Consumers should avoid being enticed by a low-cost cash deal in order to avoid paying more in the long run, according to the National Federation of Builders (NFB) in response to comments made today by Exchequer Secretary David Gauke.
The NFB believes that rogue cash traders are costing the economy billions of pounds and stealing much-needed work from legitimate builders and contractors, resulting in job and skill losses and a bad deal for the public. If the government heeds calls to reduce VAT to 5% on all home improvement work, it will help to create rather than eliminate jobs. It will make such work more affordable for millions of homeowners who are stuck in their homes due to a lack of mortgage availability and prefer to improve rather than move. It will eventually generate significantly more revenue for the Treasury by encouraging spending and jump-starting economic growth.
In order to support economic growth, the EU changed the law to allow member states to permanently reduce VAT in this area to 5%.
“We are pleased the Treasury is becoming more vocal about the damaging effect cash in hand payments have on individual businesses and the economy at large,” said Julia Evans, chief executive of the NFB. Businesses that avoid paying VAT have a 20% advantage, but all too often, this low-cost deal comes without a proper written contract or any kind of paperwork, making it difficult to enforce consumer rights if something goes wrong.
“By lowering VAT to 5% on all home repair, maintenance, and improvement work, the government can reduce the competitive advantage of these rogue traders while also protecting consumers.” This simple, one-time action would contribute to reducing the size of the ‘informal economy’ in the home improvement market, which is now estimated to be worth an astounding £9.3 billion per year.
“Since 2010, over 5,000 construction businesses have gone bankrupt.” At a time when the economy is in a slump, the government should be doing everything it can to support legitimate businesses rather than increasing the number of unemployed. According to Experian analysts, the increase in the standard rate of VAT to 20% last year resulted in nearly 4,000 job losses in the home improvement market in 2011.”
The NFB, along with 50 other trade federations in the Cut the VAT Coalition, is calling for VAT to be reduced from 20% to 5% on all home repair, maintenance, and improvement work.
According to the NFB, lowering VAT to 5% on all maintenance and home improvement projects would allow the government to meet its target of reducing carbon emissions by 80% by 2050.
A similar reduction would have significant social and financial benefits for the public sector by lowering the VAT bills of housing associations and local governments, allowing more of the current expenditure to be used to improve the UK’s 4.9 million units of social housing stock.
Furthermore, it would benefit millions of UK homeowners by lowering bills for those who cannot afford vital home repairs; assist in bringing vacant properties back into use, thereby aiding in the alleviation of the housing supply crisis; remove the perverse incentive to demolish existing buildings to avoid the VAT bill; and help protect consumers by reducing the informal economy’s competitive advantage, which is estimated to be worth £9.3 billion per year.