UK Property Industry Big-Hitters urge VAT Rate Cut in Budget

Some of the biggest hitters in the UK construction industry have joined together in their calls for the UK chancellor Alistair Darling to take the EU up on its allowance, and cut the rate of VAT from 15% to 5% on home maintenance, repairs and construction in his budget.

"[Cutting VAT on house-building and maintenance work] will provide a far more effective fiscal stimulus than many of the other measures the government has introduced or is considering, by helping to sustain employment in many thousands of SMEs and using construction products, of which a high proportion are manufactured in the UK," said Michael Ankers of the Construction Products Association (CPA).

"Reusing empty homes improves communities, minimises waste sent to landfill and reduces carbon emissions from the transport of construction materials. Cutting VAT would help bring empty homes back into use and increase supply while house-building is at a record low level," was RICS chief executive Louis Armstrong's reasoning for getting behind the campaign. A viewpoint shared by Richard Diment, Director General of the FMB, who said:

"Recycling our heritage by putting buildings back into beneficial use is an essential part of improving our quality of life."

Diment also said:

"Research carried out by University of Oxford calculates that the potential market for the refurbishment of existing homes to improve their energy efficiency is worth between £3.5 and £6.5 billion, which would be a significant boost to the construction sector providing thousands of new jobs at a time when they are needed more than ever."

But this would surely only be the case if people contract the work, which will only happen if builders pass the VAT cut onto customers, and it is unlikely even then. The VAT rate cut on such work is unlikely to have people falling over themselves to stop the draught coming in through the loft when far too many are busy keeping the wolf from coming through the door. Or will it?

Sunand Prasad, President of the Royal Institute of Architects believes it will.

"The European Construction Industry Federation (FIEC) has shown that the experiment of reduced VAT rates for activities relating to the restoration and maintenance of dwellings in Belgium, Spain, Italy and Portugal created almost 170,000 permanent additional jobs," Prasad said.

The above bodies and groups have put their combined feelings on paper in the form of a letter to the Chancellor, but it is unlikely to make much difference.

Not one of those above will know more about the FIEC's experiment in Belgium, Spain, Italy, and Portugal than Darling himself does. And he is bound to hear all those arguments several times a day from the various think-tanks and lobby groups. The trouble is he will hear an equal amount of arguments every day opposing the VAT cut, and that is why the letter will have little effect.

While it is true, all the groups and bodies mentioned above have varying interest in the housing market, but the key is all their interests are vested in the housing market recovery, in short they are all biased; they want increased activity in the building sector, whereas the Chancellor has to weigh up the pros and cons with a view to the entire economy, in the short and hopefully the long term as well.

At any rate it is more than possible that the Chancellor has already made up his mind on whether or not to cut the VAT rate, it would be folly for him to change it based on such a letter.