Tuesday, November 07, 2006

Olympic Games VAT bill: a gift for Gordon Brown?

Following on from my post yesterday about the Olympic Games VAT fiasco. More details have emerged as to how the London Olympics could face an unexpected £1bn VAT bill. The Government did not, after all, do its homework properly. The Olympic Delivery Authority (ODA) was set up with the wrong structure, as far as VAT waiver is concerned. The current corporate structure of the ODA is such that, if VAT is waived, it would breach the EU rules on state aid. Apparently, they had envisaged a different corporate structure at the outset, and no-one realised that using the current structure would lead to this result. Such incompetence is astonishing, but not surprising, given this Government's cavalier attitude to legislative detail and finance.

Tony Blair has now said that taxpayers would not be approached to make up the shortfall. This is welcome news, assuming you trust him. I don't. Where then will the money come from? If Gordon Brown does not 'ride to the rescue', then the National Lottery Fund is the likely target. Cynic that I am, I suspect Gordon Brown, with an eye on his political ambitions, will waive the VAT. As I suggested yesterday, he may want to use this to boost his popularity. I can see the headline in the Sun already, 'Brown saves London Olympics'.

UPDATE. I have been having an interesting discussion in the comments with Alan of Daily Propaganda, about whether or not the £1bn VAT bill will make any real impact, or if the payment is just a circular transaction between two departments. He has also written an insightful post about the funding details of the Olympics, and the Chancellor's commitment to underwrite any extra costs. Interesting material.

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Anonymous alan said...

um... an Olympic development authority that is funded by the tax payer has to pay a bit more tax.... apart from the obvious administration charges involved in paying £1bn of VAT, how is this a problem? It just means they get £1bn more from the tax man....

7:57 PM  
Blogger Bel said...

You are right, Alan. That is what it means. Not a problem for them, certainly. A big problem for the poor saps who ultimately have to pay if it eventually falls on the taxpayer.

There is also the issue of incompetence. It is a very big deal to have failed to anticipate a potential £1bn tax liability. Such a thing would be close to unforgivable in the private sector. But hey, what does it matter? It's taxpayers' money after all :)

8:12 PM  
Anonymous Alan said...

But there is no net change in tax, or expenditure (ok, something small for the admin... but not much).

If a government organisation, fully funded by the tax man, gets stung for some tax, then there is no person who ultimately pays. Tax man increases budget of said organisation, so they can pay it all back again in extra tax. It's all the same money - just kept in different pots.

It's a farce maybe - but noone ultimately pays. Unless I am missing something - is the Olympics a private concern these days?

10:27 PM  
Blogger Bel said...

My understandindg is that the bill for the Olympics is being met by the National Lottery, London council taxpayers and the London Development Agency. Some of the money will also come from ticket sales. This is my understanding; could someone correct me if I'm wrong.

I'm not sure of the status of the London Development Agency, but the other two main sources (National Lottery and council tax) are not Government funded. If the Treasury insists that the VAT bill is paid, it will have to come from one of these sources. So it is not a matter of the Government giving itself money.

1:06 AM  
Anonymous alan said...

But the budget from those organisations are fixed. Even Ken himself said so! If you take a look at the bid document, you will see Gordo has underwritten any cost overrun. So the 1bn is circular.

However, there is a scandal in this.... it's the cost over-run by a factor of 2.5 in 16 months (that even ministers have, unbeknown to them, admitted).

9:14 AM  
Blogger Bel said...

If Gordo has underwritten any cost overrun, why is the Treasury saying that the VAT bill must be paid? (Is that just for state aid rules purposes?) Would it then be an exercise in writing out a cheque only for it to be handed back?

And as for the Treasury making good any overspend, they don't have £1bn laying around somewhere 'just in case' the Olympics costs increase. They will have to get it from somewhere.

Of course, the 'solution' would be to waive the VAT, state aid rules be damned :)

I agree with you that the measure of the cost over-run is a scandal. Even by Labour standards, this is shocking. And we are still four years away from the Games. Four more years for the costs to climb even higher. I wonder why they bother to draw up a budget, seeing as they have no intention of sticking to it. As it is, the budget is just an indicator of 'minimum spend', and nothing more.

11:50 AM  
Anonymous Alan said...

If Gordo has underwritten any cost overrun, why is the Treasury saying that the VAT bill must be paid? (Is that just for state aid rules purposes?) Would it then be an exercise in writing out a cheque only for it to be handed back?

Yes I think this is the case - the EU enforce the state-aid rule (although how Airbus got away with it, I don't know). So to get around it, Brown writes a cheque to the ODA who then write several smaller cheques back again to pay the VAT (one for each contract), so that there is no large net change in cash for the treasury, just lots of paper work. Net loss to the tax payer: a few thousand quid to administrate this nonsense.

<sarcasm>And think of the trees</sarcasm>

12:41 PM  
Anonymous Ex VAT Inspector said...

VAT is an EU tax, so I'm not sure whether Gordon has the power to waive it without EU approval. As (if memory serves) the EU gets a cut of the VAT take for each country, I can't see this happening.

Same with state aid, it is not illegal exactly, just that it requires prior approval from the EU over a certain level. Can't see the EU (especially Chirac) being too happy about that either.

Better it goes on the books than gets hidden behind closed doors I suppose.

As to cost, with modern systems it should take about 5 minutes - with this lot, any advance on 6 figures?

5:41 PM  
Blogger Bel said...

Thank you for explaining that, ex vat inspector. I am now inclined to agree that it will probably go on the books and take the form of an internal transaction. Like you, I am not optimistic that this will be done as efficiently as one should expect. That is what we have become used to.

12:58 AM  

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