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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.
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