THIS IS ONE CUT THE CHANCELLOR SHOULD MAKE

As we approach the Budget, the Chancellor needs to be reminded of some of the key arguments for reducing VAT on all housing repair, maintenance and improvement work. Last year, Labour argued that it should be cut from 20% to 5% for very good reasons.

According to independent research by Experian, a reduction to 5% on the labour element of all housing repair, maintenance and improvement work would have the following results:

• Provide a total economic stimulus in the region of £1.7 billion in 2012 alone, rising to £7.6 billion by the end of this Parliament.
• Create 26,650 jobs in the construction sector, as well as an extra 34,400 new jobs in the wider economy in 2012. A cut to 5% would create over 74,000 jobs in the UK by 2015.
• Create an extra 3,625 construction jobs in Scotland, 1,461 in Wales and 572 in Northern Ireland by 2015.
• Potentially release an extra £374 million a year to improve the UK’s social housing stock, which required a total expenditure of £7.9 billion in 2010.
• Potentially release enough funds to renovate or bring back into use approximately 80,655 social homes by 2015.
• Stimulate additional spending of around £515 million on energy efficiency measures by 2015.

Although VAT receipts would be lower, there are a number of factors which will reduce the overall impact of the cut on the Treasury’s finances. These are:

• The shift from DIY to professionals
• The shift from the information economy
• The financial benefits of job creation

According to the Experian research, therefore, the effect of such a cut would be a net revenue loss to the Government in 2012 of between £161m and £864m.

Additional benefits would include:

• Helping households in need of essential repair work, energy efficiency improvements or extra space for additional family members.
• Significantly reducing the competitive advantage of the informal economy over legitimate traders.

Please take the opportunity to remind Treasury ministers of these arguments in the run up to the Budget and in the debate following the Chancellor’s statement on 21st March. The increase in the standard rate of VAT in January 2011 has been described as the ‘final nail in the coffin’ by the small and medium sized building firms that are members of the Federation of Master Builders.

Indeed, official figures show that compulsory insolvencies in the construction industry began to rise again in 2011 following a decrease of over 30% in 2010. In addition, the latest ONS construction figures show that all repair and maintenance work fell by 11% between December 2011 and January 2012. Repair and maintenance output was 0.6% lower in January 2012 than in it was in January 2011.

Sadly, if his incompetent handling of the economy since he took office is anything to go by, the chances of him doing the right thing on VAT are remote. However, I live in hope!