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Dr. Marek : Congratulations to the Government are in order because they have taken heed of what was said in Committee and of the views expressed on both sides of the House. The Government are now willing to accept the commission expenses of certain life assurances. From reading the amendments I gather that the Government will go a little further and that existing commissions will be safeguarded. Is the insurance industry happy with that, as I suspect that it will mean some extra book-keeping? The amendments mean that people who entered into contracts before the Finance Bill will not have their contract commissions or expectations changed. I welcome that. There are several amendments in this group and I should be grateful if the Financial Secretary would say something about them.
Mr. Norman Lamont : The amendments make two relaxations in the rules which provide for life assurance acquisition expenses to be spread for tax relief purposes over seven years. Both, as the hon. Member for Wrexham (Dr. Marek) said, relate to the treatment of commissions.
The first picks up a point made by the hon. Gentleman in Committee, which had also been put to us by the
Column 1035industry. The Bill provides that all commissions should be treated as acquisition expenses. That is right as a general rule, but the hon. Gentleman had a fair point when he suggested that it might bear somewhat hard on commissions paid to life assurance agents for the regular door-to-door collection of premium, which is a feature of industrial life assurance business. For that reason, we propose that commissions on that type of business should be taken out of the normal rule and treated as acquisition expenses only where they are incurred for the purpose of acquiring business rather than the commissions that are collected each year.
The Bill as it stands applies the spreading of relief to all commissions laid out after the end of this year, to whatever policy they relate. The industry has suggested that this would disrupt the expectations of offices and their existing policy holders because it would apply to future commissions paid in respect of policies already in force on Budget day. We see some force in this and propose that these commissions should not be subject to spreading, except when they relate to subsequent variations of pre-Budget policies. 7.30 pm
The hon. Member for Wrexham asked whether the insurance industry was happy with the amendments. I think that it will be content with the second purpose which I described. As to the first purpose--the treatment of the acquisition expenses of the industrial business--it is right and fair to say that it is satisfied with that. There might have been an argument about whether that treatment should have applied to other home service business, but there is a considerable problem of definition. It is my understanding-- I hope that I am not misrepresenting the Association of British Insurers-- that, in the end, it was content with that position.
Dr. Marek : I am grateful to the Financial Secretary for that explanation and I am glad that my understanding of the amendments is right. I am prepared to maintain my warm welcome for them. Amendment agreed to.
Amendments made : No. 101, in page 65, line 6, at end add-- (1A) The exclusion from paragraph (a) of subsection (1) above of commissions in respect of industrial life assurance busness shall not prevent such commissions constituting expenses of management for the purposes of paragraph (b) or paragraph (c) of that subsection. (1B) Nothing in subsections (1) and (1A) above applies to commissions (however described) in respect of insurances made before 14th March 1989, but without prejudice to the application of those subsections to any commission attributable to a variation on or after that date in a policy issued in respect of an insurance made before that date ; and, for this purpose, the exercise of any rights conferred by a policy shall be regarded as a variation of it.'. No. 102, in line 8, after securing', insert
on or after 14th March 1989'.
No. 103, in line 9, leave out already made' and insert issued in respect of an insurance already made (whether before, on or after that date)'.
Amendment proposed : No. 72, in page 146, line 11, leave out one or more'.- - [Mr. Norman Lamont.]
Mr. Norman Lamont : It is an absolutely trivial amendment. It corrects a minor drafting defect in clause 171, which defines, in subsection 6, an exempt gift. Although the gift is singular, as presently drafted it is exempt by virtue of "any one or more" of the various inheritance tax exemptions. It can be exempt only under one of the exemption provisions, and the amendment reflects this. Amendment agreed to.
in either or both of the following ways, namely--
Amendment No. 107, in line 3, insert--
(4A) Zero-rating shall also apply for extensions and alterations to village halls and other facilities used similarly in providing social and recreational facilities for a local community.'. Government amendments Nos. 37, 38 and 42.
Mr. Lilley : As you, Madam Deputy Speaker, will know, in implementing the European Court of Justice ruling, we have throughout sought to minimise the burden, especially on charities. Unfortunately, village halls represented a particular problem. In this context, I should declare a vested interest. I am the son of parents who throughout their lives have been concerned with the local village hall and it would be more than my life was worth if I had not sought every means to try to interpret the ruling in a way that was favourable to village halls.
However, after a considerable scrutiny of last year's court judgment, we reluctantly concluded that it was not permissible to retain zero rating for fuel, power and new construction for village halls and similar charitable community buildings, essentially because, although charitable, they appeared to be engaged in business as they were making supplies and hiring themselves out for a consideration. A letter of 17 March from Madame Christiane Scrivener, the European Commissioner for tax matters, showed that the Commissioner might entertain a different interpretation of the judgment. I wrote to Madame Scrivener asking for clarification, and gave the Finance Bill Standing Committee an assurance that, if the Commission confirmed that it would not oppose the reinstatement of zero rating, the Government would bring forward any necessary amendments to the Finance Bill.
Madame Scrivener's reply suggested that, although continued zero-rating for supplies of fuel and power to
Column 1037village halls was ruled out by the court, the Commission would not raise legal objections to retaining the zero rate for the construction of village halls. The amendment therefore seeks to reinstate for the construction of charitable community buildings the zero rate which was abolished on 1 April as a consequence of last year's court judgment.
The amendment is confined to buildings run by charities. It covers church halls, village halls and other community buildings providing similar social and recreational facilities for a local area. It also extends to buildings such as cricket pavilions and changing rooms, constructed for charitable playing fields and recreation ground associations.
The VAT construction clauses of the Finance Bill were brought into effect on 1 April under the Provisional Collection of Taxes Act 1968 and because it is not possible retrospectively to amend the PCTA resolution, the date for the statutory implementation of the relief is 1 August, after Royal Assent for the Bill can be expected to have been received. However, Customs and Excise will waive,
extra-statutorily, any tax incurred between 1 April and 1 August on village halls or other buildings covered by the amendment. I pay tribute to many Committee Members who pressed hard for us to look again and for the Commission to waive any objections which it might have to the continued zero rating of village halls. I do so not least to my hon. Friend the Member for Corby (Mr. Powell), who described what a tremendous effect it would have on his constituency where there are a great many village halls in operation or in the process of being built.
Dr. Marek : Congratulations are once again due to the Government, perhaps somewhat fortuitously. It appears that a letter from Madame Scrivener to a Member of the European Parliament was spotted, and it allowed the Economic Secretary to press home the point.
It was not just the Opposition who pressed the amendments in Committee, but Conservative Members and Liberal Members. I do not think a single hon. Member would have wished VAT to be imposed on village halls. It is extremely pleasant to see such an amendment on Report.
Can the Economic Secretary be more specific about the types of hall that will be exempt? He gave us some help and said that cricket pavilions would be exempt. Will sports halls be exempt? Those sports halls might be built partly by local authority funding, and the community might have a fund and ask for subscriptions to it. Some of these halls, especially if they are big enough to contain a basketball court, may be quite big and expensive. If a big hall did not fit under the heading of a village hall, I presume that it would not fall within the scope of the amendment. Where does the boundary fall? I have not seen the original letter from Madame Scrivener to the European Parliament Member, but I hope--providing the hall was for a community purpose, with sporting recreational or educational facilities-- that we would try to make the definition of such a hall as wide as possible. However, that is perhaps a detail, and I am pleased that there was no opposition to this type of amendment. The Government have done well. I wish they could do as well in many other matters about which the Opposition seek to persuade them.
Mr. Beith : I welcome this improvement to the Bill and the extra- statutory concession which the Minister has just announced to make it clear that a period of liability will not arise between the original and the operative date.
As has been said, there was pressure from both sides of the Committee from the Minister to act, in particular that he should write to Madame Scrivener to explore what had been thought and said in the Commission. There is a difference between the approach of this country and most other European countries towards the provision of such facilities. In most other European countries about which I know something, it is general practice for local authorities to provide a large proportion of the community halls, village halls, sports halls and such facilities.
We have a unique and valuable system of voluntary provision of local community halls. It is perhaps at its strongest in the countryside in the form of village halls, but it is not unique to the countryside, because many neighbourhoods in town have a similar provision. It involves voluntary effort and fund raising of the most dedicated kind. Everyone agrees that it would be unreasonable to face that sector with a high tax bill.
That is one reason why I shall tempt the Government to go further, and why I argue that we would be well within the spirit of the concession that we have secured so far if we went further and got extensions of, and repairs to, village halls exempted from VAT and returned to zero rating. A large number of village halls were built a long time ago, so the problems they face are of renewal, repair and extension. Many were built at the end of the first world war as a local community's memorial to its war dead, and some were built at the end of the second world war. Sometimes, these buildings were put up using cheap construction methods because that was all that the community could afford. Many of them now need a great deal of improvement, and some need extension.
The Minister could usefully keep this matter under review and continue his fruitful correspondence with Madame Scrivener. I am sure that he is becoming familiar with her through the letters that they are exchanging. There is no doubt that the correspondence has helped to make it clear that the Commission, in seeking to take legal action, was not aiming its sights at village halls and local community facilities. Perhaps the Minister could go further and suggest a dinner in Brussels between him and the good lady, where, against a background of flowers and music, the matter could be discussed. Much more useful work could be done for the benefit of village halls. I press on the Minister the value of amendment No. 107. I welcome the Government's inclusion of this provision and the way in which they have secured an understanding from the European Commission that, since what this country provides, through voluntary efforts, in village halls would not be subject to VAT anywhere else in the Community, because there it is mainly provided by local authorities, it is entirely reasonable that it should not be subject to VAT here.
Mr. William Powell (Corby) : As my hon. Friend the Economic Secretary said, he was pressed on this point from both sides of the Committee, so when the hon. Members for Wrexham (Dr. Marek) and for Berwick -upon-Tweed (Mr. Beith) said that this was an all-party matter, they were correct. As the member of the Committee who initiated discussions on these matters all
Column 1039those weeks ago, I was hardly aware what I was letting myself in for, because no issue has involved me in more correspondence than this one.
What my hon. Friend the Economic Secretary announced last week in answer to a parliamentary question from me was confirmed in his remarks today, and it has been received with real enthusiasm in thousands of communities. It is no exaggeration to say that. This will undoubtedly be one of the most popular results of the Finance Bill.
Mr. Ian Taylor : The result will be received with more than great enthusiasm--it will be received with great relief. Many projects are under way and in planning stage and the burden of VAT if the extra-statutory concession had not been introduced would have been frightening for those who have to do the fund raising. We are grateful to my hon. Friend the Member for Corby (Mr. Powell).
I never doubted the real determination of my hon. Friend the Economic Secretary to ensure that VAT should be zero-rated in the way in which we shall approve tonight. His determination to achieve that was quite obvious and I congratulate him on the tenacity that he has shown in this matter and on his determination to secure a result that has been so widely applauded.
Mr. Lilley : The hon. Member for Wrexham (Dr. Marek) asked me to clarify the definition further and asked in particular whether it would include sports halls. For those sports halls that are both charities and run for the benefit of the local community, the answer is yes, they will be included, as they come under the general heading of providing recreational facilities.
The hon. Member for Berwick-upon-Tweed (Mr. Beith) inadvertently gave the impression that I wrote to Madame Scrivener only when pressed to do so in Committee. In fact, I had already written and was awaiting a reply. He suggested that I should go further in my familiarity with the lady, but although I am grateful to her for her courtesy, co-operation and pragmatism, I do not think that I should follow all the innuendos that he conveyed.
The hon. Member is correct to say that village halls are unique to this country, and that there is nothing similar on the continent. Both he and the House may think that it is odd, therefore, that how we tax them should be anything to do with the Community. I am happy that we have managed to achieve a possibly constitutionally bizarre result, whereby we have achieved a national solution rather than a uniform solution that fitted oddly to our unique national characteristics.
Amendment No. 107, tabled by the hon. Member for Berwick-upon-Tweed, would remove the charging of VAT on extensions. I am afraid that, under EC law, that is not possible. Under the sixth directive, to which we assented in 1977, we cannot reintroduce zero rating once it has been given up. We gave up zero rating in that respect in 1984.
Column 1040I am grateful to my hon. Friend the Member for Corby (Mr. Powell) for his kind remarks and his welcome for these measures. I again pay tribute to him and to hon. Members on both sides of the Committee for the tenacity with which they pressed the case of village halls, a case which is dear to us all.
Amendment agreed to.
Amendment made, No. 6, in page 161, line 2 at end insert ;
(b) as a village hall or similarly in providing social or recreational facilities for a local community.'-- [Mr. Lilley.] Amendment proposed : No. 7, in page 161, line 39, leave out from beginning to end of line 42.-- [Mr. Lilley.]
Dr. Marek : I think I understand these amendments, but it would be helpful if the Economic Secretary said something about them. I hope that he will explain the purpose of these amendments so as to confirm that our understanding of them is correct. What will be the effect of the amendments on the difference between beneficial owners and legal owners, and how will that be worked out in practice if the amendments are passed? I am not sure about that and any help would be welcome.
Mr. Lilley : This additional provision is made necessary by an aspect of English land law which does not sit very readily with a tax on supplies such as VAT. The difficulties arise because the interests in land and property can be split into two--the legal estate or interest, and the separate beneficial interest. I am happy to say that there are no such difficulties, I understand, in Scotland, which, in legal matters, so often gets it right. This split gives rise to the possibility of there being two different suppliers for the purposes of VAT every time a property is sold or let.
The problem is compounded by the fact that the owner of the legal estate-- whose name appears on the conveyance as the vendor or lessor--is often merely a nominee while the beneficial owner is the person who really instigates the transactions and receives the payments. The practice of separation of the two interests is widespread and I am told that, even when the two interests could be merged into one so as to produce a single supplier for VAT purposes, this would be very onerous and have substantial financial implications for the companies involved.
Therefore, for practical purposes, we have decided to disregard the person in whose name the property is conveyed and to look to the person with the economic interest in the transaction--the beneficial owner. What we have done is to make him the person responsible for the VAT transaction. At the same time, we have made sure that he will also be the person entitled to the benefit of any input tax recovery if his supply of the building is a taxable supply.
This principle is not new to VAT. Since the introduction of the tax, there has been a special provision attached to the zero rating of sales and long lettings of buildings, so that a person constructing them could benefit from the zero rating and cover the tax on materials and services that he bought in, even though another legal person conveyed the property, provided that the benefit of the sale or long letting of the property passed to him. This
Column 1041measure extends the same principle to the exemption and the taxing of property, either mandatorily or under the option to tax. It seeks to reduce uncertainty in the business community about who is making the supply and who can recover related input tax, and it therefore simplifies the VAT consequences of commercial property transactions.
Dr. Marek : The Economic Secretary appears to have a note in his hands. I do not know whether it is helpful. Has he received any representations from any part of the industry about the effect of the proposals? The amendments appear to be sensible, but having been tabled only two or three days before the debate, it is difficult to assess them and to ascertain whether there will be any consequences that we cannot readily foresee tonight. If the Economic Secretary says that he is not aware of any such consequences, I shall accept that. I do not intend to oppose the amendments.
Mr. Lilley : My discussions with the industry make me pretty confident that this clarification measure will be welcomed. It will deal with a problem that was not catered for in the original drafting. I am sure that it will be well received by the various groups to whom we have spoken, including industry groups and lawyers.
Amendment agreed to.
Amendment made : No. 8, in page 162, line 27, at end insert-- (4A) Note (5) shall be omitted.'-- [Mr. Lilley.]
Amendment proposed : No. 9, in page 165, line 26, at end insert-- (2) The Treasury may by order amend Schedule 6A to this Act.'-- [Mr. Lilley.]
Dr. Marek : I must take the Government to task. I understand that the amendments seek to give the Government power by order--admittedly by affirmative resolution--to change aspects of tax law and VAT legislation. If the Government were confident that they had their legislation right, these amendments would not have been tabled. If they had their legislation right, yet still needed to table amendments, I should not be speaking to them because they would probably have gone through on the nod. I suspect that the Government do not have their legislation right. I wonder whether there are sufficient numbers of civil servants in the Treasury dealing with the legislation to ensure that it is right.
The history of all the changes to VAT legislation makes a pretty story. In Committee the Government tabled a great many amendments on a Friday that we had to debate on the following Tuesday. Many hon. Members have to return to their constituencies on a Friday and so were not aware of the amendments. We therefore had to table starred amendments so that we could properly consider the Government's amendments. The Chairman, the hon. Member for Staffordshire, South (Mr. Cormack), was not pleased, yet it has happened again on Report. Amendments were tabled on Thursday, appeared on the Amendment Paper on Friday, and have to be debated today.
They are not the easiest of amendments to understand. I am prepared to bet that not many hon. Members, other than the Economic Secretary, can understand their detail. I suspect that the Government have tabled the amendments because, even now, they do not have their
Column 1042legislation right. The Economic Secretary should come clean and admit that ; after all, nobody is perfect. If he did so, it would be churlish of us to oppose the amendments.
The Government's practice on this occasion is certainly not a model for good legislation. The Opposition have learnt a lesson from this practice, and I hope that the Government also learn from it. It is an example of how not to conduct business. The Government should not table amendments at the last minute. If they intend to make complicated changes to next year's Finance Bill, they should table amendments at least a week in advance so that we have the opportunity to study them.
Dr. Marek : The hon. Gentleman and I do not often agree, but I am glad that we do so on this occasion. It is a sensible, non-party point. We need time to study the amendments and to consult outside bodies. If we are given only 48 hours' notice, it is impossible to do justice to the amendments--especially with a Finance Bill as long as this one. It has been impossible to do justice to all the Bill's provisions, although we did quite well in Committee in rather difficult circumstances. I hope that the Economic Secretary will tell us why he has tabled the amendments, although I suspect that I know the answer. If he confirms my suspicions, that will be the end of the matter and I will not oppose the amendments.
Mr. Lilley : The hon. Gentleman and other hon. Members who served on the Committee will recall that the original Bill contained provisions for amendment by order, by the negative procedure, if such an amendment was consequential to amendments made to the zero-rating and exemption schedules of the Value Added Tax Act 1983.
The new schedule 6A deals with some extremely complex and novel provisions- -for example, the clawback provision contained in paragraph 1, the option for taxation in paragraphs 2 to 4, the self-supply charge on developers in paragraphs 5 to 7, and we have just dealt with a paragraph on legal and beneficial owners. The original proponents of VAT in this country extolled its virtues as a simple tax. That notion has long since been accepted as wishful thinking. Certainly VAT, as it applies to land and buildings and in the circumstances of this schedule, is extremely difficult.
It would be unrealistic to pretend that everything in schedule 6A will turn out to be perfect and incapable of improvement. We were forced by changes imposed upon us by the Commission to introduce new proposals at short notice. I decided, and I am glad that I did, initially, to introduce them in Committee, thereby giving hon. Members an opportunity to discuss them, and then to introduce further proposals, if necessary, on Report--which we have done, and in time for them to be discussed. It is possible that, in the light of experience, there will be gaps, and ambiguities and adjustments may be necessary. It would be wrong to wait for and then clog up the next Finance Bill with technical amendments.
I commend to the House this series of amendments, which gives the Treasury power to vary the schedule by order. That will usually be by affirmative resolution, other than where the amendment is merely consequential to an order providing relieving amendments to the zero-rating or exemption schedules, which requires only a negative resolution and was included in the original Bill. We are not
Column 1043setting an undesirable precedent because already many things can be done by order, including changes in VAT rates and liability. I hope that the House will accept my frank admission that we are not quite perfect, but we are getting there.
Amendment agreed to.
Amendment proposed : No. 10, in page 166, line 45, leave out sub-paragraph (2)' and insert
sub-paragraphs (2) and (2A) and paragraph 3'.-- [Mr. Lilley.]
Amendment No. 2, in page 168, leave out lines 4 to 7.
Government amendment No. 16.
Amendment No. 3, in page 168, line 8, after irrevocable', insert except where a building is totally demolished or where a major reconstruction occurs on a listed building'.
Government amendments Nos. 17 to 20.
Dr. Marek : This large group of amendments merits debate. The two Opposition amendments are not dissimilar to those debated in Committee, and attempt to cover a broad principle. I was not happy with the answers given in Committee as to why the Government inserted into the Bill the phraseology that they did.
Amendment No. 2 concerns buildings that are separated or joined. The Bill refers to buildings joined by covered walkways, and states that buildings, precincts and parades will be regarded as one building for taxation purposes. There is no justification for that view, other than that of simplicity. I hope that the Government will allow developers some leeway in deciding which buildings in parades and shopping centres can be separate and which cannot.
The problem can be overcome because it is not inconceivable that covered walkways could be covered one week and uncovered the next. Successful attempts could be made to present those as separate buildings for the purposes of the Bill. Also, a walkway that is currently uncovered might be covered later. It is in any event a somewhat artificial distinction, because covered walkways are needed in some parts of the country more than in others.
Government amendment No. 16 rectifies the position to a certain extent in respect of agricultural land. It states :
"Where such an election is made in relation to agricultural land (including a building on agricultural land), it shall have effect in relation to any other agricultural land if that other land is not separated from it by--
(a) land which is not agricultural land ; or
(b) agricultural land in separate ownership."
The Government presumably received representations from the farming industry and saw the sense of providing a different option for different parcels of land, but they have not gone far enough in applying the same philosophy to shopping centres and precincts. I do not suggest that landowners or developers should be given the right to dictate to the Treasury which property should be deemed separate, but there must be a little flexibility. I do not believe for one moment that the drafting of the Opposition amendments will be accepted, because they would probably lead to undesirable deficiencies in other parts of the Bill. I am under no illusion
Column 1044that the Economic Secretary will jump up and say, "I am persuaded by the hon. Gentleman's arguments and I accept his amendments." However, I wonder whether he agrees that there should be some flexibility in the interpretation of a single or multiple unit. Amendment No. 3 would provide another option where a building is totally demolished, save for one facade-- [Interruption.] Obviously the hon. Member for Croydon, South (Sir W. Clark) is not interested, but that aspect is of importance to people who are concerned about historical and listed buildings.
Value added tax leaflet 708/2/89 spells out on page 8 the position in respect of demolished buildings, albeit in a different context. It states that demolition is considered total even if there remains a single facade. It would be entirely reasonable to adopt the same definition for the purposes of the Bill. Suppose a staircase inside the building, as well as its facade, is listed. The developer could not then demolish that staircase, and the chances are that the site would not be developed. If the staircase is very fine but is not listed, the developer might say, "There is no question of my being able to exercise a new option unless I can demolish that staircase." That is the nub of the matter.
The danger is that architecture that should be preserved will not be protected unless the Government interpret VAT rules more flexibly. Although one appreciates that demolition must be more or less total, if a building has other features of architectural merit, demolition should still be regarded as total save for those features. That argument is not one that met with much sympathy from the Government in Committee, but I hope that Ministers have considered the arguments, and the slightly different amendments now before the House, and will be able to make an encouraging response.
Mr. Lilley : The group of seven Government amendments can all be described as drafting amendments because they do not represent any changes to our basic policy. The intention has always been that people should opt for buildings, including their sites and curtilage ; for agricultural land, including agricultural buildings thereon ; and for other land, including land containing civil engineering works. There is no great dissent over those categories.
However, the Law Society in particular was unhappy that the Bill contains ambiguities as to the word "land", which under the Interpretation Act includes buildings. Parliamentary counsel agreed that there was some substance to the Law Society's observation and redrafted to use the term "land" in the Interpretation Act sense, whereby there is no need to distinguish between land and buildings, and to reserve the use of the word "buildings" for cases where it is necessary to refer to buildings as such. The draftsman has therefore defined buildings for the purpose of the option by expressly including site and curtilage. I hope that there will be no difficulty in the House agreeing to the amendments.
As to amendment No. 2, if groups of individual units are in the same ownership and are managed as one coherent development, it seems reasonable that they should be regarded by the landlord as a whole for the purpose of the option. Where separate parts or units are in separate ownership, each legal person has his own option anyway. Similarly, if buildings are linked by a common covered walkway, it is likely to mean that there is some