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Church Building Repairs: Vat

Volume 622: debated on Tuesday 13 February 2001

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3 p.m.

What current proposals they have for the rate of value added tax to be levied on the repair of church buildings.

My Lords, the Government are continuing their discussions with the European Commission in relation to a reduced VAT rate for repairs to listed places of worship. A preliminary reply has indicated that the matter will be considered by the Commission in its general review of reduced rates, which will take place in 2003. In the interim period, the Government are considering special arrangements to help congregations to pay for repairs to listed places of worship.

My Lords, I thank the Minister for that reply. However, is he aware of not only the extreme distress but the grave financial situation in which parochial church councils find themselves, having relied on the autumn Statement of his right honourable friend the Chancellor? Those councils have spent, or have planned to spend, accordingly, but now find that they have not been given the reduction in VAT which they were promised. Supplementary to his Answer, can the noble Lord advise the House what the special arrangements are, from whom they emanate, and whether the money is merely going from one pot to another or whether it is new money that is being proposed?

My Lords, if the noble Lord, Lord Geddes, looks back at the pre-Budget report, he will find that the Chancellor's Statement was very cautious. He indicated that the Government were sympathetic and would put the case to the European Commission. He said no more than that. Under those circumstances, I believe that it would be unwise for people to spend money in advance of agreement on this matter.

As to the other special arrangements to which I referred in my original Answer, I do not believe that the noble Lord will expect me to give details in advance of the Budget, when it is likely that such special arrangements will be announced. However, I cannot even promise that that will be the case.

My Lords, can the Minister comment on the accuracy of the report in last Saturday's Daily Telegraph, which said that the Chancellor of the Exchequer,

"will shortly give churches grants worth about £20 million",
in order to deal with the problem of the time lag until European legislation on VAT changes becomes clearer?

My Lords, I am sorry to have to tell the right reverend Prelate that that report is pure speculation. However, I am interested in the figures which the Daily Telegraph gave because I, too, read the article. I believe that it is worth considering the matter in the context of the fact that English Heritage and the Heritage Lottery Fund are offering £25 million for the repair of historic churches in this financial year under the joint grant scheme; the Department for Culture, Media and Sport is offering £2.8 million—at least, it did last year—to the Churches Conservation Trust; and English Heritage has offered £3 million to cathedrals, totalling more than £30 million of grants. On the other hand, the Church's own best estimate of the cost of VAT paid for historic churches is approximately £20 million.

My Lords, will the noble Lord indicate whether the Government are giving further thought to the reduction of VAT on house repairs in general? In that connection, is he aware that, with guidance from the Treasury, on the Isle of Man such VAT has been reduced to 5 per cent? When will the Treasury help us to do that on the mainland?

My Lords, I am entirely aware that there is a perverse incentive in the fact that repairs are standard-rated, whereas alterations are zero-rated. This problem arose because in 1984 the then Chancellor of the Exchequer withdrew relief for alterations without withdrawing it for repairs. As I believe the noble Lord, Lord Ezra, knows, since 1977 our powers to introduce new zero-rates are extremely limited.

My Lords, will the Minister acknowledge the extraordinary cost-effective contribution made by the Church of England to our national heritage? Does the Minister consider it equitable that the burden of maintenance of some of our country's wonderful jewels—our churches—should be borne heroically by the volunteers in our parishes and by our worshipping communities when elsewhere in the European Union we find that the state intervenes, as does the general public?

My Lords, I am happy to confirm that, as the noble Baroness, Lady Wilcox, says, some of the glories—in some parts of the country, the only glories—of our architectural heritage are our historic churches. I pay tribute to the volunteers and fund-raisers who help to keep them in order. However, I must remind the noble Baroness of the figures that I have already given: we are giving in the region of more than £30 million in grants to historic churches., while acknowledging that the churches are losing £20 million in VAT.

My Lords, following on from the question of the noble Lord, Lord Ezra, is my noble friend aware that the French Government have reduced the rate of VAT on home improvements from 21.5 to 5 per cent? As a result, the take-up of work by reputable builders, who pay their taxes and whose customers pay their taxes, has increased by between 25 and 30 per cent. Did my noble friend see the report in the Sunday Times which stated that over the past few months alone members of the Federation of Master Builders have reported one MP, two Peers and a premiership football manager, all of whom have demanded illegal VAT-free cash refurbishment deals?

My Lords, I am shocked to hear what my noble friend said in his closing remarks. If he cares to give me further details, I shall see that, if they have done anything illegal, Members of Parliament and Peers are pursued properly under the law. However, I am aware of the reductions under Annex K of the 6th directive in relation to labour-intensive services. We did not take the view at the time, and we do not take the view now, that that is a particularly cost-effective way to encourage employment, even if it were on a permanent basis. Of course, as my noble friend Lord Faulkner knows, those reductions have been introduced only as an experiment for three years.