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The Economic Secretary to the Treasury (Mr. Ivan Lewis): I begin by congratulating my hon. Friend the Member for Wansbeck (Mr. Murphy) on securing this Adjournment debate. He has raised an issue that is important not only to his constituents, but to others.

There is no doubt, as my hon. Friend has said, that miners' welfare institutes and similar facilities play a very important role in their communities. I applaud the contribution, often voluntary, that the committees and trustees of these organisations make to their communities. The Government have recognised, as my hon. Friend acknowledged, that current and former mining areas present many challenges. As the coalfields' taskforce report summed it up, the coalfields have

The Government are committed to thriving, sustainable communities and to making that commitment real for coalfield areas. As my hon. Friend said, we have established the national coalfield programme; a 10-year, £500 million commitment. We have also created the Coalfields Regeneration Trust, which has become a central player in the social regeneration of pit communities, including providing support to thousands of community groups. We have also made support
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available through the sustainable communities plan, the coalfield enterprise fund, regional development agencies, local authorities and English Partnership.

I therefore hope that my hon. Friend will agree that there is no lack of determination on the part of the Government and their local partners—backed by significant resources—to help tackle problems faced in coalfield areas, and to support the social regeneration of pit communities. My hon. Friend was gracious enough to acknowledge that that is an accurate description of what the Government have tried to do since 1997.

I now turn specifically to the VAT rules. I should explain that the VAT treatment of construction work is mainly the product of the historical development of the tax decisions taken by previous Governments. When VAT was introduced in 1973, zero rating applied to the construction, extension and alteration of all buildings. However, the then Government decided not to apply that relief to any service of repair, maintenance, or refurbishment of any building, except for a small number of alterations made to listed buildings or to facilitate access and use by disabled people. Following a European Court ruling, the VAT relief for commercial construction was withdrawn in 1989.

The current position is therefore that VAT relief applies only to the construction of certain new residential and new charitable buildings. In the case of charitable buildings, that VAT relief for new constructions applies only if the building will be used by a charity solely as a village hall or similarly in providing social or recreational facilities for a local community, or less than 10 per cent. for a non-business use; for example, an activity for which no charge is made.

VAT has always been chargeable on repairs, maintenance and refurbishment for all types of buildings, although there is some limited relief in relation to alterations to listed buildings, or alterations to certain buildings to facilitate access and use by disabled people, as I have said.

I am grateful to my hon. Friend for drawing my attention to the circumstances of Hirst welfare centre in his constituency. It clearly has an august history, as some of the great sportsmen and women of this country began to develop their interest in sport there. As a Manchester City fan, I will not hold it against my hon. Friend that Bobby Charlton learned his trade at the Hirst welfare centre.

As my hon. Friend is aware, the administration of VAT reliefs set down by Parliament is a matter for Her Majesty's Revenue and Customs and it would not be appropriate for me to comment on this, or any other specific case. As I have said, there is VAT relief in certain circumstances for new constructions of, for example, village halls and it may be that a newly built miners' welfare institute could qualify for that relief. The building would have to be for use by a charity. As my hon. Friend said, there should be a high degree of local community involvement in its operation and activities, which should be predominantly social and/or recreational and no part of the building should be dedicated exclusively to a non-social or non-recreational activity. However, as has always been the case, even if the building were to qualify as a
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village hall, VAT relief would not extend to repairs, refurbishment or alterations, except in the circumstances that I have already described.

If the Hirst welfare centre believes that it qualifies for VAT relief, there are well established procedures in place for HMRC to consider or reconsider the VAT treatment that should apply, and I would strongly encourage the trustees and my hon. Friend to pursue those. If there is still no agreement, an appeal may be made to the independent VAT and duties tribunal to decide the matter.

If it were to transpire that the Hirst welfare centre, having disclosed all relevant facts to HMRC, relied upon an incorrect ruling from HMRC—as my hon. Friend suggested might have been the case—and undertook a construction project on the understanding that no VAT would be incurred, HMRC would consider whether an ex gratia payment, equal to the VAT incurred, would be appropriate.

That is a matter for HMRC, and one in which it would be inappropriate for me to intervene directly. However, in such circumstances, provision exists for HMRC to use discretion. If my hon. Friend is right about the assurances given at the beginning of the process, that might be a useful avenue for him and the trustees to pursue.

My hon. Friend may ask whether anything can be done to remove VAT costs in this and similar situations. I should make it clear that, under the normal VAT rules, VAT chargeable on any construction work can be reclaimed by a VAT-registered miners' institute through the VAT system, when it relates to taxable business activities such as bar sales. Therefore, provided that the institute is VAT-registered, we would expect at least some of the VAT cost to be reclaimable.

However, the fundamental principles of the tax system mean that VAT is not chargeable on exempt or non-business activities, and that the supplier is unable to reclaim VAT costs incurred in providing those activities. The same applies to all the activities of organisations that are not registered for VAT.

The VAT rules apply equally to all businesses, charities or community groups. I am sure that my hon. Friend will appreciate that the situation that he describes is not unique to miners' institutes. Many other groups are in a comparable position, in that they provide a range of facilities or services to the community and are subject to the same VAT rules. For that reason, when community bodies or charities bid for funding for capital projects, it is usual for the bids to take into account any irrecoverable VAT costs.

As my hon. Friend is probably aware, VAT reliefs are governed by European agreements, entered into by successive Governments, that mean that we cannot extend existing VAT reliefs or introduce new ones. Therefore, it is simply not possible to introduce a zero rate for the repair or refurbishment of miners' institutes and community facilities, for example, or to extend the existing VAT relief for new constructions. Similarly, the availability of reduced VAT rates is governed by European agreements that provide no scope for the introduction of a reduced rate for the repair or refurbishment of any buildings other than housing.

As European agreements mean that it is not possible to extend the existing VAT reliefs, my hon. Friend might ask why we do not simply undertake to refund or compensate
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an institute for any VAT that is not reclaimable through the VAT system. Such a solution would not be without major difficulties, although of course we recognise the broader problem that irrecoverable VAT can create for charities and community groups. The issue has been considered in two major reviews since 1997.

The reviews led us to two basic conclusions. First, we concluded that it would not be an affordable or efficient use of public resources to reimburse all charitable, voluntary and community bodies in the UK for the VAT that they incur, regardless of the activities that they are involved in or their financial health. Secondly, we determined that there was no fair and principled basis on which we could decide that some organisations would be reimbursed their VAT and others would not. That remains the Government's position.

We have therefore chosen to provide support to achieve our social priorities outside the VAT system. I have mentioned one example already; the benefit accruing to    coalfield areas from the Government's 10-year, £500-million commitment to social regeneration.

My hon. Friend has raised an important issue and shone a light on a matter that otherwise would not get attention at this level. I listened carefully to what he said. As I noted earlier, I cannot comment on the specific case that he mentioned, other than to say that HMRC administers the VAT rules set down by Parliament and interpreted by the courts over the years. Well established arrangements are in place to settle disputes about the application of the rules and about what should happen if a fully informed officer of HMRC gives a wrong decision that in the end is to the detriment of taxpayers.

My hon. Friend has made an important case this evening. I urge him and the trustees of Hirst welfare centre to approach HMRC at a senior level and argue that there should be a different outcome in these circumstances. In addition, although I cannot intervene directly in the matter, I am certainly willing to facilitate contact between him and his trustees and senior officers in HMRC.

Given the constraints placed on me, I hope that my hon. Friend will find my response helpful. Moreover, I hope that the Hirst welfare centre trustees will see from the debate that their constituency representative has raised the matter in a responsible and effective manner and that, where possible, the Government will listen to the representations made to them.

Question put and agreed to.

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