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Mr. Harris: Will the hon. Gentleman give way?

Mr. Fallon: No, I must be fair to other hon. Members who want to speak.

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There is a best case, there is a worst case, but Kent county council, for example, has estimated that in mid case it will lose around £62.4 million—a budget cut of around 6 per cent., a loss for Kent schools of around £20 million, a loss for social services in Kent of around £5 million. These are the examples set out in the illustrative tables for the formula grant review. I do not want funding for Kent to be cut, as it is being cut at the moment. I make it clear that I will oppose those particular cuts.

It is odd for the Government, at the same time as announcing all this spending nationally and having taken the political credit for it, to be consulting on options for transferring that spending from the south to our friends in the north. It is particularly odd to be doing it now, before we have the results of the census next year.

The spending review clearly is not just about more money. It is driven fundamentally by politics rather than economics. It is unaccompanied by serious reform of public services. It is based on made-up, moving targets. Nothing in it convinces me that public services in west Kent will get any better.

8.15 pm

Alan Howarth (Newport, East): The spending review, with its focus on education and research, promises well for our country. My right hon. Friend the Chancellor in his announcement about funding for science has provided an excellent first instalment. We must now wait and see what improvement the Government make in their support for the university system as a whole.

The hon. Member for Sevenoaks (Mr. Fallon) and other right hon. and hon. Members have ranged broadly and fascinatingly. I would like to concentrate on one particular issue: public expenditure on university museums and galleries and—the other side of the coin—their liability to value added tax.

The university museums deserve the Government's support, benefiting as they do so many aspects of the public good. The university museums are custodians of the oldest legacy of publicly accessible collections. They have a long and distinguished history of public engagement as well as being repositories of scholarly expertise.

The nation's first museum education service was established 90 years ago in the Manchester museum, part of the university of Manchester, a service that is now provided to 25,000 children each year and reaches out into a culturally diverse local community. University museums are particularly well placed to help to widen access to higher education. They contribute to economic regeneration as important elements in regional tourism and cultural strategies.

I refer those who wish to know something of the history of the university collections to various excellent studies by Ms Kate Arnold-Forster, who was once a pupil of mine. The Ashmolean was the first museum in England to be opened to the public, in 1683. Colleges, universities and learned societies were institutional recipients of gifts of collections from an early date. The Hunterian museum of the university of Glasgow is based on the bequest of William Hunter in 1783, and is Scotland's oldest museum. The Fitzwilliam museum derives from the legacy of Viscount Fitzwilliam, who died in 1816. Other magnificent benefactions were the Courtauld Institute of

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Art collection, established in 1931, and the Percival David collection of Chinese art, presented to the university of London in 1951. Other collections were developed by the universities over centuries as resources for teaching and research, particularly in the natural sciences.

The Sedgwick museum of geology, for example, stems from the collection of Dr. John Woodward, bequeathed to the university of Cambridge in 1727, together with detailed instructions for its preservation and educational use. Important anthropological and archaeological collections came from great scholar collectors—for example, W. M. Flinders Petrie, whose Egyptology collection belongs to University college, London.

The movement to create new public museums, national and municipal, in the 19th century did not displace the tradition of university collections. In 1868, Owen's college, later the Victoria university of Manchester, accepted the collection of the Manchester Society of Natural History, which had been rejected by the city of Manchester.

What should the Government's responsibility be in regard to the university collections? We look to Government to do their best to ensure that the universities have, all in all, sufficient funding to fulfil their and society's expectations of them. Guardianship of our cultural heritage, and the provision of access to learning about it, are among those expectations.

Some university collections are admirably managed and presented; others have been sadly neglected, with their parent universities unable to provide the necessary resources, and survival of the collections effectively depending on the devotion of volunteers. We read recently, in The Guardian of 16 July, of admirable efforts at the university of Leeds to rescue and display collections in the fields of chemistry, biology, Arabic and textiles.

The old University Grants Committee used to provide so-called "non-departmental special factor" funding to universities in recognition of their collections, but as that came through the general block grant it is not clear that it achieved any more than to stabilise existing levels of funding. To the credit of the current Government and the Arts and Humanities Research Board, a substantial proportion of the AHRB's resources—almost £8.5 million in 2001–02, rising to nearly £9.15 million in the present year—is now channelled to 52 university museums and collections. Resource, funded by the Department for Culture, Media and Sport, also contributed just over £3,850,000, to 16 university museums with collections designated as outstanding between 1999 and 2002. I very much hope that we will shortly hear of further grants through the designation challenge fund to this group of university museums containing pre-eminent collections.

The number of visits to the university museums with designated collections in 1999–2000 was almost 1.5 million. They are an important and much valued source of pleasure and instruction for the public. My own passion for museums began with childhood visits to the Barber Institute of the university of Birmingham. The recent study, "Renaissance in the Regions", commissioned by the DCMS, made it clear that the university museums should play an enhanced role in strengthening the cultural life of the regions, as well as in support of tourism and the creative economy.

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There is one particular anomaly in the financial regime for university museums to which I want to draw attention. As long as the university museums refrain from charging the public for access to their collections, they, alone among museums, cannot recover input VAT. As the House knows, other national museums and galleries were, until last year, in an invidious position. Those museums that wished to retain free access found that the VAT rules gave them a perverse incentive to introduce entry charges, since by doing so they were able to recover the VAT that they paid on expenditure incurred in providing services. By contrast, the museums that did not charge for admission were unable to recover the VAT on any associated expenditure, resulting in considerable additional cost, simply because they were not charging admission fees.

That presented an impediment to the fulfilment of the Government's policy to secure free entry to the national museums and galleries, which my right hon. Friend the Member for Islington, South and Finsbury (Mr. Smith), as Secretary of State for Culture, Media and Sport, and I, as Minister for the Arts, were pursuing. It took us a long time, between 1998 and 2001, to achieve what we sought. We were stalwartly supported by the directors of the non-charging national museums and galleries. We had endless discussions with Customs and Excise and the Treasury, which did not want any chipping away at the splendid edifice of VAT and, as always, prided themselves on their resilience in the face of lobbying. I was closely in touch also with some of the great benefactors of our public collections, the National Art Collections Fund and Sir Denis Mahon, who felt very strongly about this and added their voices to the cause.

The Treasury adduced a variety of objections, both general and technical. I was particularly indebted to Ms Helen Donoghue, whose help we enlisted and who found a solution which was technically sound and at the same time protected the Exchequer's interest against a proliferation of concessions. I was even more grateful to my right hon. Friend the Chancellor for agreeing that the Finance Act 2001 should, at section 98, amend the Value Added Tax Act 1994 to include a new section 33A. That empowered the Government to specify, by statutory instrument, individual museums which, while not "engaged in economic activity," should none the less be able to recover all the previously irrecoverable VAT that they incurred. The Government duly, by order, relieved the national museums and galleries of this burden and disincentive to maintain or create free entry. I was delighted to note that my right hon. Friend the Chancellor, in his announcement of the outcome of the spending review last week, stated with satisfaction that

We have the anomaly, however, following the order, that the university museums that offer free entry are the only remaining category of public museums liable for irrecoverable VAT. I should explain to the House that the term "national", as applied to museums and galleries, is an administrative term of art referring to a limited group of some 13 institutions that, for reasons of history, fall within the category. The group does not include the university museums. I should also explain that there has not been a similar problem in relation to local authority museums and galleries, as they already enjoyed VAT

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relief under section 33 of the 1994 Act, and have therefore suffered no tax penalty should they offer free entry. The rationale for the concession to local authorities was that it did not make sense for Government to fund bodies to pay tax—a rationale that applies equally to university museums. Again, private museums, which are independent of public funding, do not have a problem in this respect because they need the income that they receive from charging and can recover their input VAT.

I had argued that the university museums should be included within the scope of the new concession, and I discussed the problem with the AHRB. However, lead responsibility in Whitehall for the universities, including their museums, rests not with the DCMS, but with the Department for Education and Skills, and the university museums were not included in the order. I would ask my hon. Friend the Financial Secretary and my right hon. Friend the Chancellor, together with the Secretary of State for Education and Skills and the Secretary of State for Culture, Media and Sport, to reconsider their position on the matter.

I do not propose that the relief should apply to every university collection. Because of the manner in which some of them are housed, it would, in practice, be impossible to separate the costs associated with them from other costs of their institutions. My proposal is that, in England, the concession should be extended, by order, under the powers already established in last year's Finance Act, to those university museums that have collections that are formally designated by Resource, the Council for Museums, Archives and Libraries, as outstanding. There are 16 of those. In addition, the Sainsbury centre at the university of East Anglia, which receives AHRB funding in recognition of its quality, should be included, making it possible to abolish its entry charge.

Although there are no equivalent schemes of designation in Scotland, Wales and Northern Ireland, a limited number of university museums of appropriate quality in these territories should also be selected for relief. In Scotland, those might be among the six distinguished museums and collections, most notably the Hunterian, in receipt of funding from the Scottish Higher Education Funding Council's minor recurrent grant stream of nearly £1 million for museums, galleries and collections. In Wales, significant collections at the universities of Swansea, Aberystwyth and Glamorgan are for consideration. The forthcoming survey by the Northern Ireland Museums Council of the university collections in Northern Ireland will provide a basis on which to judge eligibility there. The Government would wish to agree the list with the devolved administrations.

I do not see any significant objections to my proposal, which, of course, is along the same lines as recommendations that have also been made by the universities. Representations to the Government have, I know, been made by Professor Sir Martin Harris, vice-chancellor of the university of Manchester, on behalf of Universities UK, by Professor Paul Slack, pro-vice- chancellor of the university of Oxford, and, jointly, by Dr. Christopher Brown, director of the Ashmolean museum, and by Dr. Duncan Robinson, director of the Fitzwilliam museum.

There is no technical difficulty. The Government have the statutory power to extend the list by order. I understand that my right hon. Friend the Chief Secretary

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to the Treasury, when he was Financial Secretary, met Sir Martin Harris, and in uttering a charming but categoric "no" to Sir Martin's plea, said that the European Union might have difficulties with the proposal. In fact, we have the words of the President of the European Commission, in a letter to Sir Denis Mahon:

Very recently, Mr. Stephen Bill, the head of indirect taxation in the European Commission, has confirmed that there is no technical objection to the original scheme or to its extension to university museums.

My right hon. Friend the Member for Brent, South (Mr. Boateng) also wrote to Dr. Brown on 9 May. He did his duty in devising arguments to oppose our case, but he was in some difficulty. My right hon. Friend said that extending the concession beyond the national museums and galleries would

I submit that the rationale could not be undermined by admitting to the list specific bodies that provide identical services and which, like the national museums and galleries, are substantially funded by the Government. No other cultural or heritage bodies are analogous.

My right hon. Friend's letter went on to say:

Of course, it is not for the Government to dictate, but they should cease to discriminate against these institutions and they should remove from them the pressure to charge for entry.

It has not been suggested that the Government ever committed themselves to ensuring free entry. There have, however, been endless statements from Ministers about the desirability of matching excellence with access. My right hon. Friend the Minister for the Arts wrote to me on 8 May saying:

My right hon. Friend the Chancellor himself said plainly in his Budget statement last year:

The Government need not fear the cost, either. The combined turnover of the 16 university museums with designated collections in 1999–2000 was just over £18 million. The Treasury was unable to tell me, in answer to a parliamentary question, how much irrecoverable VAT was paid in respect of these museums in the past three years, but the best estimates from university sources that I have been able to obtain indicate that, setting aside any exceptional building costs, the annual aggregate is unlikely to have been much more than £500,000. Occasionally, if it was lucky, a university museum might find itself in a position to undertake a substantial new building project or refurbishment that would produce an exceptional increase in the VAT figure.

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We are looking, however, at costs affordable to the Exchequer by any standard, yet truly significant as relief for the university museums.

There is no danger that universities would seek to smuggle in other items of spending to exploit the concession. The accounts are entirely distinguishable, and Customs and Excise officials have recently made it clear that they regard the activities of university museums as being sufficiently removed from the main educational activities of the university not to be caught by the university exemption.

Nor is the designation scheme a Trojan horse. The chair of Resource, Lord Evans of Temple Guiting, has assured the Treasury that, after a minimal addition to the list in 2003, it will be closed. In any event, the Government have the safeguard that they nominate individual institutions to be added to those given relief from VAT under section 33A.

The VAT concession that I seek for university museums is feasible within existing legislation; it is affordable; it is consonant with the policy and values of the Government; and it would put an end to an injustice. My proposal provides an opportunity that should always be welcome to a tax authority—to get rid of an anomaly.

My right hon. Friend the Chancellor once fought a notable battle in the cause of free access to a university collection. As rector of the university of Edinburgh in 1972, when the then Government proposed to bring in charges for entry to museums, he insisted that the university should require that its paintings on long-term loan to the national gallery of Scotland should continue to be shown free to the people of Scotland. I hope that he, recalling that spirit in these no less heroic days, will once again raise the banner.

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