Financial secretary to the Treasury David Gauke wrote to us in response to criticism that the government’s decision to scrap VAT relief was based on insufficient evidence.

The junior minister described the rationale behind the changes as “twofold”, stating confusion for HM Revenue and Customs; and the prevention of an anomaly caused by repairs and maintenance being standard rated, while pre-approved alterations were zero rated. Mr Gauke claimed that a reduction for renovation and repair to 5% would cost the government £2 billion per annum, so therefore “has no plans to introduce support for the sector in the way you propose.”

There was no mention of LPOC’s main criticism of the decision, which was the reference government made in 2012 to millionaires building swimming pools through the zero rated VAT, describing it as a “loophole.” LPOC’s research findings showed that the government’s claim was made based on a study of 105 listed building consent applications, whilst we looked into 12,049 with just 34 references to swimming pools. Less than half may have qualified for VAT relief. Nor was there mention of the current VAT regime, where new buildings are incentivised over repair, maintenance and alterations of older buildings therefore creating a perverse tax on conservation and maintenance that subsides demolition and rebuilding.

Mr Gauke, who is responsible for strategic oversight of the UK tax system, said in December that no official estimate of the annual cost of a VAT reduction to 5% had been made when asked by Conservative MP Domonic Raab. He also claimed that “data is not available on the VAT paid on repairs and maintenance to protected buildings as this is not itemised separately on VAT returns.”

LPOC’s VAT adviser Dave Brown questioned this in our January/February issue. He wrote:

Back in 2012, when zero rating was removed, the Treasury announced that the additional revenue to be gained would be:
2012/2013:          £35m
2013/2014:          £85m
2014/2015:          £95m
2015/2016:          £110m
2016/2017:          £125m

These figures were, we must assume, ‘made up’.  But they can’t be as they were “…certified by the Office of Budget Responsibility.” I dug further and discovered that they do tell us how they made up the figures, in the “policy costings document,” published alongside Budget 2012. This tells us: For alterations to listed buildings, data is taken from the Department for Communities and Local Government and local authority planning applications. The tax base affected is estimated to be about £600 million, of which about one fifth is estimated to become subject to the 5 per cent reduced rate of VAT for residential conversions; The key word is “estimated”, but to be fair, as this is a prediction it couldn’t be anything else.  But what do they base it on?  Mr Gauke tells us that there is no separation on the VAT returns, so without any sound foundation on  which to base these estimates, we return to them having ‘made it up.’

They also tell us that one fifth of the previously zero rated works would become liable to the 5% VAT rate. Once again, based on what?  I have been dealing with VAT on property alterations, conversions and
refurbishments in some fine detail for the last 17 or so years. I should have a better idea than most, but if they asked me, I would have to make up a figure – sorry, I would have to estimate it.  And if I simply made a guess at the answer, it would be worthless, unless I had time or inclination to trawl through each project I had worked on, over the years.  Surely, all statistical analysis is based on a solid foundation? Or is it, as we have seen, based on a whim? In closing, I feel obliged to mention that even the Treasury admit that there might be some uncertainty in their projections: The main uncertainties in this costing relate to the exact size of the tax base and the behavioural response of consumers to the price increase.

So even their shaky grasp of statistical certainty is based on uncertainty. 

We will therefore be requesting the information used by government to reach the new estimate that it would cost the Treasury £2 billion per annum.

You can read the full letter from David Gauke MP to Peter Anslow in our member’s magazine Listed Heritage.