|Previous Section||Home Page|
Column 368threat of a boycott by any party will not be allowed to jeopardise this historic, and perhaps unique, opportunity for a peaceful settlement?
The Prime Minister: While I seek the widest possible consensus to this agreement, what I do not wish to do is seek to place any political party, large or small, beyond the pale of these discussions, providing that they are a legitimate and democratic political party. We seek this wide agreement for the very practical reason that, if we can get the wide agreement, we will win the peace.
What we have learnt from the history of Northern Ireland is that any significant part of the community, if it dissents, can in practice frustrate a move forward. We have learnt that from experience time and time again in recent years. It is for that reason that we will seek the widest possible agreement. I do not wish to specify which particular parties and run through them: I think that we know which the main political parties are. But there are other distinguished voices in Northern Ireland whom one might not regard as a main political party. We would seek to ensure that those distinguished voices were also heard.
Mr. Nicholas Winterton (Macclesfield): I commend my right hon. Friend the Prime Minister on his immense courage and determination in seeking to achieve a lasting peace in Northern Ireland. I think that I speak on behalf of not only everyone in the Chamber but those outside in wishing him success in his initiative and that of the Government.
However, can he perhaps explain to me, bearing in mind that those responsible for the killing and bombing in Northern Ireland during the past 25 to 26 years have stated through their spokesman, Mr. Gerry Adams, that their sole objective is to get the United Kingdom out of Northern Ireland, how the two objectives of the peace that we all want and the union in which I and, dare I say to my right hon. Friend, the Prime Minister of this country believes, can be achieved?
The Prime Minister: I think what needs to be done as far as the paramilitaries are concerned--the IRA and, indeed, the Protestant paramilitaries as well--is to disattach them from the legitimate support of the people of Northern Ireland; to disattach those who legitimately wish for a nationalist future from the violent men of the IRA. I think that that has significantly happened in the period since the joint declaration.
It is certainly equally the case that the joint declaration has made a remarkable difference in the support that the IRA had previously received from many sources outside Northern Ireland. There is a changing tide of opinion towards those who wish to pursue by violence an end that is not legitimate.
The other great change, of course, is that the change in the Irish constitution actually enshrines the legitimacy of Northern Ireland's position. It is not easy to over-emphasise the significant changes that we have seen in Northern Ireland during the past few years. It is not all that long ago that the only people who would have agreed with the principle of consent in Northern Ireland would have been the Unionist parties in Northern Ireland and the British Government. The principle of consent is now
Column 369accepted almost everywhere. That is one illustration of the changing nature of debate in Northern Ireland that I believe will meet the point that my hon. Friend raises.
Mr. Kevin McNamara (Kingston upon Hull, North): I join in congratulating the right hon. Gentleman and his Government, and the Government of the Republic, and not least the former Taoiseach, Mr. Reynolds, on the work that they have done in achieving the publication of this quite historic document today.
Is he aware that, on reading that document, careful attention is paid to the dignity, the rightful aspirations and the integrity of each of the traditional communities within Northern Ireland and, on the basis of that document, nobody has anything to fear when entering freely into discussions with the right hon. Gentleman and his Government and with the other parties in Northern Ireland; that the essence of consent is very much there? Is he also aware that, should this brave initiative, this try which is well worth making, sadly fail, at the end of the day people will have to return to the same principles that are enshrined in the documents published today?
The Prime Minister: I am grateful to the hon. Gentleman for what he has to say. I agree that there is nothing to fear from continuing in these discussions, precisely for the reason that has been spelt out by hon. Member after hon. Member on both sides of the House--that we proceed with consent and by agreement. It is a rational way to proceed. I believe in the politics of reason, and proceeding in this way is an illustration of the politics of reason.
Mr. James Couchman (Gillingham): I add my congratulations to my right hon. Friend and his colleagues in the Northern Ireland Office for their considerable achievement in producing the document. My right hon. Friend has stated wisely that the state of emergency will continue, and that law and order will continue to be administered by the British Government. Does he agree that the state of emergency can end only when all the weapons on all sides of the conflict in Northern Ireland are surrendered? Will he further reassure the House, as he did in his statement on the Downing street declaration in December 1993, that there are no political prisoners in Northern Ireland?
The Prime Minister: Yes. I am happy to reaffirm to my hon. Friend that there are no political prisoners in Northern Ireland, and we do not accept that term in any sense. The purpose of removing weapons is crucial to ensuring that significant progress is made in future. That, of course, is not directly dealt with in the documents published today. It is a matter under discussion with the political representatives of the paramilitary groups in the discussions that the Government are having with them at present. We are moving towards discussing such issues as the decommissioning of arms, and my hon. Friend is entirely right to draw attention to the central importance of success in that role.
Column 370May I press the Prime Minister to clarify the role of the Northern Ireland Assembly? He mentioned that it would have functions that belonged to local government, but he also said that it was to be a legislative assembly. Local government is not a legislative tier of government. Will he confirm that there will be full law-making powers in the Northern Ireland Assembly over the functions that fall into its remit, and that we are talking about a powerful assembly for Northern Ireland, not a glorified county council?
The Prime Minister: Yes, if that is what is wished. What we have put forward today are ideas for the political parties themselves to determine. I reiterate that it is not a prescription. The Northern Ireland Assembly would have legislative functions, it would not have tax-raising powers, and it would bid for its money in terms of block grant and utilise that money.
For many of the functions that would be devolved to it--although the hon. Gentleman makes the point about legislation, as opposed to the order-making and byelaw powers that often exist with local authorities--the Northern Ireland Assembly would have legislative authority, but it would need to bid for the money, and that would be provided to it in block grant form. It would not have the power to raise resources, and it would emphatically not be a tax-raising assembly.
Mr. Tim Smith (Beaconsfield): Is my right hon. Friend aware that, far from driving Northern Ireland back by 10 years, what he has achieved over the 14 short months since the signing of the Downing street declaration is to drive the peace process forward in a way which many people said was literally impossible at the time? He, the Secretary of State and the Minister of State are to be congratulated on that. Although the north-south body refers to the designation of delegated functions, because that section also talks about the agreement of the parties, as the document does throughout, there is really no reason why all the parties should not participate in the talks on that basis.
The Prime Minister: I agree with my hon. Friend, as he knows from his own period as a Northern Ireland Minister precisely how people feel about those issues, and precisely what the difficulties are; I am particular grateful to him for his comments with that in mind. As far as the designation of authorities is concerned, it is worth spelling out the point clearly, so that it cannot be misunderstood by people in Northern Ireland, and I would not wish it to be. In the first instance, this would be discussed among the political parties. If they agreed, there would be a referendum. After the referendum, there would be legislation in the House. The Assembly would then be set up, and any changes--any further powers that might then be devolved to the north-south body--would be devolved by the Northern Ireland Assembly itself. Agreement in the north-south body could be reached only with the agreement of the Northern Ireland Assembly.
The fear that arose at one stage in the past that this would be an entirely independent, entirely autonomous, high-powered executive body that would rapidly change the mode of existence and way of life across a great swathe of functions in Northern Ireland is self-evidently wrong. I hope that that fear has been well and truly put at rest by the documents published today.
Mr. Secretary Howard, supported by the Prime Minister, Mr. Chancellor of the Exchequer, Secretary Sir Patrick Mayhew, Mr. Attorney-General, Mr. David Maclean and Mr. Nicholas Baker, presented a Bill to amend provisions relating to appeals and references to the Court of Appeal in criminal cases; to establish a Criminal Cases Review Commission and confer functions on, and make other provision in relation to, the Commission; to amend section 142 of the Magistrates' Courts Act 1980 and introduce in Northern Ireland provisions similar to those of that section; and for connected purposes: And the same was read the First time; and ordered to be read a Second time tomorrow, and to be printed. [Bill 57.]
That leave be given to bring in a Bill to require the Secretary of State to formulate a national plan for combating breast cancer. The incidence of breast cancer in the United Kingdom is the highest in the world. Government statistics show that each year there are 30, 000 new cases. There are nearly 16,000 deaths from breast cancer per year, and the United Kingdom has poorer five-year survival rates than any other European country or the United States. Those statistics signal a clear need for action, and that is what my Bill is intended to achieve.
The Bill will require the Government to call a conference to establish a national action plan on breast cancer, based on the plan that is now so successful in America. The conference to formulate such a response there was called by President Clinton shortly after his inauguration, following a great deal of pressure which resulted in the presentation to the White House of a petition with 2.5 million signatures. The conference that I want the Government to call must embrace and involve the full spectrum of individuals, groups and organisations concerned with breast cancer.
In America, invitations were extended to 150
representatives--members of advocacy groups, breast cancer sufferers, representatives of private industry, academics, scientists, doctors and people from the media, education and specialist cancer units, as well as many others with a legitimate interest. The action plan that was drawn up at the conference stated:
"these invited participants worked together in a unique and unprecedented partnership that combined scientific and technical expertise with social insights and personal and professional experience and commitment."
I have no doubt that that experience could be repeated here: indeed, we have already seen many exciting new initiatives, such as the launch of the Macmillan breast cancer registry on Monday, and many others.
The United States came up with its plan at about the time when the Army Medical Command diverted $210 million from the defence budget to breast cancer. Thus, the action plan had an immediate budget. Just imagine if we could use some of the money from the Trident programme to help women to combat this dreadful disease. In the United States the political commitment was there, and so was the money. That was very important.
On 14 December last year, the all-party group on breast cancer held a seminar which many eminent professors and medical professionals attended, as did many user groups comprising those connected with breast cancer. The purpose of the seminar was to discuss the merits of a national plan. I believe that it was a huge success, and I pay tribute to all who attended and contributed.
At the end of the seminar, people were unanimous in their support for a national action plan. It should be noted that hon. Members from all parties attended, and that all parties in the House support my Bill.
As I have said, superb initiatives are already under way, and some excellent work is already being undertaken. Much of it, however, is fragmented. As we heard on Monday, services, in particular, are a lottery-- the Macmillan document makes that clear.
Column 373The abolition of the regional health authorities is causing great concern. The British Breast Group recommends access to specialist facilities--it is a keynote of its recommendations-- but uncertainty of funding remains. Who will guarantee, for instance, that purchasers will pay for the use of such facilities if they are established? The document produced in the United States of America is a blueprint drawn to highlight opportunities to advance and apply knowledge about the causes, diagnosis, prevention, treatment and ultimate eradication of this dreadful disease. That document has acted as a catalyst in co-ordinating actions relating to breast cancer. There is no reason why we cannot do the same here. The first part of such a plan would concentrate on improving access to services. That is at the core of British Breast Group's report, which is clear in its demands. It says that all patients with breast disease should have access to high-quality care. The characteristics of such care should include accurate and timely diagnosis, appropriate treatment and follow-up, effective communication, skilled psychosocial support, immediate access to other specialist facilities as required, and collection of data on outcome measures.
The importance of improving co-ordination and information management among providers cannot be overstated. It is also vital to increase participation of under-served and at-risk populations in breast cancer programmes dealing with risk factors. Early detection, diagnosis and treatment are essential. That would mean targeting and working with educationists and the media, which would be important if the Government were to adopt a national strategy.
Part two of a national plan should involve research into the causes and cures of breast cancer. That research must be properly funded. I would make the same demands of a Labour Government, were they in power.
In the United States, the following plan was put into operation. It aims to identify and to foster promising new areas of basic research through interagency, inter-disciplinary and private and public collaboration; to facilitate collaboration among basic, clinical behavioural, epidemiological and health services, plus scientists across the disciplines--which has been successful in some ways; and to organise and support multi-disciplinary research and collaborative efforts, using a wide range of mechanisms that maximise individual and group efforts.
Part three of the national plan would, as in the United States, establish comprehensive patient data registries and
Column 374material banks as research tools. That would need national funding. The infrastructure must be put in place; more important, it must be paid for.
Part four of the plan would increase opportunities for research training in sectors related to breast cancer. The United States, for example, is expanding the scope and breadth of biomedical and behavioural research activities relating to breast cancer. It is providing adequate resources and mechanisms to speed the translation from the lab to the clinic of new therapeutic opportunities. It is making clinical trials more widely available to women with breast cancer, and women who are at risk from breast cancer.
At our seminar in December, Alison Coates from Bosom Friends, a Bradford- based support group, commented:
"I was diagnosed breast cancer at the age of 24. Personally, what I would like to know is what research and trials are taking place to prevent cancer occurring in women outside the screening age group. I have not been invited to take part in any clinical trials, although I have put myself forward on numerous occasions."
My plan would utilise such women, who want to take part in finding the causes of breast cancer.
Most important, the United States is supporting research on the prevention of the causes of breast cancer. Clearly, we need to persuade the Government that a national action plan is necessary. That means picking up the bill for research, and not leaving it to the charities. There is a serious need to support and fund clinical trials, and to support an infrastructure. The British Breast Group has made many recommendations that should be implemented, as has the Calman and Culyer report.
I give the final word to a 32-year-old woman from Bosom Friends in Bradford, Sue Patterson, who told the seminar held by the all-party group that, after suffering this dreadful disease, she was told in follow-up advice to lie on her back and think of England. She told us:
"I am thinking of England and we do have a public voice. Women are coming forward. We are prepared to be mobilised. We are prepared even to go on the streets. We really do feel we are being forgotten, that is why we call upon this Government to establish a National Plan of Action on Breast Cancer."
Question put and agreed to.
Bill ordered to be brought in by Mrs. Alice Mahon, Mr. Malcolm Chisholm, Mrs. Ann Winterton, Ms Liz Lynne, Mrs. Audrey Wise, Mr. Harold Elletson, Ms Dawn Primarolo, Mr. Bernard Jenkin, Mrs. Ann Clwyd, Mr. Jeremy Corbyn, Ms Jean Corston and Mr. Eric Illsley.
Mrs. Alice Mahon accordingly presented a Bill to require the Secretary of State to formulate a national plan for combating breast cancer: And the same was read the First time; and ordered to be read a Second time upon Friday 31 March, and to be printed. [Bill 56.]
That the Value Added Tax (Construction of Buildings) Order 1995 (S.I., 1995, No. 280), dated 8th February 1995, a copy of which was laid before this House on 8th February, be approved.
Madam Deputy Speaker (Dame Janet Fookes): I understand that with this it will be convenient to discuss the following motions: That the Value Added Tax (Protected Buildings) Order 1995 (S.I., 1995, No. 283), dated 8th February 1995, a copy of which was laid before this House on 8th February, be approved.
That the Value Added Tax (Input Tax) (Amendment) Order 1995 (S.I., 1995, No. 281), dated 8th February 1995, a copy of which was laid before this House on 8th February, be approved.
That the Value Added Tax (Buildings and Land) Order 1995 (S.I., 1995, No. 279), dated 8th February 1995, a copy of which was laid before this House on 8th February, be approved.
That the Value Added Tax (Payments on Account) (Amendment) Order 1995 (S.I., 1995, No. 291), dated 8th February 1995, a copy of which was laid before this House on 9th February, be approved.
Mr. Heathcoat-Amory: There are five value added tax orders before the House. I shall first introduce three of them and then speak to the remaining two separately. The first three are closely related and deal with VAT on the construction industry. It is a difficult and contentious area of VAT liability, but these measures together would deregulate, simplify and give greater certainty to the law. They also address many points of criticism made by VAT tribunals in recent years.
The majority of the changes were the subject of an announcement by my right hon. and learned Friend the Chancellor of the Exchequer on 21 July last year. Draft legislation was then exposed for comment and an extra-statutory concession was announced at that time which granted some of the main changes immediately.
The initial reaction to the changes from the building industry was very positive, in that many issues that had been the subject of innumerable, costly and time-consuming disputes were about to be resolved. Indeed, the president of the construction industry joint taxation committee wrote to my right hon. and learned Friend in the following terms:
"I and the whole of my committee were delighted with the news on the 21st July about these VAT changes to be introduced in your next Budget. It is particularly pleasing that the reforms have been given immediate effect by way of extra-statutory concession."
Following the consultation exercise, the Government noted a number of good suggestions and also some legitimate concerns expressed by the industry. We have therefore made some suitable changes to the construction order which is now before the House.
The present law allows for the zero-rating of most goods and services in the course of the construction of a new house or flat and certain other limited categories of building. That and other provisions mean that the sale of all new houses is effectively VAT-free. Conversely, any work to an existing building, with the notable exception of listed buildings, is taxable. That means that a person who enlarges his house pays 17.5 per cent. on the cost of the work, as does the entrepreneur who converts a derelict factory into flats or the couple who convert a disused barn into a house. That has been the position.
Column 376The major change in the new construction order is to extend zero-rating to the conversion of non-residential buildings into houses and flats. That is a significant and welcome boost to the hard-pressed construction industry. It would also help the regeneration of inner-city areas by the creation of new, affordable housing.
Mr. William O'Brien (Normanton): Will the Minister take into consideration the position of some charitable organisations which acquire buildings that need to be adapted into day centres? Is the Minister saying that, under the changed orders for VAT on building, any charitable organisation that acquires a building which requires alteration so that it may be used as a day centre to accommodate disabled people, elderly people and so on will not pay VAT on those conversions?
Mr. Heathcoat-Amory: The new concession covers the conversion of a non-residential building into a dwelling or collection of dwellings or residential accommodation. Therefore, it does not extend to the creation of a day centre. It is a major concession, but, if the hon. Gentleman believes that it does not go far enough, Madam Deputy Speaker, he may catch your eye and explain how far he would like it to go, and I shall endeavour, at the end of the debate, to tell the hon. Gentleman of the further reasoning that caused us to stop at dwellings and residential accommodation.
Usually, the benefit of zero-rating will be obtained when the property in question is sold for the first time, but we have made special provision for housing associations, which are often subject to restrictions on selling their housing stock. In those cases, the order will allow the builder to zero-rate his services. Likewise, someone who himself converts a building, such as a barn, into a dwelling will be able to recover the VAT that he has paid under an amended DIY housebuilders scheme.
I have mentioned that we aim for all houses to be effectively free of VAT, but that cannot necessarily apply to the contents of those houses. It would be grossly unfair to the general public and retailers, and very expensive in revenue terms, if a new house could be sold with tax-free items such as carpets, curtains or white goods such as refrigerators and freezers. Since 1973, we have therefore blocked the VAT relief on certain items incorporated into a house. The order relaxes that list of blocked goods and now reflects the requirements of the building regulations. Whereas previously all electrical items were blocked, developers can now obtain tax -free installation in a new building of all ventilation equipment, and safety equipment such as burglar alarms, lifts, hoists and waste disposal units. Those changes have been warmly welcomed.
The order changes the tax treatment of new charity annexes to an existing building. Currently, when a new annexe is built for non-business charity purposes which is detached from any other building and can function independently of that building, the construction is zero-rated for VAT purposes. Alternatively, if the annexe is built adjacent to the original building and connected by doors or corridors, the construction is deemed to be work to an existing building and is taxed. Effectively, the change of law will ignore the connecting door or corridor and apply the same tax treatment to both types of annexes. It is not, however, intended to give tax-free treatment to enlargements or extensions to charity buildings.
Column 377The order also addresses a particular difficulty that tribunals have experienced in deciding whether an existing building remained following dereliction or part demolition. If there was a building, the work to it was taxable, but if the tribunal decided that no building remained, the new building could be zero rated.
There is no definition in law and tribunals have tried to rely on the facts of each case and their perception of the final building. The order gives a legal definition of when a building ceases to be an existing building. The original draft, published last July, required a clear site to be left following demolition. Following representations received from the industry, the order now allows one facade, or, on a corner site, two facades, to be retained if they are required by local planning permission.
Because of the new rules on conversions, the bulk of the problem has been resolved. The effect of the change is, therefore, limited to work to existing dwellings. In the past VAT tribunals have been persuaded that zero rating is proper for the creation of a new house by, for example, incorporating a small house into a much larger one. That will no longer be possible and, generally, any work of whatever degree to an existing dwelling will be taxable.
The second order deals with protected or, to use a more common term, listed buildings. A new order is necessary as this group has always reflected the main conditions contained in the construction group that I have just discussed. In addition, two changes have been made. Religious bodies that wish to alter a listed building are exempt from planning permission provided that they set up internal procedures that satisfy the Department of National Heritage. Other denominations must seek normal listed building approval from the local planning authorities. The order incorporates recent changes in this ecclesiastical exemption.
The order clarifies the definition of approved alterations to a listed building. It has always been the case that repairs are taxable but that alterations are zero-rated. Some hon. Members will recall that when Chancellor Lawson abolished zero rating for alterations to most buildings in 1984, the House was persuaded that listed buildings should retain such zero rating. The borderline has always been difficult. Tax advisers increasingly claim that all work that changes the fabric of a building to any minute degree is an alteration, provided that it has been approved by the local authority. Some confusion now reigns because some VAT tribunal chairman have agreed with that argument while others have not. I can give the House a few examples of the difficulties caused. When a thatched roof is replaced with one of a different reed, it has been claimed that the new type of reed alters the roof rather than repairs it. In another case, the replacement of a leaky flat roof covered by a single lead sheet with a sectional roof using modern methods was claimed to be an alteration rather than a repair. An even more bizarre example is where the chemical impregnation of a wall for damp-proofing purposes, which changed the molecular structure of the bricks, was claimed to be an alteration not a repair and was therefore eligible for different VAT treatment.
I have mentioned the tax-free new house and the need to tax some of the contents such as fridges, carpets and so on. The input tax order closes a tax loophole whereby
Column 378a procedure has been devised by tax advisers to allow commercial nursing homes in the private sector to acquire all their fixtures and fittings tax-free. I am sure that removing that avoidance device will excite little controversy in the House.
The first three orders form a package of measures that have been widely welcomed by the industry. In addition to significant new concessions, a general tidying-up exercise has resulted in considerable simplification and greater clarity of the law, which will be most helpful to the industry and administrators and will reduce costs on both sides. Contentious and costly litigation to tribunals and the courts will certainly be reduced.
The Value Added Tax (Buildings and Land) Order results from a consultation undertaken by Customs with businesses and professional advisers to see how the VAT treatment of commercial property transactions could be simplified. The order makes significant changes, which will be welcomed by businesses large and small. It is deregulatory and will cause pages of complex legislation to disappear.
I shall set out what the order seeks to achieve. In a sentence, the order makes simpler and more flexible the election to waive exemption, which is sometimes called the option to tax, and abolishes the self-supply of commercial property. The option to tax is a relieving measure. By allowing landlords to choose to tax supplies of their property, it permits recovery of input tax that could not otherwise be reclaimed.
First, existing provisions do not allow the cancellation of an option. The order assists those who opt to tax in haste and those who, in the fullness of time, wish to change their minds. It will allow withdrawal of an option to tax within three months, if it has not been put into practical effect, and cancellation in any case after 20 years subject to Customs' permission.
Secondly, the order offers businesses more discretion in determining the scope of their option. Currently, an option automatically covers most groups of buildings and entire estates. From 1 March 1995, businesses will be able to tax more selectively so that, for example, each building at a business park and discrete areas of agricultural land can be separately taxed.
I have decided to discontinue the complicated special rules for determining how much tax is due when an option to tax is first made. The normal rules will now apply. I also propose that an option can no longer be used to tax the pitch rent for a residential caravan, or the mooring fee for a residential houseboat, and to put those charges on the same footing as the ground rent for an ordinary dwelling. Turning to the self-supply provisions briefly, the existing provisions require businesses making exempt supplies of, for instance, finance, insurance, health or education, to pay VAT to customs on the full cost of any building that they construct themselves. Usually that tax can be recovered only in part. The vast majority of responses to the Customs consultation asked for the abolition of those provisions and I have decided to abolish them altogether for any developments starting on or after 1 March 1995. Transitional provisions for existing buildings and those still under construction will continue until 1 March 1997. Those will protect in particular people who pointed out that they had secured funding for developments currently in progress on the basis of the existing rules.
Column 379The order greatly simplifies a difficult area of the tax within a framework that gives businesses the greatest possible choice. It abolishes a complicated and generally unpopular measure. The result is less regulation and greater flexibility for businesses, and I commend the order to the House.
Finally, I turn to the Value Added Tax (Payments on Account) (Amendment) Order. The existing payments on account scheme requires the largest VAT payers to make payments by monthly instalments of their VAT liability. The scheme was originally introduced to prevent an increase in the public sector borrowing requirement as a result of changes necessitated by the United Kingdom's entry into the single market. To maintain the PSBR position, it is necessary for the scheme to continue.
The order updates the 1993 payments on account order so that entry to the scheme and the amounts payable for 1995-96 are determined by the tax liability in the year 1993-94 rather than 1992-93. It also provides that, in future, the scheme will roll forward automatically on an annual basis, thus removing the need to lay fresh statutory instruments before the House each year to update the scheme. In July last year, the Chancellor announced that the scheme would be aligned with the fiscal year so that businesses could start making payments on account for VAT periods beginning in April, May and June of each year rather than October, November and December. To effect that change, the current scheme was allowed to run for a further six months--to March this year-rather than being updated as previously. The Chancellor also announced that, when the scheme was next updated, the order would be amended to provide that future updates of the scheme would happen automatically each year. That would remove the need to lay fresh statutory instruments before the House. The Value Added Tax (Payments on Account) (Amendment) Order 1995 gives effect to the two changes, and I commend the order to the House.
Ms Dawn Primarolo (Bristol, South): As the House will have realised from the Paymaster General's speech, the series of five VAT orders is highly complex. Understanding the orders--particularly their impact on the building industry and housing market--is akin to trying to wade through treacle, but there are specific issues that we wish to raise involving the Value Added Tax (Construction of Buildings) Order 1995. As the Paymaster General said, the orders result from tribunal cases, appeals and legal action, which can be fraught. I specifically wish to refer to the impact of the orders on public sector housing. The homeless or destitute are not frequently seen at VAT tribunals appealing against the impact of the legislation on their rent levels--they are not seen at such tribunals at all. I want to explain why we believe that the construction of buildings order is detrimental to housing associations and why the Government, in trying to resolve one set of anomalies, have created another. I know that Customs and Excise officials have worked hard on the orders and have done their best to take on a range of issues, but we are not satisfied on several points and we shall oppose the order for those reasons.
Column 380To demonstrate the impact on public sector housing it is important to stress a number of points. Public sector housing is made of two sorts of housing: local authority housing stock and housing association housing stock. Their relationship is important and it is being drawn more tightly by the Government's housing policy, which enforces the transfer from local authorities to housing associations of the management of that stock.
Local authority housing stock is declining because it is being sold off through the right-to-buy scheme. Almost no new building is taking place in that sector. Housing associations account for 25 per cent. of all new dwellings in the UK and are developed partly through public funds, through the Housing Corporation, and partly through private finance. There are two sorts of housing association and the order affects them in different ways. There are those that are registered with the Housing Corporation under charitable rules and those that are registered under Housing Corporation rules as industrial and provident societies.
Housing associations are competitive, but their ethos is to help other housing associations, which are known as embryonic housing associations-- social housing that cannot initially secure the finance needed to develop premises. The embryonic housing association piggy-backs on the larger housing association in order to secure the private finance that it needs. It is that relationship which is in danger of being undermined and damaged by the order if it is passed today.
Housing associations' core income is exempt from value added tax, which means that they cannot claim VAT on input costs. Housing associations suffer VAT on repairs, maintenance, major refurbishment and professional fees for developing new dwellings. That is a consequence of the VAT orders, and the same is not true for local authorities, which are excluded. That consequence has a detrimental affect on housing rent.
In future, housing associations are expected to take on local authority stock as local authorities are expected to divest themselves of that stock. There will be an increasing role for housing associations. The movement has two distinct ways of trying to deal with the VAT environment and how it places its contracts. Housing associations are expected to cope with a VAT environment in which they are considered to be in the mainstream of VAT law. There are certain unique legislative concessions to their status. Because they are in the main stream, they are considered as businesses--the activity of collecting rental income from their tenants is their business. Their core income is exempt. Housing associations thus suffer from VAT. The ones that are VAT registered because of activities ancillary to their core income may claim credit or recover the tax only on costs associated directly or indirectly with generating that taxed income.
I do not want to go into too much detail about the specific provisions of the order. I want to show its impact and give some examples of how it could undermine new developments in housing associations.
Because of various factors, housing associations find that speculatively built housing is unsuitable for their tenants. Invariably, they are not converting a country barn into a country residence or worrying about different sorts of roofing but considering specific designs to meet the constraints of sites--which frequently involve
Column 381difficulties--or to meet the specific needs of, for example, disabled people or people with special needs. Although housing associations develop some green-field sites, most developments are in urban areas, and carry difficulties. Professional fees and on costs can amount to 10 per cent. of the development cost.
The housing associations' traditional approach has been to opt for two sorts of building contracts. The first is the traditional contract, whereby one set of providers supplies professional services and a second set of providers undertakes the building work. That building work is zero-rated, but value added tax is imposed on professional services. The second type of contract is the design and build contract. Housing associations opt for a specific company which can provide all the professional and building services, and in that way the VAT can be absorbed.
However, that distorts the housing construction market because only contractors who can fulfil both functions can tender for the contracts. At a time when the Government and the Opposition want to see expansion of the construction sector, it is remiss of the Government to introduce an anomaly which will lock out a section of the building industry.
The legislation affects major interest for leases and will thus have a detrimental effect on housing associations. A "major interest" for leases is considered to be a period of 21 years or more. By granting a long lease, the developer of a dwelling can apply for a zero rate of VAT on the first rental payment, which allows all the VAT that is paid on professional fees to be recovered.
However, housing associations come under the control of the Housing Corporation and its rules prevent the granting of a major interest lease, except for shared ownership and right to buy. Therefore, housing associations that have assured and secured tenancies are exempt from VAT because of their short leaseholds. There is an obvious way around that problem, but the Government choose not to see it.
It is accepted that the current legislation is weak, and its interpretation has been stretched by various VAT tribunal decisions. However, the zero rating of dwellings has resulted in lower rental charges, and anything that disturbs or undermines that situation is clearly undesirable. By changing the legislation in effect to reverse tribunal decisions, which in many instances have provided the relief that the housing associations need, the Government are inadvertently damaging those associations. The strict interpretation of the new legislation could prohibit zero rating because the raft extends above ground level. That concerns the development and conversion of buildings as well as their rehabilitation.
The effect of the VAT rules--particularly those in the building and construction order--will mean that, although local authorities could recover VAT, they are prohibited from raising the finance to redevelop their properties and they are expected to transfer some of their properties to housing associations. However, housing associations could be inhibited in developing that stock because the private lender will be concerned that, as a result of the additional VAT imposed on refurbishment, the level of rent that would need to be charged could make the property unviable.