Clause 101 - VAT: refunds to health service bodies

Finance Bill – in a Public Bill Committee at 2:45 pm on 10 June 2014.

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Question proposed, That the clause stand part of the Bill.

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury)

Clause 101 will add Health Education England and the Health Research Authority to a scheme under the Value Added Tax Act 1994 through which VAT may be recovered. The scheme in the 1994 Act ensured that what would otherwise be irrecoverable VAT does not dissuade Government Departments and NHS bodies from contracting out activities if that would otherwise result in efficiencies of scale. The bodies that are the subject of clause 101 will replace two NHS bodies that are already entitled to recover VAT. The bodies have been established as non-departmental public bodies in the Care Act 2014.

Has the Minister made an assessment of VAT recovery arrangements for Government Departments and the economies of scale that are achieved? Such arrangements enable contracting-out activities. VAT recoverability often  comes up with regard to other aspects of public sector work. I have debated VAT recoverability and university research with the Minister before, and I would be grateful for his comments about VAT recoverability and whether it is achieving the economies of scale that we would all like to see.

Photo of David Gauke David Gauke The Exchequer Secretary

Clause 101 adds references to Health Education England and the Health Research Authority to section 41 of the Value Added Tax Act 1994. The clause provides continuity of VAT funding arrangements for those bodies now that the Care Act 2014 has received Royal Assent. Section 41(3) of the 1994 Act refunds VAT to Government Departments and a variety of NHS bodies named in section 41(7). These bodies include NHS trusts, health authorities, NHS England and clinical commissioning groups. The purpose of the provision is to ensure that what would otherwise be irrecoverable VAT does not dissuade Government Departments and NHS bodies from contracting out activities, if that would be more efficient. The clause makes consequential amendments that are necessary following the passing of the Care Act. It will add to section 41(7) the successor bodies to two health authorities: Health Education England and the Health Research Authority. The successor bodies have the same name, but a different legal status. The authorities are all included in section 41(7) but, as non-departmental public bodies, the successor bodies are not automatically included. Generally speaking, non-departmental public bodies are not included in section 41(7); instead, they are added individually on a case-by-case basis. The inclusion of the new Health Education England and the new Health Research Authority will ensure those bodies can recover the same levels of VAT as their predecessors, and it will ensure consistent treatment.

The hon. Lady raised the broader issue of VAT recoverability in the public sector. She referred to a previous occasion on which we debated it which, if my memory serves me correctly, was her debut as a shadow Treasury Minister. She had previously been a shadow Minister for higher education, so she was frighteningly well informed on that occasion, as she has been subsequently. All I can say at this point is that the Government fully support contracting out in the public sector when there is a good case for doing so on the grounds of efficiency. The Treasury is reviewing the provisions and expects to report at the autumn statement, so I do not think that there is much more I can say at this point. The clause makes one of several consequential changes to tax legislation that reflect reforms to the NHS and provide continuity of VAT treatment to certain NHS bodies, and I hope that it will stand part of the Bill.

Question put and agreed to.

Clause 101 accordingly ordered to stand part of the Bill.