News analysis: Tax reformers in it for the long haul

Stephen Cook

The Charities' Tax Reform Group remains undeterred by an apparently immovable Treasury.

Any expectation that today's Budget might include measures to lighten the burden of irrecoverable VAT on charities was abandoned somewhere in the depths of winter by the Charities' Tax Reform Group.

Members of the group have recently reported that the mood music in the Treasury and Her Majesty's Revenue & Customs has followed a consistently negative refrain of "we don't want to hear about this any more".

This chimes with what Ivan Lewis, economic secretary to the Treasury, told Third Sector in an interview before Christmas."To keep suggesting there could be progress on VAT is unhelpful," he said.

But instead of heading home with its tail between its legs, it looks as if the group is planning to reinforce its arguments, recruit more support and pitch its tents in Parliament Square for as long as it takes to win the campaign.

"The VAT campaign has always been a long-term enterprise," says Mike Parkinson, policy adviser at Oxfam. "We need to make a convincing case and keep the momentum going, particularly in the Commons and the Lords."

Pressing its case

The campaign is currently pressing its case on the Liberal Democrats, who are preparing new tax proposals for the end of this year, and on the Conservatives' commissions on taxation and social justice, which will report in 18 months' time.

"There are no commitments from them at this stage, but there is a lot of interest," says Helen Donoghue, director of the CTRG. "Some MPs are also expressing an interest in raising the tax question in the debates on the Charities Bill."

The group is also embarking on an ambitious exercise to draw up a series of case studies to illustrate how its proposals for VAT reform would affect a selection of charities.

The selection would reflect the Government's own hopes for the increased provision of public services by the sector - particularly in health, criminal justice and education.

The idea is to demonstrate that the group's proposals are not impractical and unworkable, as officials have insisted. "At the moment we have a theoretical model that they can pick holes in," says Parkinson. "We want to show them a manageable and abuse-proof scheme, so the case studies would include charity accountants saying how the figures are auditable.

"Then we would be able to isolate the principal concern of officials and ministers, which is the potential loss to the exchequer, and argue that this would be compensated for by the increased efficiency and effectiveness of the charities.

"The potential loss of between £400m and £500m scares the Treasury - we need to demonstrate that our proposals are focused on key areas and won't cost anywhere near that amount. We also need to show that it will get something in return."

The group hopes the case studies will be ready by the autumn and then deployed to influence the pre-Christmas spending review that will feed into the next Budget in a year's time.

It also wants the new initiative to draw into the campaign many of the smaller charities that might currently be put off by the complexity of the arguments, the intransigence of the Government and the cost of specialist professional help to analyse their own VAT positions in detail.

The essence of the reform group's case is that the estimated £500m a year paid by charities in irrecoverable VAT means this sum is unavailable to beneficiaries. It also points out that service-delivering charities are at a significant disadvantage when competing against local councils, which do get VAT relief under a special provision called Section 33 relief.

An equivalent to that relief for the voluntary sector is top of the reform group's shopping list, because it is a key factor in levelling the playing field in competition for supplying public services - something the Government promised at the last election.

Next comes the VAT treatment of fundraising costs - resolved in favour of charities in the recent Children's Society court case, but not completely clarified - followed by VAT on buildings and on joint working by charities.

Prospects for success

So will this Government ever give ground? It defends its stance by saying that charities already get £2.5bn in tax reliefs, including relief from most income, capital gains and corporation taxes. Among those reliefs are VAT exemptions and zero ratings worth at least £200m.

It also says there's no fair and practical formula for tax reform, and persuading it otherwise looks like a long, hard road.

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