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The legislation also inserts the word "first" in item 1, which means that the first tranche payment for the freehold sales will be exempt from VAT, allowing no VAT recovery. In Scotland, the law prohibits the granting of a longer lease for a residential building. Therefore, the shared ownership developments in Scotland will not be able to recover VAT incurred on the initial development, while their English equivalents can. That seems to be an unnecessary provision. There are other instances where housing associations recover dwellings from long-lease holders as a contractual obligation. Those dwellings are then let on a further long lease and currently all the grants of long leases are zero-rated. In future, only the first will be zero-rated and the resultant cost could be as much as £400 per dwelling in irrecoverable VAT.

I have already explained the detrimental effect that the legislation could have on embryonic housing associations. The process involves a lead housing association taking on the development of property--the purchase of the land and the building of the dwellings--and then allowing the smaller housing association to manage that activity. The ownership is finally transferred to the smaller housing association when it is able to raise the necessary finance. The order will require VAT to be passed on in the cost to the embryonic associations, which, in turn, would push up their costs. The question of homelessness and the role of housing associations as well as local authorities should be important to all hon. Members in the House. We regret that the Government are able to damage an already very fragile relationship through complex VAT legislation and, unfortunately, we believe that that is what the order does. The concept of VAT seems to be flawed in the Value Added Tax (Protected Buildings) Order also. The order is specifically aimed at buildings of national heritage significance and it requires that relief be geared at alteration rather than preservation. The concept of that section of VAT law seeks to encourage the alteration of our national heritage buildings in order to claim back VAT, rather than maintain them through repairs.

The problem is that the zero-rating relief extends only to alterations. That is an historic problem and it is difficult to see how it could be solved. I am sure that many hon. Members have been lobbied recently by bishops, church wardens and others associated with the church about the terrible burden of paying VAT on repairs and maintenance. That measure has skewed access to our national heritage as many churches and cathedrals have now established an entry payment. The money is not collected particularly rigorously, but establishing the structure to collect it enables the churches to try to offset and reclaim some of their VAT payments.

I ask the Paymaster General to re-examine that issue because we are out of line with our European partners who protect their national heritage. It seems ridiculous that we seek to protect our national heritage by encouraging people to alter it.

In conclusion, the orders presented today--particularly the construction order--will damage housing associations, whether they are registered under charitable rules or not, and they could lead to higher rental charges. The Government have dressed them up as a series of technical changes, and technical changes are included in the orders as well. However, we intend to oppose the Value Added

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Tax (Construction of Buildings) Order because we believe that nothing should be allowed to undermine our crusade to tackle the scourge of homelessness and poor housing in our society. By undermining housing associations, the Government make our task more difficult.

5.20 pm

Mr. Barry Field (Isle of Wight): May I first declare an interest that is not in the Register of Members' Interests? I live and have my constituency office in a listed building or, as Treasury-speak would have it, a protected building. I must say that, when the tide comes over our garden wall and the wind is in the north--the building sways with it--it feels extraordinarily like an unprotected building to me. I would prefer that the term "listed building" be used.

My hon. Friend the Paymaster General and I have been in correspondence about the anomalies to which the hon. Member for Bristol, South (Ms Primarolo) referred. There appears to be a tax incentive to alter a listed building, rather than to preserve it. The most celebrated case of that recently was when His Royal Highness the Duke of Edinburgh berated the local authority on the Isle of Wight for taking the Royal Yacht Squadron to task for fitting plastic windows into a listed building.

The extraordinary anomaly is that the Royal Yacht Squadron could recover the VAT for fitting the plastic windows because it was an alteration to a listed building, but it cannot--like many of us who occupy listed buildings --get any help with the additional costs of maintaining a part of our nation's heritage.

In correspondence, my hon. Friend prays in aid to me the fact that EC rules do not allow for an alteration to VAT once we have departed as a nation from the zero rate. He will recall the exchanges we had on Second Reading of the Finance Bill. I am sure he appreciates that I fully understand that rule.

The question about this order is whether he has actually tested that position with the EC. Has he suggested to the EC that, while we understand the rule that there should be no return, there could be a substitution? In the case to which I am referring, it would make so much more sense to substitute VAT relief for the maintenance of a protected building rather than for its alteration, for reasons which I am sure the House is aware of. I hope that my hon. Friend will be able to answer that point when he winds up.

I shall now transfer my attention to order No. 279 which, as my hon. Friend indicated, is known as the option to tax. The proposal is to retain the option as applying to buildings and all subsequent supplies, while introducing an ability to revoke the option after 20 years. The British Property Federation has sought to apply the option to individual supplies of a building, effectively at lease level. Revocation would automatically occur on expiry of the lease. The BPF also seeks revocation after ten years where the lease term is greater.

There have in the past been significant problems in defining the extent of a building for the purpose of the option, particularly in the context of complexes of buildings. The current proposals perpetuate the problems, although an attempt has been made to clarify the definition of a complex. It is the BPF's view that the new proposals will not simplify matters at all, since Customs has had great difficulty in drafting the new rules and litigation likely to be necessary to define them.

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The BPF put forward proposals--echoed by many commentators in the property world--for an option at lease level, as it would entirely remove this area of uncertainty, while at the same time offering the property industry far greater flexibility to negotiate lease terms freely according to economic factors such as the tenants' ability to recover VAT, as happens successfully elsewhere in the EC. The Minister's response to the proposal has been that it would be almost impossible to police. The BPF does not share that view. The necessary calculations to apportion input tax for buildings with mixed taxable and exempt supplies are already carried out for buildings of mixed commercial and non- commercial use, so many taxpayers and VAT control officers will be familiar with them. Furthermore, Customs has expressed concern that smaller taxpayers will not be able to cope with such arrangements. The BPF points out that the taxpayer could opt for all his supplies of a building if he considered a mixture too complicated or could not otherwise satisfy Customs' requirements. The change to an option at lease level could be introduced in a way which took gradual effect as leases expired or new leases were granted.

Finally, the Minister's argument that revenue will suffer is--in the BPF's view--unfounded, since as many taxpayers are likely to opt in the knowledge that it would not bind them permanently as will de-opt. The 20-year revocation period currently offered will not take effect until the year 2009, and will therefore be of no practical value for many years to come. The BPF suggested a 10-year period would still not have immediate effect, but would allow scope for planning to meet changing economic circumstances in the shorter term.

The reason for refusing the 10-year period has been the fear of avoidance schemes which have been experienced by some EC members, principally where a lease--which must be negotiated between the parties at arm's length-- provides no significant rent flowing until after the expiry of an initial ten-year option period, thus permitting the recovery of substantial input tax, while attracting minimal output tax.

The BPF's view is that the capital goods scheme contained in the general regulations enacted in accordance with article 20 of the EC's sixth directive which provides for input tax adjustments according to supplies made up to ten years after incurring the input tax affords protection for Customs.

In addition, the new orders propose that consent for revocation would have to be obtained through Customs (Article 4 (b) (5) (c)). Therefore, in cases of perceived avoidance, Customs could withhold its consent and the revenue would effectively be protected. My hon. Friend sees the orders as a measure of deregulation. I have to say to him that, having recently had personal experienced of this particular VAT minefield, I believe the proposals will almost inevitably have the opposite effect.

5.26 pm

Mr. Malcolm Bruce (Gordon): The hon. Member for Bristol, South (Ms Primarolo) said that dealing with the orders was like wading through treacle, and I congratulate her on her perseverance. She highlighted a number of concerns, and there are one or two others which I wish to touch on.

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It was also interesting to hear the comment of the hon. Member for the Isle of Wight (Mr. Field) about the fact that the order has been introduced as a form of deregulation. It would appear to be a difficult nettle to grasp, because, as soon as Ministers bring in variations, they are in danger of creating other anomalies and confusions and altering the balance, which would not be their intention.

Unfortunately, these are statutory instruments which are not amendable, which is the reason why--if we are dissatisfied with any of them--we are forced to vote against the whole instrument in an attempt to persuade the Government to come back with some revised thinking. There are one or two questions which I would like to address to the Minister which might help to clarify the situation. It has been suggested that housing associations could be disadvantaged by the measure, because they will transfer from being exempt to zero rating, and consequently will be unable to reclaim VAT.

If that is the case, the first problem which arises is that housing associations are funded from the taxpayer. I hope that the Government acknowledge that it does not make a lot of sense to give those associations money from the taxpayer and then put them in a position where they have to pay, in effect, excess tax, in as much as they will be unable to recover what they otherwise would have done.

Mr. Heathcoat-Amory: In order to stop this point gathering momentum and being based on a wrong premise, I can assure the hon. Gentleman that the position of housing associations will improve as a result of these orders. They will be able to zero-rate

conversions--that is not open to them now--and in no other way will their tax position deteriorate. So if the hon. Gentleman opposes this collection of orders, he must explain to the housing associations precisely why he feels that they are being disadvantaged.

Mr. Bruce: I am grateful to the Minister. If his assurance means that housing associations will in all circumstances be better off under the order, I obviously welcome that.

In my constituency, there is an old mill, which, in spite of several attempts to revive it, is on its last legs and no longer producing. All the signs are that it is likely to be acquired by a housing association and converted to use as residential accommodation-- [Interruption.] The hon. Member for Erewash (Mrs. Knight) suggests that I am discussing Scotland, and that Scottish law on long-term tenure differs from English law. Can the Minister assure me that a housing association seeking to develop the mill will qualify for zero rating and thus be able to claim full relief? That would be a welcome assurance.

Three hundred yards away the said mill is another empty building in the same town. It has been derelict for many years, and there is a wish to convert it to a day care centre for the elderly. I am sure that all hon. Members who take an interest have received a briefing from the Charities Tax Reform Group--I am sure that the Minister is aware of it--in which the group says that the exclusion of conversions of commercial buildings to non -residential relevant charitable use represents an unfair anomaly. One can only wonder why the Government have decided to implement it.

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Across the country, conversions of old buildings to new dwellings or for community purposes are to be actively encouraged. They reinvigorate derelict sites and provide many benefits to the community--laudable activities which are at all times to be encouraged. In response to an earlier intervention the Minister seemed to confirm that such conversions will be at a disadvantage. I claim no expertise in this area. I have read the orders, but without knowing all the details of the background law, it is difficult to understand what they are getting at. Hence I rely on the people most directly affected to communicate their views to Members of this House--and they say that the order creates an unfair anomaly. I ask the Minister to respond to these concerns at the end of the debate. Why should not such conversions benefit; why cannot the Government extend to them the benefits that the order entails? If the Minister cannot give me a satisfactory answer, it will be quite legitimate to vote against the orders.

The difficulty we always face with such instruments is that they are to be taken as a whole. It is quite legitimate to vote against them this evening, not because we disagree with the tidying-up measures and extensions in them, but because we say that they have not satisfactorily dealt with an anomaly, which I have described. The Government should go away and come back with improved orders, or at least assure us that another instrument may be in the offing to deal with the problem. That seems entirely reasonable.

My last point relates to listed buildings. The Minister touched on certain anomalies that have resulted from VAT tribunal findings, to the effect that certain building works that most people would regard as repairs have been treated as alterations. When people repair old buildings, they will inevitably consider whether that can be done in a manner that is in character with what is already there, while improving on the old materials. Obviously, they consider whether the improvements will be in keeping with the old appearance. Suggesting that, in so doing, they should fail to qualify for relief seems to me to be applying the rules too strictly.

Much more seriously, as the hon. Member for Isle of Wight (Mr. Field) said, this may act as a positive encouragement not to preserve our heritage and to change it simply in order to qualify for VAT relief. The Government cannot really believe that to be sensible or desirable.

It should not be too difficult to give directions to Customs and Excise officers or VAT officers, making it clear that there are reasonable boundaries. The point is that VAT relief for listed buildings should be designed to ensure that they are properly repaired, in character, not to encourage people to alter buildings' character simply to qualify for tax benefits. That clearly pushes in the wrong direction, and creates an unnecessary tension in the tax system, which the Government should remove.

I know that other hon. Members want to speak, so I shall curtail my remarks. I hope that the Minister will answer my questions, and that he will understand that, if we vote against the orders, it will not be because of an objection to their fundamental reforms; it will be because some important points have not been dealt with.

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5.35 pm

Mr. William O'Brien (Normanton): Most of the points about the orders were fully ventilated by my hon. Friend the Member for Bristol, South (Ms Primarolo), who dealt particularly with housing matters. I shall therefore not go over them again.

Earlier I intervened on the Minister to make a point about the effect that the first order will have on charitable organisations. It is difficult to understand the Government's reasoning. They allow VAT to be disregarded when converting a derelict dwelling to a house or residential dwelling, but they deny the same concession to charitable organisations that want to convert derelict dwellings to day centres for the elderly, the disabled, the young disabled or the chronically sick.

Many of those organisations work to provide respite care for the less fortunate people in our community. Most of them do the work voluntarily, thus helping health authorities and social services departments. Yet the Minister tells us tonight that these charitable organisations will receive no assistance under the order in the form of relief from VAT. I consider that shameful.

We have no chance of amending the orders: they are a case of all or nothing. My hon. Friend the Member for Bristol, South correctly said-- outlining the complications in this bunch of orders--that because of the unfairness of the first order we have no option but to vote against them. Had more Conservative Members been here to hear the Minister say that charitable organisations will receive no assistance for converting derelict dwellings to day centres, I assume that they too would have voted against the orders.

My hon. Friend the Member for Bristol, South also discussed large-scale repairs to church buildings and to historic buildings owned by local authorities, churches and other charitable organisations. Those who wish to repair and maintain historic buildings such as churches and cathedrals will face the imposition of value added tax at 17.5 per cent. In general, it is the community that cares for such buildings and promotes improvements. The Minister is saying that there will be no concession when repairs and improvements are undertaken.

I have corresponded with the Treasury on behalf of the Bishop of Wakefield, who has made representations in the past. It is disappointing to hear the Minister reiterate his opposition to my arguments.

My concern is heightened by the Minister saying that the Government do not intend to assist charitable organisations, churches and religious organisations in the maintenance and conversion of buildings that would be to the benefit of the community generally. If the Minister cannot give any assurances this evening, I hope that he will understand that we are saying that the orders do not help people who are in great need. Disabled and elderly people will suffer because the Government are not prepared to give any serious consideration to their needs.

As my colleagues have said, we shall vote against the orders. I hope that in doing so we shall impress upon the Government the need to propose further orders to give relief to charitable organisations and religious organisations that are working hard to maintain communities and historic buildings while providing care and attention.

Mr. Nicholas Brown (Newcastle upon Tyne, East): On a point of order, Madam Deputy Speaker, relating to the

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accountability of the Secretary of State for Health to the House. We debated health care on Monday and we spent all day yesterday on health care issues when debating the Health Authorities Bill on Report and on Third Reading. The Secretary of State spoke in both debates.

This afternoon, in answer to a written question, the right hon. Lady has announced a rise in prescription charges of three times the rate of inflation. She could not possibly have made the decision this morning. She must have known about it on Monday and she certainly must have known about it on Tuesday, yet she did not share the information with the House. Perhaps you, Madam Deputy Speaker, will advise me whether the Secretary of State has sought to make a statement on this important matter. Perhaps you will also advise me on whether it was treating the House with due and proper respect for the right hon. Lady to have withheld a statement from us yesterday.

Madam Deputy Speaker: It is not for the Chair to dictate to members of the Government or any hon. Member what they should or should not say to the House. I gather that the announcement has been made in the form of a written answer, which is a well-precedented method of providing information to the House. There are Ministers on the Treasury Bench, and I have no doubt that they will convey the views of the House to the Secretary of State for Health. I am sure that there will be other ways of dealing with the matter. I am confident that hon. Members will try to find apposite ways in which to raise it properly. We cannot do more now.

Mr. David Evans (Welwyn Hatfield): On a point of order, Madam Deputy Speaker.

Madam Deputy Speaker: Is it on the same point of order?

Mr. Evans: Yes. Would you agree, Madam Deputy Speaker, that it is a bit rich for Opposition Members to talk about prescription charges when it was a Labour Government who introduced them in the first place?

Madam Deputy Speaker: That is not a point of order for the Chair.

Mr. Ian McCartney (Makerfield): On a point of order, Madam Deputy Speaker.

Madam Deputy Speaker: Is it on the same point?

Mr. McCartney: Yes; it is a genuine point of order.

When I was a member of the Opposition Front-Bench team with responsibilities for health, the issue before us was raised on a point of order last year. I remember that a ruling was given by Madam Speaker on the way in which such information should be released. Until last year, there was a precedent that information about increased prescription charges was not released in the form of a written answer. Following Madam Speaker's ruling, I believe that the Secretary of State for Health made a statement. Perhaps a check should be made to ascertain whether Madam Speaker's ruling has been broken by the Secretary of State's written answer.

Madam Deputy Speaker: I am not aware that any rule has been broken. However, in the light of the hon. Member's remarks, I shall have the matter checked.

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Mr. McCartney: Thank you, Madam Deputy Speaker. I have spoken from my recollection. If I have misled you, I apologise in advance. Thank you, Madam Deputy Speaker, for taking up a serious and important matter.

Madam Deputy Speaker: Let us continue with the debate.

5.46 pm

Mr. Clive Betts (Sheffield, Attercliffe): I shall take up the issues raised by my hon. Friend the Member for Bristol, South (Ms Primarolo), who spoke from the Opposition Front Bench about housing associations. There is concern given the current climate. For example, only 500 local authority homes were built last year. The number of people on the housing waiting list in my constituency is rising all the time. They are waiting for homes to rent because they cannot afford to buy as the economy stands. In reality, their only hope is to look to housing associations, of which there are many in my constituency. The associations wish to develop new homes or substantially to improve existing properties.

Only yesterday, the Committee considering the Finance Bill discussed Government policy, which sometimes, inadvertently, can have a detrimental effect on housing policies. We discussed rather complex matters, which included qualified indexed securities and how the withdrawing of the tax advantages that those securities enjoy could lead to additional costs for housing associations. There is a real financial problem for the associations. The reduction of housing association grant towards the costs of development has put pressure on the associations. The Government probably intended that to happen. They want the associations to go into the private sector to raise money.

The additional costs that have to be borne by housing associations in raising more private sector finance have forced up rents to a point where the Government are becoming worried about the benefits that they are having to pay tenants. A poverty trap is developing. People can enter housing association properties as tenants only if they are on benefit or they can afford to pay high rents of £70 or more that the associations have to charge. Any measure that causes extra costs to fall upon the associations will ultimately bear upon their tenants.

If the tenants are on benefit, they can pass the costs back to the Government, which means that the Government will not save anything. At the same time, some people who are not on benefit will not be able to pay increased rents. Our concern is whether housing associations will incur additional costs because of these orders and, if so, whether the Government understand what those costs are. If the Government accept that the costs exist--associations have given me evidence that they do--are they prepared to reconsider the matter rather than simply continue with orders that could have a considerable impact?

I received a letter from Northern Counties Housing Association Ltd., which is very active in the Sheffield area. It provides a number of high-quality homes, from which my constituents and many others in the north benefit. It says that, having assessed its development programme, this year some £5 million of the programme will be affected by the order, which comes into effect on

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1 March 1995. It concluded that, for a full development year, the order would cost it between £750,000 and £1 million.

I am not sure whether the Paymaster General heard those figures or whether he is otherwise engaged on the Front Bench, so I shall repeat them for his benefit. Northern Counties Housing Association Ltd. says that the impact of the order on its finances will be £750,000 to £1 million a year in extra VAT, which it will have to pay. That is its own assessment of the complications of the order. The Minister must respond to that issue, because if that housing association is affected, I cannot believe that other associations will not have similar problems.

Embryonic associations are, by their very nature, small. Many of them are just starting and they will not necessarily have people with the accountancy skills and expertise to interpret the orders to determine precisely the VAT impact for their own accounts. No doubt, once they begin to recognise the effect of the orders, the information given to us by Northern Counties will come through from the other associations and will show the costs, which will fall not only on the associations but their tenants. Those costs will restrict some people becoming housing association tenants in new properties.

Mr. McCartney: On a point of order, Madam Deputy Speaker. I apologise to hon. Members on both sides of the House and to you personally, but it is related to the point of order that I raised earlier. I have been to the Library, to assist the House, and have obtained a copy of the ruling that was made by Madam Speaker, in relation to a matter that was raised by my hon. Friend the Member for Sheffield, Brightside (Mr. Blunkett).

Madam Speaker issued quite a stern warning and made it clear how she expected the matter to be dealt with in future. Madam Speaker had this to say:

"The written answer given yesterday, which is in columns 95 and 96 of Hansard , is concerned almost entirely with the proposed level of prescription charges for the year 1993-94, and is described as `pursuant to' an answer of 15 February to the hon. Member for Erith and Crayford (Mr. Evennett), which is at column 162 . I have noted that the Select Committee on Procedure, in its third report of Session 1990-91, stated its belief that

`the use by Ministers of "pursuant" answers is inherently undesirable.'

The report goes on to say:

`The offence is compounded when . . . an answer is given which claims to be "pursuant" to an earlier reply but which in fact has only the most tenuous link with it.'

As we well know, the House has not had the opportunity to debate the Procedure Committee's recommendations on how the practice should be dealt with. But I wish to make it clear that I deprecate the use of the `pursuant' device by Ministers to make written statements such as this without giving proper notice to the House. I hope that that clears up the points of order, and that we can now get on with our business."--[ Official Report , 3 March 1993; Vol. 220, c. 301-302.] Madam Speaker made it clear how she wished matters to be dealt with in future. I hope that that is helpful to you, Madam Deputy Speaker, and to the House. Perhaps the Secretary of State for Health will now come to the

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House--the business could be rearranged--and make an appropriate statement to my hon. Friend who raised the original point of order.

Madam Deputy Speaker: As I just explained to the hon. Gentleman, I am causing my own inquiries to be made. I would not wish to make any further point on the matter at the moment.

Mr. Betts: The point that I am making on behalf of the housing associations is that there appears to have been a change of practice. Housing associations fear that work that they had carried out that was previously zero-rated will now not be zero-rated because it is not covered by the order. I would like the Minister to respond to that.

He seemed to be saying earlier, when justifying the order, that there have been examples in the private sector of people trying to claim that different reeds on thatched cottages meant that the property was being converted. Anyone can reach the rational judgment that that is not so. I presume that more substantial conversion works that have been carried out by housing associations have been zero-rated in the past but will not be in future as result of the orders. In an attempt to clear up one or two obvious anomalies, it appears that the Government are changing the approach, which will have an effect on genuine conversion works and mean they will be subject to VAT at the full rate in future.

No doubt the Minister will tell us that these matters must be consistent with practice in the rest of the European Union, that the Commission will take a dim view of it or that the European Court will pass judgment if the Government act in any other way. I remind the Minister that, when the European Court looked into UK policy in 1985, it ruled that the Government's stated policy of facilitating wider home ownership was a legitimate social goal. It did not in any way challenge the zero-rating and relief on new buildings to be used for domestic, relevant residential or relevant charitable purposes. The Government probably have more room to manoeuvre in that area than they have so far led us to believe.

I do not want to give the impression that zero-rating of conversions of non -residential properties to residential properties is opposed by the Opposition. There are many derelict ex-industrial and commercial properties that can be converted for residential purposes, and we support zero-rating of those conversions to encourage that process. I would argue, however, that, in many parts of the country, there are simply no such old industrial and commercial properties. They may be prevalent in the old textile areas, but they certainly are not in steel areas like my own, where ex-steel buildings were often little more than tin sheds, which certainly cannot be converted in any meaningful way.

The conversion work that takes place in my area tends to be of residential rather than commercial buildings and therefore would be subject to VAT at the full rate. I ask the Minister to reflect on that, because it seems that zero-rating might simply encourage people who convert barns into luxury homes rather than provide for the needs of people who need rented accommodation in our city areas. I now deal with the issue of piggy-backing of embryonic associations and the point about leases, which was raised by my hon. Friend the Member for Bristol, South. It is a serious point; it could stop that practice. It is the only way in which many small associations can get

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started, and I hope that the Minister will give it further thought. We cannot amend the orders, but at a later date the Minister could table some proposals to deal with that.

The order could lead to a nonsensical position. Options are open to local authorities to deal with rundown stock. I can think of one estate in my constituency that has now been renovated, but where difficult choices would be posed by the order. It is an estate of old maisonette blocks, and a number of options could be available. If the local authority had the money, it could choose simply to repair those properties and put in new central heating schemes and new windows, in which case it would not pay VAT. It could top the maisonettes and convert them into single-storey houses--that process is quite common now--and that would not be subject to VAT. It could raze the properties to the ground and build on the concrete bases, which would not be subject to VAT. It could demolish them completely and start again and build new homes, if it had the resources, which would not be subject to VAT.

If, however--this has happened--it wants to do a deal to raise money and sell some of the properties to a housing association and use the proceeds of the sale to refurbish its own properties, the housing association then has a different range of choices. If it demolished the properties completely and builds new properties on separate sites around the overall site, VAT would not be payable. However, if it simply made repairs or did small jobs such as installing new central heating systems that would be subject to VAT.

If the housing association decided to take the top off maisonettes and convert them to single-storey properties, would such work be zero rated or subject to VAT at 17.5 per cent? If a housing association demolished properties completely and built homes on the concrete base that was left, would that be a conversion or a new build and would it be zero rated or subject to VAT at 17.5 per cent?

It appears that housing associations' choices will be conditioned and directed by the VAT regime into which the order introduces distinctions. I am not sure whether those distinctions are helpful. I am not sure whether they help the process of rational choice for housing associations. Some of those choices will now carry full VAT where previously they did not and that means extra cost for housing associations. Will the Minister assure every housing association in Britain that the order will not mean any extra costs for them? Many of them believe that the costs will be substantial and that rents will rise as a result.

6 pm

Mr. Heathcoat-Amory: My hon. Friend the Member for Isle of Wight (Mr. Field) and the hon. Member for Normanton (Mr. O'Brien) referred to repairs to protected or listed buildings. I should like to restate what I set out at the start of my remarks about the distinction between alterations and repairs with regard to such buildings. In 1984, alterations to buildings generally were made subject to VAT, but at that time, the relief for alterations was retained for protected buildings. Hon. Members may regard that as an anomaly, although I do not think that during the course of the debate any hon. Member has called for the withdrawal of that zero rate.

If it is an anomaly, it is one that is valued by the heritage lobby and it is quite distinct from the question about whether repairs to all buildings, whether listed or

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not, should be zero-rated. At the moment, they are all subject to VAT at the standard rate. Because of the sixth Council directive, we cannot introduce new zero rates. That directive was negotiated and agreed in 1977 by the Labour Government, so Opposition Members would not wish to disown that.

With regard to a possible reduced rate for repairs, we have no plans to introduce any reduced rates beyond that obtaining for domestic fuel and power. I, as Minister responsible, receive many requests for new reduced rates for all sorts of goods and services. Recently, we had such a request for energy-efficient goods and equipment.

We resist those, partly because of the expense and the revenue lost, which would simply have to be made up elsewhere by taxing other people at a higher rate, but also because any reduced rate creates new distinctions and borderlines, which creates scope for disputes and litigation. Therefore, in the interests of administrative simplicity, we shall stick with our system of standard rates and a zero rate.

We can introduce reduced rates only if they are on annexe H of the sixth Council directive. Repairs to churches and ecclesiastical buildings do not appear on that annexe. The matter is being reviewed, and the Commission was required to bring forward proposals for consideration by the Council of Ministers. The Commission has reported, and it is not recommending any substantial change to that list of permitted reduced rates. In any case, the reduction would require unanimity by the Council of Ministers, so it is extremely unlikely, given the facts that I have outlined, that a reduced rate for repairs, whether to all or only listed buildings, will be introduced.

I do not have much time to answer the debate, but my hon. Friend the Member for Isle of Wight raised the question of the option to tax, which he thought should be extended to individual leases as well as to whole buildings. I may not be able to answer all his points, and he will forgive me if I write to him about the detail, but I can say that to do as he requests would introduce a new element of complexity into the system at a time when we are trying to deregulate. These orders are deregulatory in intent, and if we were to try to permit the option to tax to apply to individual leases, complications would be created in a single building when some are taxed and some are not. For example, how would VAT be attributed to common services such as lift repairs or the repointing of brickwork? That would be complex and regulatory at a time when we are trying to move in the opposite direction.

My hon. Friend complained that the revocation of the option of 20 years was too long. We shall continue to review that, but I think that he would be generous enough to agree that to allow revocation at all is at least an important first step, and that is provided for in the order.

Several hon. Members referred to housing associations. I should say at the outset that the Housing Corporation is providing capital of about £1.2 billion a year for the next three years for housing associations, and that will also lever in about £550 million a year of private sector capital to promote housing association projects and enable them to go ahead.

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The main point that I wish to make is that the orders give housing associations a new opportunity to take advantage of conversions for the first time. The new relief will help housing associations to convert non-residential dwellings into student accommodation, hospices, children's and old people's homes and so on.

There would be some dismay in the outside world if a party in the House were to vote against the orders, because this is a relieving provision which has been welcomed by the housing association movement. I frankly could not understand the reasoning of the official Opposition or individual Opposition Members in apparently opposing this relieving order.

It is true that small housing associations often use larger ones as agents to undertake large building or conversion projects, but they are not put at a disadvantage as regards VAT. Under the present law--this is carried forward in the new order in item 3 of the construction order--architects' and surveyors' fees are not recoverable--there is nothing new or unusual about that--but no additional liability arises as a result. There is no extra cost to housing associations here. I can give that assurance to the hon. Member for Sheffield, Attercliffe (Mr. Betts), who asked me about that. This is a relieving measure.

Housing associations are being given a giant new opportunity to help revive and regenerate in urban areas by the use of conversion. They can take rundown, non-domestic buildings, such as warehouses or mills, as the hon. Member for Gordon (Mr. Bruce) instanced, and turn them into dwellings, flats, or residential accommodation for the old or the sick.

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