New report makes case for VAT cut on repairs

Nov 27 2009 by Chris Knox, The Journal

NEW research by Teesside University Business School shows that a cut in VAT to 5% on property repairs would more than compensate the Government for its loss in revenues.

The report, for the Repairing Britain campaign, presents a breakdown of the net losses to HM Revenue and Customs of reducing VAT and compares these with the estimated costs arising should the predicted 300,000 construction workers who will have lost their jobs during the recession, remain unemployed.

The study concludes that the VAT reduction can be justified for the construction jobs it would save and the improvements it would bring in the quality and energy efficiency of the UK housing stock.

Also calculated is the effect of equalising the rate of VAT charged on new build projects and refurbishments, as presently new buildings do not attract any VAT, whereas the tax is levied at the full prevailing rate on repairs and renovations.

As commissioner of the report, property repair and maintenance specialist Rok, an Exeter firm with 200 staff in Stockton, has sent a copy to the Chancellor Alistair Darling, in advance of the pre-budget report.

It shows that the cost of reducing VAT on repairs to five percent would be £2.6bn, but demand for such services could increase by 10%. The report also predicts that the cost to the Exchequer of 300,000 construction workers remaining unemployed throughout 2010 will be £3.5bn and that VAT reduction on repairs will reduce the black economy and allow a better use of the existing stock of buildings to revitalise communities

It also claims that tens of thousands of jobs in the construction sector could be saved as a result of a proposed VAT reduction.

Spearheaded by Rok and supported by a range of industry-related businesses and organisations, The Repairing Britain campaign was created to boost the UK economy by stimulating the construction industry and encouraging the public and local authorities to take an interest in the maintenance of their homes and community buildings.

Garvis Snook, chief executive of Rok, said: “We welcome the findings of this report which give validity to our arguments that a change in tax on property repairs could be cash neutral.

“The report supports our belief that a tax cut could keep more people in work at a time of rising unemployment and help the country return to financial stability and growth.”