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Pre-Budget Report: public sector headline
As part of the Government’s fiscal stimulus package, the Government will be bringing forward £3 billion of capital spending from 2010-11 into 2009-10 and 2008-09 “for housing, education, transport and other construction projects, supporting industries and jobs across the country.” Current overall spending is assumed to grow in real terms by 1.3 per cent in 2011-12, 1.2 per cent in 2012-13 and 1.1 per cent in 2013-14.
However, there will be “an additional £5 billion value for money target for 2010-11”
Pre-Budget Report: Detail for Children’s Services
£800 million brought forward in the priority schools capital programmes. In particular, the additional capital spending in 2009-10 “will fund accelerated renewal of the primary school estate and boost local authority capital funds for modernising schools infrastructure.” This could, the Treasury says, bring forward the adaptation of 2,000 secondary classrooms to improve personalised learning, energy-saving measures in around 140 secondary schools, the building of kitchens in around 300 primary schools, and the conversion of rooms for mother-and-baby groups and other community uses in 800 primary schools;
Other measures aimed at reducing child poverty include:
Child Tax Credit increase
The Government will bring forward its commitment to increase the child element of the Child Tax Credit by £25 above indexation in April 2010 to April 2009. The Government will also bring forward its commitment to increase Child Benefit from £18.80 to £20pw for the first child, and from £12.55 to £13.20pw for subsequent children to January 2009.
Consultation on child poverty
The Government will work now to identify more clearly the indicators that impact most directly on child poverty. It will work with stakeholders to refine the set of national indicators from which local authorities can select child poverty priorities in future. Building on the progress made to date, the consultation on child poverty legislation will include the role that local authorities have in eradicating it.
CIPFA chief responds to the pre-Budget report
Steve Freer, CIPFA Chief Executive has responded to the Chancellor’s statement on the Pre-Budget Report on Monday 24 November. Steve Freer said:
“The size and scale of public spending increases are matters for the politicians – CIPFA’s concern is that extra money is invested wisely and in a manner which is sustainable for the long term. It is critically important that the disciplines of good financial management are firmly to the fore. The planning of schemes and initiatives to help stimulate the economy can be expedited but it must not be compromised. Decision making must be as rigorous and robust as possible with proper regard not only for upfront capital costs but also for downstream revenue implications”.
BSF and the VAT Burden for Local Authorities
For the past year, the CIPFA VAT Committee have been trying to resolve some VAT issues around the Building Schools for the Future Programme and particularly Voluntary Aided schools and academies. During these attempts, members of the Committee met with reps from DCSF, PfS and HMRC. While the outcome is still a little unclear, those LAs which are likely to be affected may wish to read a brief summary of what one committee member thinks the position is so far – we understand that some authorities could be facing VAT burdens of up to £40m on their BSF programme.
Full minutes are available online from TISonline – see at: http://www.tisonline.net or read on for the summary.
While it is still a little unclear as to where this issue has got to and who is doing what to resolve it, particularly regarding VA schools, this summary represents a view as to 'where we're at' on BSF and VA schools.
The issue with VA schools within BSF remains intractable and may require political intervention. If procured under PFI, there are no problems as the unitary charge is a revenue expense and the LA can thus fully recover the VAT thereon. If procured as a conventional design and build, DCSF/PfS remain adamant that the LA acts as agent of the governors when undertaking such capital works at a VA school. Whilst the LA can recover VAT incurred on commissioning such works, it then makes on onward supply of premises to the governors. Consequently, unless the premises can be zero-rated, there is 'sticking' VAT which will fall to be met by the LA given that no additional funding is available.
In this respect, HMRC are working with DCSF/PfS to try and maximise eligibility to zero-rating, ie that 'business use' is less than 10%, using a pragmatic methodology other than that prescribed in Notice 708 (floor area). One solution might be to use the partial exemption 'simplification methodology' agreed by HMRC, taking VAT-exempt use as broadly equivalent to 'business' use and which is generally negligible (providing the VA school includes no additional externally funded community facilities). Effectively this approach ignores community use altogether on the grounds that BSF is intended to produce new schools for the delivery of statutory education. On the other hand though, there is the clear political objective that BSF schools should be at the centre of the community. HMRC are now considering this but, as the 10% de-minimis is merely a concession outwith the law, there may be only limited scope to ‘stretch’ the rules.
Remember, in any case that even if this aspect is resolved, zero-rating only applies to new build and so does not address refurbishments, ie if the BSF works at the VA school fall short of being an entirely new build but rather represent the refurbishment or renovation of existing premises, there can never be any eligibility to zero-rating. As such, the VAT incurred on the works by the LA will be a 'sticking' cost.
Furthermore, remember that even with new build, zero-rating only applies to construction work and not to the provision of fixtures and fittings or professional fees, etc. Again there is likely to be 'sticking' VAT therefore.
The key to this is DCSF/PfS stance that capital funding for VA schools can only be given to the governors, even though it might form part of the block funding under BSF (it is argued that by applying the formulaic calculation governing BSF funding, it should be possible to identify that element awarded to cover works at VA schools, especially as all DCSF VA school funding is now encompassed within BSF).
No resolution to this issue was identified and indeed no real resolution was felt to be possible without political intervention at the highest level, something some local authorities may now be considering.
For completeness, the VAT issue with academies within BSF seems to be largely resolved. If procured under PFI, the LA can fully recover the VAT incurred on the unitary charge and, whilst onward charges levied on the academy by the LA will be liable to VAT which the academy cannot recover, DCSF accept this and include an amount towards such irrecoverable VAT in academies’ funding. If procured as a conventional design and build and constructed on the LA’s own land, the LA can fully recover the VAT incurred, with the premises then leased at a peppercorn to the academy.
The only remaining issue is whether the academy sponsor might seek to provide additional funding, eg towards additional or enhanced facilities, which would breach the peppercorn. DCSF/PfS maintain such capital contributions are not ‘permitted’ but this is only guidance with no explicit legal prohibition. If such contributions are received, therefore, they amount to a lease premium with the lease of the academy becoming VAT-exempt with partial exemption implications. Of course, this is not a problem providing the proposed ‘relaxations’ to the partial exemption regime are implemented and maintained."