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5% VATrate hopes rise
16:56 14 Mar 2003
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With the Budget statement now just a month away, hopes are rising
among builders that they are making real progress towards
persuading the Chancellor of the case for reducing VAT on domestic
repair, maintenance, and improvement (RMI) work from 17.5% to
5%.
Contractors' arguments have been strengthened by the results of an experimental cut in rates adopted by other EU countries and by a parallel, limited UK experimental reduction in the Isle of Man.
Figures from the Isle of Man show that a cut in VAT rates has actually resulted in a dramatic increase in tax revenue. A report to the European Commission shows that a 17.5% VAT rate on RMI building work in 1998 brought in £7.8m in tax. Following a cut to 5% in 1999 the tax return rose to £8.5m that year, £9.4m in 2000, and £10.6m in 2001.
"We are getting a very positive response from MPs to our call for a reduction in VAT," said Andrew Large, director of external affairs at the Federation of Master Builders. "We recognise that this is a long, hard slog. But we are beginning to make people see the argument in the round.
"It is not just about tax. There are wider considerations including curbing cowboy traders, improving the quality of housing stock, energy efficiency, training, and safety."
Feedback from the Isle of Man experiment has been most encouraging, he added.
A spokesman for the Construction Confederation said: "We've seen the results of the Isle of Man experiment. It has been a great success. It has reduced the black economy, increased employment, and produced greater customer satisfaction. But it is still a big leap for the government to take this route for the rest of the UK economy."
France was one of seven countries which took advantage of a 1999 EU directive allowing an experiment in reducing VAT. A French government study concluded that this had resulted in:
n A clear reduction in cowboy trading.
n An increase in spend of domestic RMI work.
n A reduction in prices to the consumer amounting to at least 75% of the overall VAT rate cut.
n The creation of 43,000 new construction jobs.
Contractors' arguments have been strengthened by the results of an experimental cut in rates adopted by other EU countries and by a parallel, limited UK experimental reduction in the Isle of Man.
Figures from the Isle of Man show that a cut in VAT rates has actually resulted in a dramatic increase in tax revenue. A report to the European Commission shows that a 17.5% VAT rate on RMI building work in 1998 brought in £7.8m in tax. Following a cut to 5% in 1999 the tax return rose to £8.5m that year, £9.4m in 2000, and £10.6m in 2001.
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"We are getting a very positive response from MPs to our call for a reduction in VAT," said Andrew Large, director of external affairs at the Federation of Master Builders. "We recognise that this is a long, hard slog. But we are beginning to make people see the argument in the round.
"It is not just about tax. There are wider considerations including curbing cowboy traders, improving the quality of housing stock, energy efficiency, training, and safety."
Feedback from the Isle of Man experiment has been most encouraging, he added.
A spokesman for the Construction Confederation said: "We've seen the results of the Isle of Man experiment. It has been a great success. It has reduced the black economy, increased employment, and produced greater customer satisfaction. But it is still a big leap for the government to take this route for the rest of the UK economy."
France was one of seven countries which took advantage of a 1999 EU directive allowing an experiment in reducing VAT. A French government study concluded that this had resulted in:
n A clear reduction in cowboy trading.
n An increase in spend of domestic RMI work.
n A reduction in prices to the consumer amounting to at least 75% of the overall VAT rate cut.
n The creation of 43,000 new construction jobs.
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