George Osborne is preparing to climb down on plans to impose VAT on improvements to churches and cathedrals, it emerged last night.
Wakefield Cathedral, which is undergoing extensive restoration work
The Chancellor has faced a furious reaction from bishops and church groups after announcing a 20 per cent tax on alteration work on historic buildings in last month’s Budget.
It is one of a string of controversies over Budget plans – including the so-called “pasty-tax”, tax changes for the elderly and charity donors – which have battered the Coalition’s poll ratings in recent weeks.
But it emerged yesterday that Mr Osborne had hinted at a u-turn during a meeting with Tony Baldry, the Tory MP who sits as a Church Commissioner, and the Bishop of London, Richard Chartres.
More than 18,000 people have signed a Downing Street petition against the changes which the Church of England estimates will cost parishes £20 million a year collectively.
The Church, which is responsible for 12,500 listed buildings, says the extra charges could kill off scores of local projects to open up old church buildings for new uses such as drop-in centres or even Post Offices in line with David Cameron’s “Big Society”.
Mr Baldry said yesterday that the Chancellor had made clear he was “very keen” to find a solution and spoke of plans to “separate out” churches from other possible targets for the tax.
Treasury sources confirmed that in addition to extra money for church projects recently announced, a full VAT exemption for church buildings is under consideration.
Mr Baldry said: “I am confident that the Chancellor is very keen to try to find a solution that would be satisfactory to the Church.
“I think he acknowledges that for alterations that the Church is trying to make, our churches and cathedrals are increasingly adaptable for the Big Society.”
He added: “I think what he is keen to do is work out how he can separate out churches from other things which he is trying to deal with – for example rich people living in grade one listed properties putting swimming pools in their gardens and getting the VAT back on it because they happen to be in listed buildings.
“I think we all recognise that that is an abuse and we all recognise that there is a boundary that needs to be protected and I think the Treasury and the Church are at one on this in that regard.
“It is now finding a route forward which is straightforward and not overcomplicated.”
Janet Gough, director of the Cathedral and Church Buildings Division of the Archbishops’ Council, said: “The Church understands the Government’s wish to close unfair tax loopholes for owners of listed houses – who may want to install swimming pools – but the provision of zero-rated VAT for alterations to listed places of worship is not a tax loophole. It is the Big Society in action.”
A Treasury spokesman said: “The Government is committed to ensuring that listed places of worship are not adversely affected by the Budget proposal and we are actively exploring options with the church authorities.
"We have already committed to expanding the listed place of worship scheme by £5 million per year, but it’s clear we will need to go further in order to address the impact on churches and other places of worship.”