Museum charges are wrong and we don't need them

Chris Smith, the Culture Secretary, shouldn't do it and perhaps doesn't need to. He is expected to tell the House of Commons on Wednesday that the Government is unable to honour its 1997 election manifesto pledge that entrance to national museums will be free to everyone from next year.

If we really had the "joined-up government" which New Labour proclaims as its credo, then Mr Smith would be spared any blushes. For the main reason appears to be a tax problem. One can understand multinational companies having tax problems. Or dot.com millionaires. Or property developers. But how can national museums, non-profit-making bodies as they are, possibly have tax problems?

Because of the way in which value added tax works. I am afraid that if one cares about free museums, an involvement in the intricacies of VAT is required. Here goes. An ordinary commercial business adds 17.5 per cent VAT to its invoices and thus collects the tax. However it also pays VAT on all its suppliers' invoices. So every three months, companies calculate whether they have received more VAT than they have paid out, or the reverse. If the answer is more, they send Customs & Excise a cheque for the balance; if it is less, they receive a rebate from the tax office.

Unfortunately, but inevitably, Customs & Excise is programmed to work automatically, regardless of circumstances. When admission to a museum is free, then, by definition, no VAT is collected. But suppliers to museums are obliged to add VAT to their invoices. Museums plead with Customs & Excise to reclaim the VAT they have inadvertently paid. No can do, is the invariable answer. And this problem goes far wider than national museums. It affects all public bodies. These state institutions are not really exempt from tax at all. They avoid corporation tax only by dint of not making profits; they pay VAT on every purchase.

Joined-up government, were it actually practised, would get rid of this perversity with ease. It shouldn't need the National Art Collections Fund to consult tax experts to try to break the deadlock. It is not that kind of problem. The Chancellor of the Exchequer simply has to declare that public bodies, carefully defined, are not required to pay any tax however it arises.

"At the end of the day," Mr Smith remarked at the weekend, "it is up to museum trustees to decide whether to charge or not." Actually, all the trustees are appointed by him. The better ones, however, do their duty by reference to the best interests of the institutions for which they are responsible. They are not like working peers, instructed to follow the party line. Their strength arises from the fact that they are unpaid and that the worst that can happen is that their appointments are not renewed at the end of their term.

In the event, museums have reacted differently to their common problem. The British Museum, the National Gallery and the Tate remain resolutely free, despite undertaking substantial building and renovation work and paying, as a result, enormous sums in VAT. The chargers include the Science Museum, the Natural History Museum, the Imperial War Museum and the Victoria and Albert.

Sir Neil Cossons, the director of the Science Museum, is quoted as observing that he would rather run a good museum that charged than one "which was, on principle, free and lousy". This is a silly remark. He cannot think that the British Museum, the National Gallery and the Tate are, in their different ways, lousy. Robert Crawford, the director of the Imperial War Museum, is said to argue that his institution would not have been able to fund its expansion if it did not charge. He believes that many visitors will value the museum more if they charge.

I don't think this last comment is correct. When families visit museums, their trip will not have been cost free. There is transport, maybe buying a guide or a momento and providing a meal for hungry kids. The Victoria and Albert Museum points to the pounds 80m wing it is building and the pounds 14m VAT reclaim it would lose if it stopped levying an entry fee.

What, then, is the real difference between the non-chargers and the charging museums? It comes down to fund raising. The non-chargers are better at attracting charitable donations. And the reason is that they are, as a group, more glamorous than the chargers. The British Museum is famous the world over. The National Gallery has prestige. And the Tate has buzz; Madonna goes to its parties. The glamorous institutions can afford not to charge.

But turn again to the Budget statement. While the Chancellor conspicuously did not exempt public bodies from paying VAT, he did something else of value. He considerably extended the tax relief on charitable donations. The Charities Aid Foundation described the measures as "the most radical and far-reaching set of tax changes ever announced" That is why I urge Mr Smith to cancel his statement and instead remind the poorer national museums that their ability to attract charitable funds has been enhanced. Tell them to redouble their fund-raising efforts so that the manifesto pledge can be honoured, albeit a year later than planned.