Brown must secure reduced VAT rate on Church repairs Oct03

A number of constituents across Suffolk have been filling my post bag with concerns about the future of reduced Valued Added Tax on church repairs.

 In his 2001 Budget, the Chancellor of the Exchequer Gordon Brown promised to cut taxes on church repairs from 17.5% to 5%. He falsely raised the hopes of church groups across the country with this announcement since firstly, he had to seek the endorsement of the European Commission.

As an interim measure, Mr. Brown established the Listed Places of Worship Grant Scheme, which returns in grant aid the difference between 5% and 17.5% of the VAT spent on eligible repairs and maintenance to listed places of worship.

The European Commission has been undertaking a review of all VAT levels across Member States. In July this year, it deemed Mr. Brown's tax cut on church repairs illegal. It would now take a unanimous decision by European Union finance ministers to change the law and allow Mr Brown to implement the tax cut he pledged.

After his failure to convince the Commission, Gordon Brown must now decide between continuing to fund the VAT reduction via the grant scheme, or reneging on the promises he made. But, the Government will not commit itself to assurances that the grant scheme will continue.

The framework for VAT is set out in the EU's Sixth VAT Directive. Member states are required to apply a standard VAT rate to the supply of goods and services fixed as a percentage of the taxable amount. The Directive also allows Member States to apply one or two reduced rates provided a number of conditions are satisfied.

A Council Directive in 1999 amended the Sixth VAT Directive by applying, on an experimental basis, a reduced VAT rate on labour-intensive services. It allows Member States to apply reduced rates to a maximum of two services, until December 31 this year. This amendment does not allow Gordon Brown to cut taxes on places of worship because only the renovation and repair of private dwellings can qualify for the reduced rate. The Chancellor was fully aware of these stipulations when he promised the VAT reduction on church repairs in his 2001 budget.

The Commission's review on VAT rates is designed to give all Member States an equal opportunity to apply reduced rates in certain fields in order to improve the functioning of the internal market and avoid potential distortions of competition. The Commission proposals will now be discussed by European finance leaders in the Council of Ministers. Mr Brown will be able to secure the reduction which so many Suffolk constituents have been writing to me about, if he can persuade other finance ministers to accept it.

Churches are a very significant part of the heritage of Britain, especially in West Suffolk, and I would expect Mr. Brown to deliver the promise he made in his 2001 Budget. I will be pressing him to ensure that he secures a reduced rate of VAT on repairs to historic churches.

Until a reduced rate is agreed by the EU, I will also be campaigning vigorously to ensure Mr. Brown honours his commitment by continuing to meet the cost of the 12.5% difference between the reduced and full rate of VAT offered under the grant scheme.