Consumers should avoid being tempted by a cheap cash deal and protect themselves against paying more in the long term, says the National Federation of Builders (NFB) in response to comments by Exchequer Secretary David Gauke today.
The NFB believes that rogue traders dealing in cash are costing the economy billions of pounds and taking much needed work away from legitimate builders and contractors, leading to jobs and skills losses and a raw deal for the public. If the Government listens to calls to reduce VAT to 5% on all home improvement work, it will help to boost jobs, not lose jobs. It will make such work more affordable for millions of homeowners trapped by lack of mortgage availability who wish to improve rather than move. It will ultimately bring much increased revenues to the Treasury by encouraging spending and kick starting economic growth.
The EU has changed the law to allow member states to permanently reduce VAT to 5% in this area in order to support economic growth.
Julia Evans, chief executive of the NFB, said: “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. Businesses that avoid paying VAT have a 20% head start, but all too often this cheap deal comes without a proper written contract or any kind of paperwork meaning the enforcement of consumer rights is almost impossible if something goes wrong.
“The Government can reduce the competitive advantage of these rogue traders and help protect consumers by cutting VAT to 5% for all home repair, maintenance and improvement work. This simple, single action would help reduce the size of the ‘informal economy’ in the home improvement market, which is now estimated to be worth an astonishing £9.3bn per year.
“Over 5,000 construction businesses have gone into insolvency since 2010. At a time when the economy is stuck in recession, the Government should be doing everything it can to support legitimate businesses, not adding to the total number of unemployed. According to research by the analysts at Experian, last year’s rise in the standard rate of VAT to 20% resulted in nearly 4,000 job losses in the home improvement market in 2011 alone.”
The NFB, along with 50 other trade federations in the Cut the VAT Coalition, is calling for VAT to be cut on all home repair, maintenance and improvement work to be reduced from 20% to 5%.
According to the NFB, reducing VAT to 5% for all maintenance and home improvement works would enable the Government to achieve its target of cutting carbon emissions by 80% by 2050.
Such a cut would also have considerable social and financial benefits for the public sector by reducing the VAT bills of housing associations and local authorities, enabling more of the current expenditure to be used for improving the UK’s 4.9m units of social housing stock.
Furthermore it would benefit millions of UK homeowners by reducing bills for those who cannot afford vital repairs to their homes; help bring empty properties back into use thereby assisting with 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 cutting the competitive advantage of the informal economy estimated to be worth £9.3bn a year.