Cut the VAT

Cut the VAT

 

 

 

 

July 2012

Campaign against the withdrawal of zero-rate VAT for approved alterations to listed buildings: evaluation paper

Introduction

On 21 March 2012, in the Budget, the Government announced its intention to remove the zero rate of VAT for approved alterations to listed buildings from 1st October 2012. On the same day HMRC published a consultation document entitled 'VAT: Addressing borderline anomalies', which invited comments on several changes to the VAT regime including the changes to work on listed buildings. Several organisations in the Cut the VAT coalition launched a campaign to try and reverse the Government’s decision. Ultimately the campaign was unsuccessful and on 3rd July the Government used an amendment to the Finance Bill to introduce this VAT increase. However, some important concessions were won and some valuable lessons learnt. This paper provides a short evaluation of the campaign for the organisations involved.

Supporters:

Organisations representing a variety of countryside, heritage and construction industry interests offered support for the campaign. This varied support and its united voice is considered to be one of the campaign’s strengths.

21 organisations showed initial interest when a meeting of the Cut the VAT coalition was called in April. Subsequently 17 organisations signed a letter to the Chancellor of the Exchequer, representatives from 13 organisations attended a meeting with Treasury Minister David Gauke MP and 15 different organisations supported a joint response to the consultation. 18 organisations signed a letter to the Telegraph and 16 signed up to an open letter to the Chancellor which was printed in The Times.

It was noticeable that despite initial engagement the Royal Institution of Chartered Surveyors and Royal Institute of British Architects did not lend their support to the majority of the joint campaign activities for their own different internal reasons.

Other organisations outside of the Cut the VAT coalition were also seeking to influence the Government's decision in a variety of ways. These included English Heritage, the Heritage Lottery Fund and the National Trust. Support from ‘friendly’ government departments including DCMS, DCLG and the Office for Civil Society was limited and it was felt that support from the Scottish and Welsh Governments was weak.

The Church of England very quickly mobilised supporters to help make the case for protecting listed places of worship from the proposed increase in VAT. Although the campaign is likely to have stood a better chance of success if the Church of England had worked with and not against the other interests involved, it is felt that the split was unavoidable.  

Position and evidence base:

The organisations supporting the campaign were united behind concerns about the negative consequences of the VAT increase on the UK’s heritage and businesses delivering building services in this sector. It was felt that all organisations should try to present a united front to the Government and not be tempted to seek exemptions for any one particular building type. Therefore, the campaign’s position was to ask for a full reversal of the Government’s decision. It was acknowledged this would be extremely difficult to achieve and therefore it was necessary to consider other possible improvements to the situation presented by government, including:

  • A longer transition period for projects already underway.
  • An extension to the Listed Places of Worship Grants Scheme to include other building types.

As the campaign progressed it was felt the Government was likely to offer improved transitional arrangements in response to its opponents. Although there was some debate between supporters it was agreed that the campaign should maintain a firm position on asking for a full reversal of the decision rather than imply better transitional arrangements would be sufficient to meet the campaign’s demands.

HMRC offered the following justifications for removing the zero rate:

  • The zero rate is an anomaly that needs to be addressed.
  • Reliefs have been exploited by avoiders or non compliant businesses, allowing them to secure an unfair advantage over other businesses.
  • The zero rate amounts to a loss of revenue to HMRC.
  • The uncertainty and complexity of the current rules create costs for businesses and HMRC, including litigation costs where the two cannot agree.
  • The majority of the work covered by the zero rate consists of extension work which is not necessary for heritage purposes. A zero rate for alterations introduces a perverse incentive for change as opposed to repair.

It was agreed that the Cut the VAT coalition response would focus on the following counter-arguments.

A zero rate for alterations introduces a perverse incentive for change as opposed to repair: A twenty per cent increase in VAT, so suddenly applied, is not the appropriate tool for discouraging unnecessary alterations, which are already controlled through the planning system by the need for listed building consent. Indeed, it is thought that by withdrawing the zero rate the Government will remove any incentive for property owners to obtain the consent in the first place with obvious consequences for our historic buildings.

The zero rate amounts to a loss of revenue to HMRC: The removal of the zero rate will have a worse impact on the economy owing to the damage to our tourism industry, our historic environment and the negative impact on local building firms that will be unable to train apprentices and may even be forced to cut jobs or cease trading altogether. 

Some new evidence was provided thanks to an FOI request submitted by The Heritage Alliance, a review of listed building consents by the Listed Property Owners Club and research from English Heritage into listed building ownership. This helped to expose the weaknesses in HMRC’s evidence base and justifications for the VAT increase, but it was not sufficient and the Government continued to claim its own evidence was adequate.

It should be acknowledged that the campaign’s biggest weakness was the lack of evidence on the size of the market for alterations to listed buildings and the ability to start to quantify the economic, social and environmental value of heritage. Although we asked the Government to launch a further review of the impacts to allow the campaign more time to collect this important evidence, if the information had been available prior to the Budget the Government may have chosen to stick with the status quo.  

Case study evidence was collected by many of the organisations involved. However, this evidence largely supported the need for better transitional arrangements to support projects already underway. The information collected could not provide the powerful counter-arguments needed to provoke a u-turn.

Outputs:

Lobbying

Organisations working within the Cut the VAT coalition attempted to initiate insider negotiations with the Treasury. A joint letter was sent to the Chancellor on 1st May signed by 17 organisations. Subsequently, the signatories on the letter were invited to a meeting with Exchequer Secretary David Gauke MP to discuss the issue.

Some organisations also had meetings with the Minister for Tourism and Heritage, John Penrose MP.

The Cut the VAT coalition submitted a joint consultation response supported by 15 organisations, and many organisations also submitted their own consultation responses. 

Parliamentary activity was quite limited. Prorogation and the Queen's Speech in May curtailed the number of sitting days during the course of the campaign, which did not help. Many organisations sent briefings to a target list of MPs, which varied from organisation to organisation and from briefing paper to briefing paper, although organisations did share intelligence to support this activity.

The Heritage Alliance secured strong support from the Labour DCMS and Treasury teams and helped to keep the issue alive for the Opposition Party. The final opportunity MPs had to debate the measure was at the Report Stage of the Finance Bill. The only Bill amendment that supported the campaign's objective was withdrawn because it had been debated and defeated at the Committee Stage. 

Media

Notable media coverage for the campaign included:

'A tax on our heritage' - a letter to The Telegraph, 18th May
'VAT levy putting finest buildings at risk' - page 5 of The Times, 14th June
Letter to The Times - 14th June
'Loyd Grossman on VAT changes' - Country Life magazine, 25th June

It was disappointing that despite initial interest, The Times newspaper chose not to provide further coverage. This was particularly frustrating since supportive quotes had been provided by the following celebrities, George Clarke, Phil Spencer, Loyd Grossman and Jonathan Foyle.

The FMB put out three press releases during the course of the campaign. According to the media evaluation reports from May and June, these press releases were covered in 99 press articles reaching over 7.2 million people.

Public campaign

Traditional campaign structures were used to try to mobilise public support including information and advice designed to encourage people to write to their MPs. Organisations also encouraged their own members and wider networks to sign the e-petition on the Government's website 'Save our heritage: say no to VAT on work on listed buildings', which had been started by Wakefield Cathedral. The e-petition closed on 27th June 2012 with 13,467 signatures. Although it is felt more could have been done to increase the number of signatures, it is recognised that a significant amount of resources would have been needed to reach the 100,000 signatures that can trigger a debate in Parliament. In comparison, the National Trust petition against the National Planning Policy Framework received 250,000 signatures, but the petition was supported by all of the National Trust's properties and the online campaign specialists 38 Degrees. 

Outcomes:

Despite the best efforts of the campaign the Government has now passed legislation to remove the zero rate of VAT once and for all on approved alterations to listed buildings starting from 1 October 2012. The change was made in primary legislation during the passage of the Finance Bill 2012, which received Royal Assent on 17th July.

Two important concessions have been made since the original proposals were published. The Government has announced an extension to the Listed Places of Worship Scheme Grant Scheme, which will allow listed places of worship to reclaim some of the VAT paid on alterations as well as repairs. The amount available in the scheme has also been increased to £42 million. While the news is welcome, it offers no compensation to owners of listed buildings that are not used for religious purposes. In fact only 6.5% of listed buildings are religious, ritual or funerary. The Listed Places of Worship Scheme Grant Scheme is due to be reviewed again by the Government in 2015.

Importantly, the campaign has helped to win one concession, which will provide some protection for listed building projects currently underway. Where owners have applied for Listed Building Consent before 21 March 2012, the zero rate will now apply until 1 October 2015.
These transitional arrangements are much better than those originally proposed by HMRC on Budget day. They should also enable some stalled projects to get going again, since owners will be safe in the knowledge they have three more years to complete the approved alterations before the additional 20% VAT charge will apply.

The majority opinion was that the more generous transitional arrangements were granted in response to the consultation process. The Government is able to say it listened even if the heritage and construction sectors feel that there was no strong or consistent engagement with the parts of government that mattered. It is also felt the Government had expected to use the transitional arrangements as a point for negotiation from the outset. David Gauke's approach to the meetings he held with organisations involved in the campaign also support this conclusion.

The formal consultation period was also extended by two weeks, taking it from an 8 to a 10 week consultation period. This is still shorter than the 12 week period recommended in the Government's own best practice guidance and did nothing to address concerns that the consultation came too late in the policy development process to actually influence the policy outcome. Instead comments were invited on the implementation of this irreversible change to the VAT regime. However, it is unlikely 2 more weeks would have provided enough time to gather sufficient evidence to better quantify the impact of the measure.