Mr Howard Flight (Arundel & South Downs, Conservative)

My question to the Paymaster General is, if section 33 of the Value Added Tax Act 1994 can be extended to museums, why can it not be extended to other charities, or even all charities? When that suggestion has been made in the past, the Government's position has been that article 6 precludes it. Another issue that arises from the legislation is whether the specified museums and galleries will be leaned upon to give up charging, and whether their grant in aid will increase sufficiently to cover the loss from ceasing to charge. Those are not legislative matters but background to the proposed change. Finally, will the Department for Culture, Media and Sport have a role in identifying the museums? It should know more about museums than the Treasury.

Mr Edward Davey (Kingston & Surbiton, Liberal Democrat)

I thank the Paymaster General for replying in such a positive way to our debate on clause 95, particularly given the time constraints. I wrote to her with a point about this clause from the Charities Tax Reform Group, to get clarification in the context of official advice. We, and the charities group, were concerned that if a person, in this case a charity, took up the special offer within the VAT refund scheme of being effectively zero-rated for VAT, but had previously sold assets when it transferred from being a business to a non-business, tax could be due and could be collected by Customs and Excise. That person would have had an incentive not to follow the Government's lead but to counter the Government's intention.

On 3 May the Paymaster General wrote to me saying:

``we accept that this should not happen of the bodies that will be the subject of the special VAT scheme. Customs and Excise are developing a workable solution to this so that when the museums and galleries in question do move to universal free access, there will be no clawback of the VAT correctly recovered while they have been charging for admission.''

The Paymaster General set out the reasons why that had not been covered in the legislation; they are incredibly complex, and involve three separate areas of VAT law. She went on to say:

``We have therefore decided to resolve this issue outside the current Finance Bill. Before the scheme is introduced on 1 September 2001, we will ensure that there are special arrangements in place for each museum and gallery affected in this way designed to suit their individual circumstances.''

It is important that we have that on the record, so that the staff of museums and galleries who read our proceedings do not have to worry about that point. In some cases it could involve hundreds of thousands, if not millions, of pounds. The Paymaster General's reply was extremely helpful and I thank her for her assistance.

Ms Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)

What a nice Committee it is this afternoon. Long may that last—although I have a feeling it is only a lull before the storm. I thank the hon. Gentleman for put my response on the record, so that it is clear.

I assure the hon. Member for Arundel and South Downs that extremely close consultation took place with the Department for Culture, Media and Sport on the issue of the list of the national museums and galleries to which the scheme would apply. We have to go slightly further than that Department. For one reason or another, other Departments sponsor national museums and galleries, all of which are being drawn together for a list that will be published no later than 1 September.

The hon. Gentleman's second question was why do we not simply admit the schemes to section 33. I am sure that he appreciates that section 33 provides for the refund of VAT to local authorities and similar bodies so that VAT does not fall as a burden on local taxation. To be covered by section 33, bodies must carry out a local authority-type function and have the power to levy directly on local taxation; that was the policy of the previous Administration, too. National museums and galleries do not undertake that type of function, so we shall publish a list of the museums that will have access to the scheme.

The hon. Gentleman asked why access to section 33 was so tightly controlled, but then he answered his own question. If it were not, everyone would want access, and that would not be permissible. That is the reason for our approach, which is entirely consistent with the arrangements that we can make within the nationally determined decisions in respect of the sixth directive. The exemption is, in effect, a grant.

Question put and agreed to.

Clause 96 ordered to stand part of the Bill

Clause 97 ordered to stand part of the Bill..

Schedule 30 agreed to.

Clauses 98 and 99 ordered to stand part of the Bill.

Schedule 31 agreed to.

Clauses 100 and 101 ordered to stand part of the Bill.