VAT on Alterations to Listed Buildings

The Chancellor’s decision to impose VAT on alterations to listed buildings (20%) appears to have upset people who own, manage, use or alter listed buildings. That’s not really a surprise - vested interests always complain when their privileges are withdrawn - but the Church of England appears to be particularly aggrieved. They’re so worried about having to pay tax like other businesses that their Director of Cathedral and Church Buildings, Janet Gough, has started a petition to stop the change.

A brief conversation on Twitter with Father Andrew of St. Peters in Walworth got me thinking about the application of VAT to alterations of listed buildings. The argument made by the Church - essentially that the new rules will inhibit their ability to alter their listed buildings - is probably correct (in that increasing costs by 20% is likely to reduce the work they can afford) but it is not, I would suggest, a strong reason for either halting the change or granting an exemption to religious buildings. Here is my reasoning.

The Church of England exists within the wider context of our society and functions, at the simplest level, as a charity in competition with similar faith-based organisations. It might not pursue profit, as such, but it is definitely interested in stakeholder value and service; in this respect it is no different from other businesses. The Church has large numbers of customers, any of whom could be poached by other religious organisations. The potential for the movement of customers between organisations, and the changes in revenue that those movements might create, drives competition between the churches.

Like all businesses, the future of the Church is in the hands of its customers and it must strive continuously to satisfy existing clients and attract new ones. In a de-regulated market with lots of new entrants (walk along Walworth Road, where St. Peters is located, and count the number of churches to get an idea of the nature of the marketplace), many of whom are unencumbered by the Church’s traditional cost base (buildings, management hierarchy etc.), this is increasingly difficult.

One of the Church’s key advantages is that it has a virtual monopoly on spectacular custom buildings, for example cathedrals. By comparison, new churches often start in abandoned or dilapidated conversions (again, see Walworth Road) which are anything but attractive to new customers. One consequence of the VAT change, and possibly the main motivator behind the Church’s complaints, is that it reduces the number of infrastructure improvements the Church can afford to make and thus weakens its ability to compete with new market entrants.

In our modern economy we try to avoid extending privileges to a particular business or sector at the expense of its competitors because this practice generally has a negative impact on customers. The Church may struggle to alter its buildings as a result of this change but that doesn’t mean the change is wrong. All companies should receive equal treatment and operate under the same rules. The tax should stand.