The VAT bill for alterations to Church of England buildings is set to rise by up to £20 million per year, unless a campaign to reverse a measure in the Government’s new Budget is successful.
On Wednesday of last week, the Chancellor, George Osborne, announced that alterations to listed buildings — which, unlike repairs and maintenance, are currently exempt from VAT — will be charged at the standard rate of 20 per cent from October this year.
The C of E estimates that this will cost up to £20 million each year, as “unglamorous” improvements (including facilities for the disabled and energy-saving alterations) are undertaken at its 12,500 listed buildings.
The charge will also have an adverse effect on bell-hanging and organ-building, where some schemes currently enjoy exemption from VAT.
The Budget document lists the change as part of a drive to address “significant anomalies” in the VAT system, which “cause very similar products to be taxed very differently”.
Making the change is expected to generate £50 million in 2012-13 and £190 million by 2016-17.
The document also states that the Department for Culture, Media and Sport (DCMS) will extend its Listed Places of Worship grant scheme in light of the move. The Government has not, however, specified any increase in the funding for this scheme, which, the Cathedral and Church Buildings Division of the C of E says, is already inadequate to cover all repair claims.
The effect of the extensions will reduce the proportion of the VAT costs refunded for repairs and maintenance, it argues.
Her Majesty’s Revenue and Customs (HMRC) has launched a consultation on the changes, which is open until 4 May. This makes it clear that, as the change is scheduled to take effect in October, transitional arrangements will be available for alteration works to listed buildings.
It states that most alterations are “not necessary for heritage purposes”, and argues that the current rules give a “perverse incentive” for change as distinct from repair. The borderline between alterations and repair is “a major source of confusion”.
The day after the Budget, the Bishop of London, the Rt Revd Richard Chartres, and the Second Church Estates Commissioner, Tony Baldry MP, wrote to the Chancellor, asking him to keep alterations to listed churches exempt from VAT.
Bishop Chartres, who chairs the Cathedral and Church Buildings Division, said that the extension of VAT would be “a blow” to the “huge number of volunteers who are working to open up their churches to wider community use, typically by providing unglamorous but necessary lavatory and kitchen facilities”.
Arguing that the C of E is responsible for 45 per cent of all Grade I listed buildings, and that £22 million in VAT liability was incurred by PCCs on works last year, the Bishop asked the Chancellor to exclude listed places of worship from the extension, or to provide some additional funds to the DCMS grant scheme.
About £107 million is spent annually on C of E churches, of which £70 million is raised locally by people for their parish churches. Mr Baldry made the same plea for an exemption, warning the Chancellor in his letter that he expects the change to generate “widespread concern”.
The issue was raised in the House of Lords on the day after the Budget by the Bishop of Chichester, Dr John Hind, who said that the change “rather blows any talk about the Big Society out of the water”.
The change to VAT will not affect places that charge for entry, and Dr Hind warned that it would increase the pressure on cathedrals to introduce admission fees. MPs from across the House of Commons have since raised concerns about the Chancellor’s plans.
On Thursday of last week, Sir Peter Bottomley, the Conservative MP for Worthing West, suggested that the Government could consider giving VAT relief to the cost of the maintenance and repair of listed buildings, or to a portion of these amounts.
On Monday, Fiona O’Donnell, the Labour MP for East Lothian, registered her concern about the impact of the change on churches, “which are so important to community life”. Tristram Hunt, the Labour MP for Stoke-on-Trent Central, described the change as a “real error”, which “speaks of a Government with little feel for the natural and historic environment of this country”.
Nia Griffith, the Labour MP for Llanelli, argued that it would be “much greener” and healthy for the construction sector to encourage alterations to listed buildings rather than new builds.
A spokesman for English Heritage said that the change recognised that the removal of VAT relief would eliminate a perverse incentive to carry out more changes to a listed building than were necessary, but warned that there would be a “potential negative impact” on private owners, charities, and places of worship.
English Heritage is seeking clarity from HMRC before making a full assessment of the impact of the changes.
Wakefield Cathedral, which was only three days into a large-scale restoration project when the Budget was announced, has launched a campaign opposing the change.
The cathedral has been fund-raising for work to renew the Grade I listed building for four years.
The Dean of Wakefield, the Very Revd Jonathan Greener, said that the Chancellor’s announcement, given “at short notice with little thought”, had “catastrophic consequences” for the project.
“This added unforeseen cost paralyses us here: we can’t go backwards and we can’t go forwards. This is a terrible tragedy for our nation’s rich and varied heritage, and it must be stopped.”
The listed status of the cathedral confered an obligation to ensure the highest standards of care, he said, including expensive materials and experienced craftsmen.
“What a small-minded change from a Big Society Government which purports to encourage our voluntary groups to take ownership and responsibility for our historic and important listed buildings.”
The cathedral has launched an e-petition on the No. 10 website under the title: “Save our heritage: say no to VAT on work on listed buildings”.
The Cathedral and Church Buildings Division is encouraging parishioners to contact their a MP with examples of the impact of the proposed VAT change on their community.