Clause 3 — Rate of value added tax

Part of Bill Presented — Shared Parenting Orders Bill – in the House of Commons at 8:15 pm on 13th July 2010.

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Photo of Andrew George Andrew George Liberal Democrat, St Ives 8:15 pm, 13th July 2010

With the leave of the Committee, I would appreciate the opportunity to talk to amendment 56 as well as amendment 57, which stand in my name and those of my hon. Friends.

Amendment 57 proposes to exempt certain groups from the impact of the proposed 2.5% rise in VAT, so that it would not apply to

"purchases of goods or services made by registered charities ...purchases of goods or services made by public authorities," or to

"renovations of dwellings in council tax bands of F or below".

The purpose of the amendment is to further the debate on an issue that I have been probing in both the Budget debate and in debates on the Finance Bill. In spite of the great speed at which the issues have been considered, we have had the opportunity both to review the evidence brought forward by the Treasury to support the proposed VAT increase and to discuss this with some of those affected in the sectors concerned.

I do not intend to detain the Committee for too long, but on charities, a certain amount of work has been under way for some time. It is perhaps worth while acknowledging that Governments of both parties over the past couple of decades have looked into the problem that the charitable sector has had with irrecoverable VAT. A number of attempts have been made to address it, and although charities have not been able to secure a special VAT status, the best way in which Governments have felt that they could be compensated-in the past, at least-has been through the gift aid mechanism. It is clear from the Exchequer Secretary's answers to questions that I have asked previously about the impact of the VAT rise on charities that the Treasury does not intend to make any exemptions for them.

The Charity Tax Group has published a paper since the Budget suggesting that an increase in VAT to 20% would cost around £150 million. Although I have not studied the analysis, I believe that that figure was arrived at on the basis of an extrapolation from 87 charities across the range of sizes. If the Government believe-and I would agree with them-that the charitable and third sector has a significant contribution to make to a number of social and economic measures to improve our society, they need to give it some consideration in the Budget.

As for the second of the measures, I know that various attempts have been made to estimate the likely impact of the VAT rise on public authorities. I have questioned local housing associations, for example, including Penwith housing association in my constituency-a relatively small housing association, but one covering the bulk of the stock in the Penwith peninsula, which is the Land's End peninsula, to most people who understand the geography of Cornwall; that is, the bottom left-hand corner of the UK. Penwith housing association has estimated that the VAT rise will add just over £150,000 in costs to its modest activities over the year, and that will affect it, as a local housing association performing an important public function.