Reply from Rt Hon Margaret Hodge MBE MP,
Minister of State for Children, Young People and Families to Mr
Barry Sheerman MP, Chairman, Education and Skills Select Committee
Thank you for your letter which I received on
28 April. You make a number of points about the decision to reduce
the VAT transitional support money to Connexions partnerships
and the impact you believe this will have.
The £25 million from the VAT transition
support funding has been identified to provide a vital contribution
to the successful implementation of the Green Paper Every Child
Matters. This will help to fund new initiatives such as the
creation of a Children's Commissioner and establishing a Local
Authority Safeguarding Children's Board in each Local Authority.
Our first priority is to safeguard the quality
and scope of delivery of front line services to young people.
We needed to look at ways of Connexions partnerships becoming
more tax-efficient. To this effect the partnerships are considering
changes to their delivery mechanisms and/or routing their funding
differently. I can assure you that my Department is providing
full support as the partnerships shape their decisions.
In reducing the VAT pot rather than the Grant,
we have tried to find a solution that minimises the impact on
delivery, and do not expect that this will lead to inevitable
damage to front line delivery. I acknowledge that this will be
easier for some more than others. But faced with a choice of funding
a VAT bill in excess of £36 million and supporting the effective
implementation of the Green Paper, it is hard to defend any decision
that prioritises the former over the latter.
I can confirm that we have had discussions with
HM Customs & Excise about this matter. They have made it clear
that they will not change their ruling on the VAT status of Connexions,
which included ending the transitional arrangement allowing partnerships
to reclaim VAT on 1 April 2004. This brings Connexions into line
with other similar programmes, some of which have challenged the
ruling but without success.
The decision about what tax efficiency means
for each partnership is the responsibility of individual Boards.
The Department is not directing partnerships to choose one delivery
model over another. However, as partnerships consider their future
structures, we will where possible provide support. For example,
the Department and Her Majesty's Customs and Excise officials
recently ran a VAT workshop for partnerships which I understand
Chris Andrews, Chief Executive, Connexions Sussex attended. This
has been followed up with joint guidance on the VAT implications
of different delivery models:
I understand that Connexions Sussex are adopting
a "lead body" model. This does not mean that they lose
their independence. Arrangements between the partnership and local
authority should still enable the partnership board to give strategic
direction, determine priorities, and allocate resources.
I appreciate that it will not be easy for those
partnerships who decide to make structural changes. We have taken
soundings from those partnerships already changing and this may
take time to achieve. We still have £11.8 million transitional
VAT funding to support partnerships in 2004-05 which, as you rightly
say, we expect will cover around 30% of partnerships' VAT costs.
However, a change in structure even part way through the year
would still reduce the amount of irrecoverable VAT partnerships
would incur.
Finally, I do want to put on record my thanks
for all the hard work those involved have put into developing
and delivering the Connexions service. The challenges have been
huge and we very much appreciate their continuing hard work and
dedication.
18 May 2004
| 
