Richard Hyslop: This is how to cut VAT
With the Chancellor reportedly likely to announce a large, across-the-board but temporary cut in VAT tomorrow, Richard Hyslop calls for a more targeted but larger percentage cut in the VAT that is imposed on building repair and maintenance work.
As George Osborne prepares his response to the Pre-Budget Report one vote-winning tax cut that the Conservative Party should commit to is cutting VAT on building repair and maintenance work.
The current housing shortage, the impact of our buildings on carbon emission levels, and the on-going problem of rogue traders taking advantage of the public are different issues with a common thread; each problem is exacerbated by the 17.5% rate of VAT charged by the Government on maintenance and home improvement work. In January, a coalition of organisations was formed to lobby for a cut in VAT from 17.5% to 5% for all building repair and maintenance work.
Anyone doubting the economic benefits of a cut in VAT needs look no further than the 1999 decision of the Ecofin Council to adopt Directive 1999/85/EC covering VAT on labour-intensive services. As a result of this initiative we know that a reduced rate of VAT can reap economic benefits. The Isle of Man Treasury reported that, “The actual tax take increased despite the 12.5% differential in VAT for the comparable organisations” and that, “The experiment had been a fiscal success on the Island.” The Belgian Government has seen the measure increase both turnover and employment. The French economy benefited from the creation of some 53,000 new jobs in the construction industry and 7% growth in turnover in the construction industry in the order of €2 billion. A French study also indicated that the scheme has resulted in €500 million net public profit, disproving arguments that claim the scheme is very costly to public finances. In Italy, the measure saw the creation of between 65,000 and 75,000 new jobs in the construction industry. Also in Italy 35,000 enterprises emerged from the informal economy and started paying VAT for the first time. Not to mention Portugal’s construction industry, which enjoyed well above average growth of 20% to 25%
Cutting VAT not only makes economic sense it also makes environmental sense. Making building repair and maintenance work more affordable will encourage the reuse of our existing structures rather than continuing urban sprawl by building on green fields. Aside from the direct benefit of reducing demand for land, reuse of existing buildings also minimises the need to send demolition waste to landfill, reduces the damage done by extraction and transport of construction materials (e.g. aggregates), and cuts the demand for embodied energy. Recycling our heritage by putting buildings back into beneficial use is an essential part of improving our quality of life. Cutting VAT across the EU would also contribute towards helping to meet the EU’s carbon emissions targets.
There is considerable support for a reduction in VAT in Parliament, in industry and amongst the general public as evidenced by Early Day Motion 669 and the work of the ‘Cut the VAT Coalition’. Recent research carried out by ComRes showed that a staggering 65% of all Conservative MPs supporting a cut in VAT. Both the strong evidence and size of support should convince George Osborne of the need to take action and we hope that he will commit the Conservative Party to cutting this pernicious tax should they win the next general election.