The government could give charities VAT rebates but will not do so because of cost, complexity and competition issues, a junior Treasury minister has told MPs.
In an adjournment debate in the Commons yesterday, David Gauke, Exchequer Secretary, said: "It is possible in principle to introduce a measure that would deliver refunds of VAT to charities in respect of their non-business activities.
"However, such refunds, which are a matter of government expenditure rather than taxation, would represent a very significant cost to the Exchequer."
Ian Lucas, the Labour MP for Wrexham, who secured the debate, said the government should not benefit from charities paying more VAT when the rate rises to 20 per cent in January.
Charities currently pay about £1bn a year in VAT, and will see that rise by about £150m, according to figures produced by the Charity Tax Group.
Gauke said that a scheme to repay tax to charities would be "complex and administratively burdensome" for the charity sector.
"In our view, it is far better for the government, instead of introducing further complexities for charities, to focus on improving charities' capabilities to improve their own affairs," he said.
Gauke said that charities often competed with businesses for contracts, and it would therefore not be fair to allow them to claim VAT relief.
Yvonne Fovargue, the Labour MP for Makerfield, said that charities involved in business activities could already claim back VAT on those activities and would not need government rebates.