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%