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Mr. Whittingdale: That is not a generally accepted interpretation of EC law which does provide broad scope for the exemption of welfare services. Under the terms of the sixth directive, article 13a exempts
- "the supply of services and goods closely linked to welfare and social security work, by bodies governed by public law or by other organisations recognised as charitable by the member state concerned."
-
It makes it clear that, in cases where the supply is made by a body
"other than those governed by public law",
Following the result of the Watford home help tribunal case, the Government announced a review of the possible VAT exemption of home help services--I welcome that review. However, there is a real danger that any change may come too late. The consultation papers sent out to interested organisations have a response date of early next year. We do not as yet have a timetable as to when the review process will be concluded or when charities will be notified of the result. That leaves charities such as Age Concern in a difficult position. In a written answer on 3 November, the Financial Secretary said:
If the review results in an exemption from VAT, it may be too late for many of Age Concern's clients who will already have given up a service that they can no longer afford. What is more, in order temporarily to meet the cost of VAT, Age Concern is having to divert money from other areas of its activity. If the review does not come out in its favour, those reserves will be lost.
The charity has received conflicting advice. In a letter from Customs and Excise, the value added tax policy directorate says:
The imposition of VAT on those services will hit some of the most frail and vulnerable people in my constituency. One 84-year-old widow wrote to me saying:
Yesterday, the Government published a document entitled "Building a Better Britain for Older People". It states:
The Financial Secretary to the Treasury (Dawn Primarolo):
I congratulate the hon. Member for Maldon and East Chelmsford (Mr. Whittingdale) on initiating this debate and on his research on the issue. I hope that, when I finish my reply, both he and other hon. Members on both sides of the House who have written to me about the issue will be completely satisfied.
As the hon. Gentleman rightly said, in 1995, under the previous Government, there was a redefinition of welfare services. As a Minister, I followed that redefinition, which was provided for in legislation. He quoted a written parliamentary answer from me confirming that that was the policy that we inherited.
The Government completely support Age Concern's work, whether it is in Essex, Avon, Northumberland or anywhere else. We absolutely support the principle that we should as a Government facilitate the ability of members of our community to stay in their own homes for as long as possible. We recognise the contribution that charities--especially not-for-profit ones, such as Age Concern--make in those circumstances.
The hon. Gentleman mentioned the tribunal's decision. To save time, I shall not detail the very complex VAT reliefs, especially as they affect the charitable sector. I know that he is well aware that the House often has to deal with what are known as "border disputes" in the interpretation of tax law. Nevertheless, it is a matter of great concern that we shall have to deal with speedily.
I support the points that the hon. Gentleman made. It would be tragic if, while we were considering how to clarify rulings because of the tribunal's decision, there were subsequently problems for charities. It is important to understand the change in interpretation that is necessary because of the decision.
Before the tribunal's decision, our policy was to exclude services such as housework, shopping and gardening from the VAT exemptions unless they were incidental to the overall package of personal care.
The tribunal's decision has shifted that interpretation so that it now covers health and welfare. The VAT tribunal decided that services supplied on a not-for-profit basis constituted care for the purpose of VAT exemption--this is the crucial point--where social services assessed that there was a current or imminent substantial risk to the health and welfare of the recipient. The tribunal took a decision on the principle of interpretation. Customs and Excise now has to translate that decision on principle into how we make it work in action within the rulings and legislation.
The hon. Member for Maldon and East Chelmsford is correct. I have listened carefully and tried to ensure that we came to a conclusion as quickly as possible on this problem. The problem does not affect only Essex Age Concern. The problem that I faced was this; I will share it with the hon. Gentleman. We need to get the services that are covered by the new ruling right the first time round. We need to get a clear ruling from Customs and Excise so that the organisations can see where the exemptions exist.
We needed to be clear on exactly what services are provided by organisations such as Age Concern on a not-for-profit basis and what would and would not come within the changed decision on principle. We decided to consult directly with those organisations. A closing date of 15 January has been set for that consultation. I recognise what the hon. Gentleman said about the need for a final decision, so I intend to be able to announce the revised interpretation of the law on 1 February 1999. As this is not a change in law but a change in interpretation, the revised treatment can then be applied retrospectively. Charities will be able to claim a repayment and refund their clients.
"Charities, including Age Concern, Essex should not anticipate the outcome of the consultation".--[Official Report, 3 November 1998; Vol. 318, c. 448.]
That means, that as Age Concern has been told that its services are subject to VAT, it should either charge clients the full amount, including the tax, or subsidise the increase from its reserves. Age Concern has chosen to do the latter, but can afford to do so only for a limited time. If the review is not completed quickly, Age Concern will have no choice but to increase its charges to take account of VAT.
"For the present, charities may anticipate the announcement and apply the wider exemption immediately."
That clearly conflicts with the written answer given by the Financial Secretary. I hope that she will take this opportunity to make the position clear.
"I thought that the Government was committed to supporting those of us who wanted to stay in our own homes and not to be a burden on others."
The chairman of the Burnham patients liaison group wrote saying:
"as clients are mostly frail elderly, having to reduce or cease the service will, we are convinced, have a detrimental effect on their health, both physically and mentally. By this action, Customs and Excise are affecting some of the most vulnerable people in this country."
Perhaps one of the most moving letters I received said:
"My husband and I started work at the age of 14, worked all our lives and paid our taxes, now we are both disabled. I have had both my legs amputated and we need help, we get none but what we pay for. Now they want to put it up by £1 an hour. Either we will not be able to eat or keep warm, or we will have to live in filth because neither of us can do any housework at all. I am sure that you would not want to live like this."
24 Nov 1998 : Column 118
The review was a step in the right direction, but it would be an appalling irony if the review set up to address the problem caused the end to the services in question merely because of the time required to carry out the review.
"Most people do not need residential care. Effective joint working, with a focus on promoting independence, between health, social care, housing and other agencies can play a big part in helping older people stay in their own homes, in comfort and safety."
Nobody would disagree with that aim. However, imposition of VAT on home support services is likely to have precisely the reverse effect. Many of my constituents will be unable to afford the increased charges and, consequently, will be unable to stay in their own homes.
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