9,120 for VAT.

The association has taken up the VAT levy with the Department of the Environment, the Historic Buildings Council—which supports the removal of this anomaly—the Treasury, the General Synod, the Church's main committee, and even with the Chancellor of the Exchequer, without any success. The cost of implementing this measure amounted to about £150 million in a full year, according to the official Treasury estimates in 1979. Even allowing for inflation since then, the amounts involved must be small compared with other items of Government spending. The Secretary of State for the Environment has made repeated statements about the advantages of improving historic buildings, but the present system is a powerful discouragement to carrying out such improvements as is VAT at 15 per cent.

I have tried to show that the 15 per cent. levy on our architectural heritage throughout the United Kingdom is a dreadful blight. It discriminates ruthlessly against those buildings and owners least able to bear the tax. It does not just encourage neglect and destruction, but positively fosters the mutilation and disfigurement in the clumsiest fashion of our historic buildings. The Treasury argue that VAT is a broadly-based tax and that exemptions or exceptions cannot be made to particular categories without creating precedents for further demand. This week's Budget has given no offer to change the tax.

Money invested in the arts and historic buildings produces dividends of many sorts; not only the social dividend of providing the citizen with richer leisure opportunities and generally enhancing the quality of his life, but more tangible returns in stimulating tourism, contributing to the economy and raising national prestige. Our arts and historic buildings serve as a magnet which draws tourists to spend millions of pounds in the United Kingdom. Any form of neglect builds massive problems for the future.

2.18 pm

I shall reply briefly to some of the remarks made by the hon. Member for Middleton and Prestwich (Mr. Callaghan).

First, I congratulate the hon. Gentleman on choosing this important subject for debate this afternoon. The nation's heritage of historic buildings is of immense value to all of us and it is, indeed, a tragedy that the right hon. Member, East (Mr. Healey) imposed confiscatory levels of inheritance duty, which wantonly put so much of our heritage at risk.

Since the Government came to power they have tried to correct that balance and, as I shall seek to explain if time permits, they have, in that sense, fulfilled the undertaking given in 1979, to which the hon. Member for Middleton and Prestwich referred at the beginning of his remarks. I can confirm that the information that he obtained from the Treasury on the contents of my right hon. and learned Friend's Budget were correct. For that reason I am unable to invite the House to accept his motion, because the concession for which he argues is not best designed to achieve the purpose that he has in mind.

I know that VAT is not a popular tax, and no one wit h any responsibility for its operations could be in any doubt about that. However, which tax is popular, except to those who do not have to pay it? Unpopularity is one thing; the sort of damaging consequences referred to by the hon. Gentleman are another. I concede that the present borderlines of VAT on the construction industry, are not altogether comfortable—they never have been.

The hon. Gentleman may be aware that my right hon. and learned Friend announced in his Budget speech that we will restore the position on zero rating of certain specific types of alteration where the House of Lords ha .s deemed that VAT should have applied where it did not. However, to go further and in the direction that the hon. Gentleman is demanding would, I regret to say, pose insoluble problems of administration and also for the Revenue.

One of the problems that arises is that one Department, the Treasury, is taking back what another Department, the Department of the Environment, is giving. However, if we go by the opposite solution, as we did in section 15 of the original VAT legislation, which exempted local authorities in the provision of facilities for the disabled and such people from VAT, for the reasons that he has advanced, immediately the demand goes up. Charities that provide similar facilities should be treated in the same way. Therefore, nobody wins. I assure the hon. Gentleman of that.

At the present standard rate of 15 per cent. , VAT represents only about 13½ per cent. of the tax-inclusive cost of building repair work. It is hard to believe that that is a serious disincentive to the necessary work to which the hon. Gentleman referred. I also find it hard to believe that the removal of VAT would encourage owners of historic buildings to do the work that is now left undone.

In addition, there are a number of special reasons why the relief suggested by the hon. Gentleman would be inappropriate. There would be enormous administrative difficulties in defining the scope of relief. The hon. Gentleman's motion refers to historic buildings, but which building is to be defined as historic? If the criterion were to be inclusion in one of the lists maintained by the Secretary of State for the Environment, the difficulty is that the list is constantly changing.

A few years ago my brother had the curious experience of discovering that a couple of cottages that had belonged to him were listed, although they had been pulled down several years before. He never knew that they had been listed. Therefore, such a definition would not stand up for a moment.

Any relief by zero rating repairs and maintenance would cause great difficulties for traders and for the tax authorities controlling the relief in knowing which building was listed. A refund scheme for owners would throw an additional staff burden on Customs and Excise, which might run to several hundred additional staff. That is unacceptable when we are trying our hardest to reduce the level of Customs and Excise and other Government manning.

Selective relief, on the other hand, would, as always, create hairy demarcation problems. For example, if VAT relief were given only for repairs assisted by Historic Buildings Council grants, historic buildings owners who did not benefit from grant would have every reason to complain of double discrimination. Restriction of relief to repairs to grade 1 buildings would be criticised by the owners of other listed buildings. Relief for historic churches of the type suggested by the hon. Gentleman would fuel demands for relief for all church repairs.

On social grounds, many would argue that repairs to pensioners' homes or all ordinary house repairs are just as important as repairs to historic buildings. If that relief were given across the board, the cost would be no less than £350 million a year, which is not a revenue concession that we can contemplate now.

I do not believe that the removal of VAT is the best way of giving help for historic buildings. Some repair work can be accepted as necessary. However, much of it is discretionary, for example redecoration and the routine replacement of building fixtures. It would be impossible to attempt to distinguish between the essential and the discretionary. Therefore, building repairs and maintenance have always been subject to that tax.

Rather than spread relief indiscriminately in small amounts, which could happen if we accepted the hon. Gentleman's motion, we believe that it is better to concentrate the available resources where they are most needed. That is what we do, especially by means of historic building grants. The system of grants operated by the Historic Buildings Council under the auspices of the Department of the Environment ensures that the resources that the Government can make available go where they can be of most use.

Our record of providing £15 million in 1981–82 alone for direct assistance towards the repair and maintenance of historic buildings, their contents and the adjoining land, including such properties in conservation areas and town schemes, is one of which we can be proud. In addition, there is the assistance that is given direct by local authorities to the owners of historic buildings.

Historic buildings and heritage properties have been pretty handsomely treated in some respects in recent years. The hon. Gentleman properly devoted most of his remarks to a number of our most celebrated museums in London and Manchester and to historic churches. His motion refers to the far wider area of heritage homes and historic buildings generally in both the private and public sectors.

It was a tragedy when the right hon. Member for Leeds, East surged into office bursting with slogans about making the rich howl with rage. He suddenly woke up-it was almost too late—to the fact that if he did not do something quickly the British countryside would be littered with derelict ruins where once the architecture and collections, which had been the envy of our friends and neighbours overseas, had stood.

In the 1976 Budget the right hon. Gentleman proceeded to rush through a series of special reliefs from capital transfer tax for maintenance funds for historic homes. Typically, the concessions were so narrowly drawn that by the time he left office only a handful of such funds had been established. That is why in the 1980 Budget my right hon. and learned Friend the Chancellor of the Exchequer relaxed the conditions considerably. The main improvement, as the hon. Gentleman probably knows, was that future owners who put their property into a maintenance fund could get it out again, subject, in some instances, to tax charges.

The relaxations that my right hon. and learned Friend has introduced have greatly and demonstrably enhanced the usefulness of the 1976 legislation and have been widely welcomed by the interested bodies. They constitute a substantial fulfilment of the pledge to which the hon. Gentleman referred, which my right hon. and learned Friend gave at the time of the 1979 Budget.

I assure the hon. Gentleman that I am not unsympathetic to the problems that are faced by the owners of historic buildings, especially in respect of the costs of upkeep. However, I do not believe that the VAT relief that has been suggested is either desirable or practical. Since I have been involved in operating VAT legislation it has been borne in upon me week by week and day by day that every time a concession, which appears to those who advance it to be overwhelmingly unanswerable, is conceded new anomalies are created and additional arguments are automatically introduced in support of additional concessions going further and further down that road.

The base of VAT as an expenditure tax has already been considerably eroded. We have seen with our experience of direct tax that the more the base of a tax is eroded the more steeply it has to be applied where it survives. We had that experience with purchase tax and we do not want to go down that road with VAT. I concede that there are anomalies in the building sector and my right hon. and learned Friend has introduced provisions in the Budget to clear up some of them. This is an area to which we must give further consideration and reconsideration. I do not believe that the concessions that the hon. Gentleman is seeking would be the best way of providing assistance. It would have complexities of definition and applications which would render it unacceptable to Her Majesty's Government.

Motion, by leave, withdrawn.