The Heritage Alliance is extremely disappointed that the Government has refused – despite widespread opposition and strong challenges to the rigour of its evidence base – to reconsider its Budget proposal to remove zero rating of VAT on approved alterations to listed buildings, dubbed ‘the heritage tax.
The last chance to gain respite from the abolition of the VAT relief came and went during the Report Stage debate of the Finance Bill on 3 July. MPs of all parties piled in on the lack of evidence for the measure and the greater level of impact expected, with several citing The Heritage Alliance’s briefing near verbatim. But, despite our efforts, the campaign was lost.
Shadow Exchequer Secretary Rachel Reeves had tabled Amendment NC10 calling for a review of the impacts on jobs, living standards and businesses – exactly what the Alliance’s campaign had been calling for – and the Alliance had liaised with over 100 MPs to support the Amendment, but the Amendment was withdrawn without a division, with Exchequer Secretary David Gauke concluding: “New clause 10, which requires an assessment of the impact of the VAT borderline changes, is virtually identical to new clause 3, which was debated and defeated in the Committee of the whole House on 18 April, and to amendment 200, which was withdrawn in the Public Bill Committee on 21 June. Given that the amendment was debated and defeated the first time and withdrawn the second time, I suggest that the Opposition withdraw new clause 10 on this occasion.”
HMRC ignores the holes in its rationale
Most discouraging though is what the HMRC’s response does not cover. It does not attempt to answer any of the many challenges levied at its evidence base, which was shown to be extraordinarily weak.
And it makes no acknowledgement of the importance of listed buildings as a major part of our cultural heritage. In arguing that “it is hard to justify preferential treatment for altering a listed building over altering a non listed building” HMRC still fails to understand that heritage protection operates in the public interest, requiring all alterations to be approved in order to protect their integrity. Listed buildings are different to non-listed buildings – their protected status is a recognition of their immense public value: financial, social, cultural and aesthetic.
Finally, HMRC’s response does not admit this measure is at odds with other Government policies such as Asset Transfer and the Big Society. Even with the National Planning Policy Framework, which as recently as 27 March explicitly acknowledged the importance of finding economically viable uses for historic buildings. This measure knocks a gaping hole through a range of Government policies, yet Government appears to have no answer to the question of consistency.
HMRC ignores outstanding weight of opinion
All this is even more alarming when we consider that the Government ignored an overwhelming outcry over this measure. Of the 1493 responses to the six VAT measures under examination in the Government’s consultation (including the contentious so-called ‘pasty tax’ and ‘caravan tax’), over half – 818 – related to approved alterations to listed buildings. This oustanding response came from individuals (361) church representatives (177), businesses (90), professionals and professional bodies (52), charities (67), local government (28), trade bodies (18) and 25 others. Many will have come from Alliance members and Update readers – an excellent result of our far reaching networks. But this outcry did not translate into shifting the Government’s policy – a worrying confirmation of our suspicion that Government sees the heritage sector as an easy target which is not a vote-loser.
HMRC’s summary of responses accepts that “most respondents opposed the measure on a number of grounds”, yet concludes “HMRC are of the view that there remains a strong case for removing a relief that is illogical and poorly targeted”. HMRC goes on to suggest that support for the heritage is better channeled through expenditure than through “poorly targeted” tax relief. What public money that might be is left to our imagination – it would be naïve to think that the revenue derived from abolishing the zero rate, however small, will be returned in public funding to supporting the heritage.
Concessions not insignificant, but not enough
The major concession was made in May, not to retain the tax exemption but to allow listed places of worship to reclaim the VAT incurred on approved alterations as well as on repairs through the existing but increased Listed Places of Worship Grant Scheme. This fund, now £42m per year, will recompense 100 per cent of the VAT. The Alliance’s Historic Religious Buildings Group is working with DCMS on the operational details, and has responded to the DCMS and Treasury consultation on details of changes to the scheme.
A further concession was made in July on the implementation of the measure. Recognising the long-term nature of these capital projects, the end of the transitional period has been extended from March 2013 to September 2015, allowing qualifying projects to continue to benefit from zero rating for an additional two and a half years. Qualifying projects now include those where listed building consent had been applied for before 21 March 2012, as well as where a written contract was in place by that date or substantial reconstruction projects meet the 10 per cent test as before.
If the objective was to increase revenue, these concessions will put pay to that. Once the increase to the Listed Places of Worship Grant Scheme (£30m) and the extension of the zero rate for those projects underway until September 2015 are taken into account, the net revenue gain at least until 2015 will be negligible. As one Peer the Alliance worked with on the campaign commented, the heritage tax will do “much damage to the heritage while making no discernible difference to the deficit”.
The next steps
As Chair of English Heritage, Baroness Andrews, commented during a Lords debate covering the ‘heritage tax’, “this is not a problem that is going to go away”. The Alliance and colleagues will be holding a series of ‘debriefs’ designed to analyse the campaign and identify next steps, and we shall continue to liaise with Government and stakeholders on tracking the implementation and impacts.