Here’s why Osborne needs to cut VAT on building repairs

Cutting VAT on housing renovations and repairs could generate a £15.1bn bump to the UK economy and create an extra 95,480 jobs by 2020, according to a rather compelling...

Cut-the-VAT-Logo-2Cutting VAT on housing renovations and repairs could generate a £15.1bn bump to the UK economy and create an extra 95,480 jobs by 2020, according to a rather compelling report by the Cut the VAT campaign group.

It would also help owners of listed buildings to conserve Britain’s heritage and, as if that’s not enough, it could lead to almost 240,000 tonnes of CO2 savings from 92,000 homes.

And it’s all kosher under EU rules: member states are permitted to apply a reduced rate of VAT on housing renovation and repair (VAT Directive 2006/112/EC), and similar VAT reductions are already successfully in place in the Isle of Man and the Netherlands.

The full report is well worth a read; download it here.

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Brian Berry, Chief Executive of the Federation of Master Builders: “A VAT reduction on housing renovation and repair work will empower home owners to contribute to growth, jobs and greener homes without placing a burden on the Treasury. There is no other proposal that will help the UK achieve so many of its economic, environmental and social aims with so little cost to the public purse. This research shows that the wider benefits of a VAT reduction on housing renovation and repair would stimulate more than £15 billion of wider economic activity, which completely overshadows any direct losses to Treasury coffers due to a drop in the percentage charged for VAT.

“It is a myth that EU law prevents the UK government from reducing VAT on housing renovation and repair. This research report clearly shows that almost half of EU member states are currently enjoying the economic, environmental and social benefits that this VAT reduction can bring. Why should the UK not follow suit?”

Nigel Rees, Chief Executive of the Glass and Glazing Federation: “We are impressed with this research report and urge the government to now take the necessary action. As the report shows, reducing VAT from 20% to 5% on housing renovation and repair has significant long terms gains, not only for economic growth and job creation, but also for carbon reduction, as many contemporary home improvements will include the installation of energy efficient products.”

Ray Horwood, Chief Executive of the National Federation of Roofing Contractors: “There are a range of complementary reasons for this sensible reduction in VAT on housing renovation and repair that play to government objectives and overall consumer expectations. The strong leadership message this sends to all political parties would, in addition, be a boost and clear message of support to the responsible and qualified SME firms that will undertake this work.”

Mike Brown, Chair of the Institute of Historic Building Conservation: “The care and maintenance of our heritage buildings is often crafts-based and, as such, labour intensive, so a reduction in VAT will help support those skills and thousands of jobs across the sector. The case for the reduction in VAT is particularly important in making the difference between a historic building being saved or being unviable.

“On top of that, more affordable day to day care and maintenance would help save countless older buildings from the destructive and costly cycle of decay and restoration, allowing diminishing resource to be directed towards delivering better informed energy conservation measures, compatible with the fabric of the building.”

Lloyd Grossman, speaking at a Cut the VAT event on the Houses of Parliament Terrace earlier this month:

Today I am addressing you not only as the Chairman of the Heritage Alliance, but as a spokesperson for the Cut the VAT Campaign – a broad coalition of more than 60 charities, business groups, trade associations and financial institutions.

We are all united in our support for a reduction in VAT on housing renovation and repair work from 20% to 5%.

In support of that we are launching a new independent research report from Experian which clearly shows that a targeted reduction in VAT on housing renovation and repair from 2015 to 2020 – that is the lifetime of the next Parliament – could bring a number of significant economic, social and environmental benefits.

VAT is simply a crazy tax regime that discriminates against the repair and adaptation of older buildings.

The figures in this new research are significant to the national economy. The vast bulk of private housing renovation and repair work is carried out by small and medium sized enterprises who make a significant contribution to sometimes fragile local and particularly rural economies.

This Experian report shows a cut in VAT on housing renovation and repair could provide a huge economic stimulus of more than £15 billion over the five-year period to 2020.

This VAT reduction could also create more than 42,000 extra full-time construction jobs as well as an additional 53,000 jobs in the wider economy by 2020.

As we are on the eve of the Eco Build conference, which opens tomorrow at EXEL, I would also like to remind you of the environmental benefits of this VAT reduction.

If this VAT reduction creates a 5% rise in demand for housing renovation and repair work, around £1bn extra could be spent on energy efficiency measures by 2020. This could lead to almost 92,000 homes installing loft and wall insulation, double-glazing and energy efficient boilers creating a saving of up to 237,000 tonnes of CO2.

Furthermore, according to a recent study by the University of East Anglia, households are far more likely to install energy efficiency measures as part of general renovations, while only one in ten householders indicate that they would consider efficiency-only renovations. So the report concludes that energy efficiency work is much more likely to be bundled together and carried out with general renovation work. Consequently the reduction of VAT from 20% to 5% on the labour element of all housing renovation and repair could also deliver even greater carbon savings!

For example the refurbishment of older properties consumes fewer renewable resources. The environmental benefits of maintaining older housing stock in good condition are significant. A reduced rate of VAT will support energy and climate change objectives.

With my Heritage Alliance hat on, I can go further: Houses are among our most important historic assets, they make up around 40% of our listed buildings.

Then there are all the old, attractive but unlisted domestic buildings that provide continuity, character and context. I want to turn now to the Historic Environment.  The quality and diversity of our historic environment is universally admired.  It is the key driver to the success of our huge tourism industry.  Even more importantly it provides the context in which creativity and enterprise can flourish.  Heritage is infrastructure.

It is dangerously wrong to think that the pleasures and responsibility of living in a listed building are the prerogative of the rich.  Over 80% of our listed buildings are owned by people in social classes B-D.  They don’t get grants, they can’t claim back VAT like commercial companies. It’s very short sighted not to give people incentives to make sure the historic environment is around for the future and continues to deliver economic, social and cultural benefits.

And in the aftermath of the floods, an immediate 5% rate would support flood victims in their recovery as well as boost construction.

And what I want to do tonight is put to bed some of the common misconceptions about our proposal:

The Treasury would lose revenue via the reduction in the value of its VAT receipts, but this is more than made up for by the estimated £15 billion of stimulus in the wider economy created by higher workloads, more jobs and less competition to professional builders from those working in the black economy. It is utterly shortsighted to rebuff this proposal based purely on the reduction in the value of VAT receipts – we need to think of the bigger picture here.

Contrary to popular belief the European Union allows member states to reduce VAT on housing renovation and repair from 20% to 5%. To say otherwise is simply incorrect (see VAT Directive 2006/112/EC if you don’t believe me!).

In fact, 12 of the EU member states charge a reduced rate on this type of work and unlike the UK, they are currently enjoying the various benefits it can bring. There is clear evidence in the Experian report of the positive impact this has had in the Netherlands and even closer to home, in the Isle of Man where the 5% rate has been in force since  2000.;

This new research gives us powerful responses in our campaign to change the VAT framework.  Previously the Treasury have not been willing to engage.  They can’t ignore what we have to say now.  I would remind them of Oliver Cromwell’s words: ‘Think it possible you may be mistaken’.

I would like to conclude by urging all political parties to include this proposal in their forthcoming general election manifestos. For those MPs in the room, if you are not actually writing the manifesto, help us to influence those that are. We want cross-party consensus on this and will be speaking to all relevant Ministers, Shadow Ministers and manifesto authors in the coming months to discuss with them the benefits of this proposal. Quite simply, a single targeted VAT reduction in housing renovation and repair would help the next government secure economic growth, boost jobs and reduce our carbon emissions.

It is time to do as our European neighbours do and reduce VAT on housing renovation and repair. Thank you.

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