VAT Free! The Campaign for Free Admission - celebrating five years

1 December 2006The decision, announced in the 2001 Budget, that national museums and galleries would be able to offer free admission without losing their ability to reclaim VAT was the culmination of a hard-fought Art Fund campaign. Museums and galleries which previously charged have seen a 75% increase in visitor numbers since they opened their doors for free in 2001.

With the support of Sir Denis Mahon, Sir Hugh Leggatt and the Charities Tax Reform Group, we had led the long campaign to free national museums and galleries from the punitive VAT regime that had burdened them for decades. A legislative anomaly meant that museums pursuing a policy of free admission – in line with government policy – had been penalised with a hefty VAT bill, while museums adopting a charging policy had been granted ‘business’ status and enjoyed full VAT recovery.

This absurdity had had far-reaching consequences: it had forced some museums, like the V&A, to introduce charges against their will. It had also threatened to scupper the government’s high-profile free admission policy, with the British Museum on the verge of levying an entry fee purely for the VAT benefit.

Millions of pounds were at stake – by remaining free the British Museum was incurring a VAT bill of £1 million in an average year.

On the day of the Budget announcement, the Art Fund’s campaign office received many messages of thanks from the museum world. Sir Nicholas Serota, Director of Tate, described it as ‘a red-letter day for museums and their visitors’.

Mark Jones, the Director of the V&A – which reintroduced free admission as a result of the Budget measure – congratulated ‘everyone at the Art Fund on the brilliant achievement’. ‘This seems to me’, he added, to be ‘a really heartening example of the ways in which common sense arguments expressed with verve and firmness do succeed’.

The campaign began back in August 1999, when former Museums and Galleries Commissioner Sir Hugh Leggatt met the Arts Minister, Alan Howarth. The Minister suggested that the Art Fund would be an appropriate body to lead a campaign on the vexed issue of national museums and VAT, and that Helen Donoghue, Director of the Charities Tax Reform Group, should be approached for technical advice.

The Charities Tax Reform Group prepared a paper at our request, setting out the options for reform. The Art Fund then convened a meeting of Finance Directors from the National Gallery, Tate, National Portrait Gallery and British Museum, and it was unanimously agreed that the best chance of resolving the issue lay in bringing national museums and galleries within the scope of Section 33 of the 1994 VAT Act.

Under the terms of the 1994 VAT Act a number of bodies such as local authorities, the BBC and ITN are allowed to recover VAT, despite being categorised as ‘non-business’. The rationale for this special treatment is that it makes no sense for them to have to repay VAT out of government grants since this is government money going round and round. The same logic could be applied to national museums and galleries, which are guardians of precious national assets and receive direct funding from government. We learned that the Treasury had the power to add to the list of bodies already included. The costs could be identified and contained and the solution was simple and definitive.

The Department for Culture, Media and Sport (DCMS) warmly endorsed the idea and asked the Art Fund to write a detailed proposal in consultation with the national museums and galleries. This was presented to the Department in January 2000 by Art Fund Chairman Sir Nicholas Goodison, and was later discussed with Treasury officials.

It soon became clear that the proposal had run into strong opposition from Customs and Excise. The two sticking points were ‘Europe’ and the setting of precedent – the ‘floodgates’ argument: if the national museums were to be included in Section 33, wouldn’t Europe object, and wouldn’t every other charitable body demand the same treatment? Together with Sir Denis Mahon and the Charities Tax Reform Group, we were determined to dispose of these objections. As far as Europe was concerned, it became clear following correspondence between Sir Denis Mahon and the President of the European Commission, Romano Prodi, and discussions with Commission officials, that the UK was free to amend the 1994 Vat Act. What we were suggesting was seen as entirely a domestic matter – there would be no challenge from the European Commission.

A debate was held in the House of Lords in March 2000, led by Lord Freyberg and inspired by our ‘exciting and hugely helpful proposal’. The debate saw the case for reform of 1994 VAT Act wholeheartedly supported by a succession of peers of all parties and persuasions.

But the response by the government’s cultural spokesman in the House of Lords, Lord McIntosh, gave cause for concern. He argued, despite our assurances, that the European Commission might well launch infraction proceedings against the British government if Section 33 were to be extended. Since we seemed to be making little progress, we decided to put the arguments for reform of the VAT Act into the public domain, outlining the thrust of our proposal in the pages of the national news media. Extensive and helpful coverage followed.

Soon after the Lords’ debate it emerged that the government’s ‘Quids-in’ policy – a compromise scheme that would see national museum charges slashed to £1 from September 2001 – was running into difficulties. This was the third phase of the government’s free access policy: the first phase had seen the introduction of free admission for children (at DCMS-funded national museums and galleries in England) from April 1999; the second stage had seen pensioners go free from April 2000. ‘Quids-in’ was designed to preserve the charging museum’s VAT recovery status – by levying a £1 entrance fee they were still ‘in business’.

However, there was a serious flaw in the policy. Because charging museums now had more non-paying than fee-paying visitors (following a huge surge in child visits in particular) Customs and Excise were querying whether these museums could still be considered to be in the charging business. There was now a risk that charging museums would have to reintroduce fees for children and pensioners in order to preserve their ‘business’ status.

The government’s whole policy on public access was on the point of unravelling. We convened a meeting of the Finance Directors of the charging museums to discuss the situation and stress the feasibility of our proposal. In the ensuing weeks we produced briefing papers for Finance Directors of both the charging and non-charging institutions to share with their Directors, Chairmen and Trustees.

The developing ‘Quids-in’ crisis – with several charging museums on the verge of public confrontation with the government – meant that reform of the VAT Act 1994 moved to the top of the list of the DCMS’s priorities. The Secretary of State, Chris Smith, who remained personally committed to universal free admission, wrote to the Prime Minister formally setting out the case for our proposal. Following his letter, Sir Nicholas Goodison also wrote to the Prime Minister. This letter was jointly signed by 24 Chairmen and Directors of the national museums and galleries – charging and non-charging – and supported by the national museum sector as a whole.

Negotiations continued between the DCMS and the Treasury, against a backdrop of lobbying by the Art Fund, with the strong support of Sir Denis Mahon, Sir Hugh Legatt and the national museums themselves. As the Budget approached, we were cautiously optimistic that the campaign would meet with success, though we were far from sure whether our proposal would be accepted in its entirety. A few weeks prior to the Budget the BBC’s political correspondent, Andrew Marr, produced an exclusive report that charging museums would be going free as a result of a measure to be announced by the Chancellor. David Barrie, Art Fund Director, was interviewed on the BBC news and other current affairs programmes, and once again explained the far-reaching ramifications of our proposal. We chose, however, to wait for official confirmation from the Chancellor before throwing our hats in the air!

With the Budget announcement, it was clear that we had succeeded: our solution to the VAT problem had in essence been adopted. The Treasury was proposing to add a new Section to the VAT Act 1994, which would effectively give national museums and galleries ‘Section 33 status’. Under the terms of the new Finance Act, free museums would be able to recover VAT from April 2001 and charging museums from September 2001.

The dramatic increase in museum visits since the VAT announcement in 2001 serves to highlight the importance of the campaign for free admission. Figures released by the DCMS in 2004 show that those museums and galleries which previously charged have seen a 75% increase in visitors since they opened their doors for free in 2001. Over the same period visits to the Victoria and Albert Museum increased by 113% and those to the National Museums Liverpool rose by 94%.

Announcing the increase in visitors in 2004, the Culture Secretary Tessa Jowell told the media that ‘Today’s [visitor] figures are incredible. Free entry for everyone to our national museums is a cornerstone of this Government’s cultural policy?Our decision to invest in free admission was a success from day one.’