Value Added Tax: Listed Places of Worship — Question
3:00 pm

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Lord Northbrook (Conservative)

To ask Her Majesty's Government whether they will reconsider the extension of the standard rate of VAT to alterations to listed places of worship and the restriction on the amount of VAT claimable on repairs to those places.

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Lord Sassoon (Conservative)

My Lords, the Budget removes a VAT distinction, which is notoriously difficult to apply in practice, between alterations to protected buildings, which include listed places of worship, and repairs to all buildings. The listed places of worship grant scheme, which makes grants towards the VAT incurred on works of repair and maintenance for listed places of worship, currently allocates £12 million a year. We are exploring options with the church authorities, including committing more money to the scheme, so that listed places of worship are not adversely affected by the Budget proposal.

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Lord Northbrook (Conservative)

My Lords, I declare an interest as chairman of my local listed church restoration committee. What progress was made at the meeting yesterday between church leaders and the Treasury to mitigate the reported £20 million VAT effect of these measures for listed churches, which is causing concern for church building projects throughout the land?

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Lord Sassoon (Conservative)

I am grateful to my noble friend for pointing out that there was an important meeting on this topic yesterday, led by the right reverend Prelate the Bishop of London and my right honourable friend the Chancellor of the Exchequer. My understanding is that they had a very open and constructive discussion. The Chancellor made it clear that the £5 million which the Government have committed to the listed places of worship grant scheme in the Budget is on top of the £12 million which the scheme already had. We accept, having seen the churches' numbers, that the VAT change will indeed be more than £5 million and that we need to commit more money, and discussions will continue next week to look at what the projected numbers and our commitment should be.

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Lord Newby (Liberal Democrat)

My Lords, does the Minister acknowledge that the VAT changes are particularly damaging to projects that are already under way? For example, for a project in Kingston, the church reckons that it may have to pay as much as £400,000 additional VAT as a result of this change, when it has already raised several million pounds. Can the Government, at the very least, give a commitment that schemes that are already under way and on which there has already been significant fundraising will not be disadvantaged by the more general proposals in the Budget?

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Lord Sassoon (Conservative)

My Lords, I confirm that there are indeed transitional arrangements in place for approved alterations to listed buildings, which cover contracts in place before Budget Day. Contracts in place on that day will retain the zero rate if the work is performed by 20 March 2013. Our consultation paper specifically asks for comments on whether the transitional period is sufficient. We will of course listen to any reasonable comments about these transitional arrangements and will consider whether any more generous arrangements could be implemented.

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The Bishop of Bath and Wells (Bishop)

My Lords, of the 563 churches in my diocese, 503 are listed-some 89 per cent. Their upkeep relies almost entirely on voluntary fundraising and support from their congregations. In promoting the big society, many wish to open those buildings to wider community use. What incentive does the Minister believe is being created for congregations to do so by making them pay VAT up front only to claim it back through a scheme that is not adequately funded? Would not a simpler and real incentive for local churches to improve their buildings be to retain the current exemption on VAT?

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Lord Sassoon (Conservative)

The right reverend Prelate raises some important points. I can give him only partial comfort, or the answer that he wants, in respect of some of his question. First, as I have already explained, we intend to make sure that the compensation number fully reflects the additional costs of the Budget change. The element that troubles us most is that under the previous VAT arrangements the incentivisation worked in favour of alterations of listed buildings as opposed to repair and maintenance. We do not want to see anything that incentivises people against repairing and maintaining and therefore preserving the core heritage features of the property, so we think that it is right to put alterations, repairs and maintenance on an even basis. Therefore, although I cannot give the right reverend Prelate the comfort that we intend to revisit that issue, I stress again that we want to make sure that the churches are fully protected against the impact of the Budget change.

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Lord Davies of Oldham (Labour)

My Lords, is this a good time to reduce demand for the construction industry? In January this year, its output fell by 14 per cent. It is true that there was a slight improvement in February, but in the first quarter of this year output from the construction industry is certain to fall, with all the implications that that has for economic growth. Can the Minister look at this issue again?

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Lord Sassoon (Conservative)

My noble friend was perhaps being excessively charitable to the noble Lord, Lord Davies of Oldham, in saying that he was always right on matters. I am afraid that on this one he has not got it right. As I explained, the Government are fully compensating churches for the changes in VAT so that there will be just as much money available to listed places of worship before and after the change for them to put into something that we want to protect-the ongoing repair and maintenance of our listed places of worship.