Hope for UK construction as EC ponders VAT reduction

The European Commission is planning to reduce VAT on construction and repair of housing to 5% - putting welcome pressure on the British government to abandon its full rate policy.

The proposal will be applauded by the construction industry which has been campaigning long and hard to see the current rate of VAT on domestic repair, maintenance and improvement (RMI)cut from the current 17.5% rate.

The National Federation of Builders (NFB) and Federation of Master Builders (FMB) both expressed their anger in April after their calls for a decrease in the Budget were disregarded "once again".

NFB chief executive Barry Stephens said: "We have long maintained that a reduction on RMI would not only help level the playing field in the market, but would also stimulate the refurbishment of thousands of empty homes across the country."

FMB director of external affairs Andrew Large agreed. "There is a clear and well-documented case for a reduction to 5%. VAT levels on this type of work remain a major issue on which we will continue to campaign," he said.

The proposal by the EC is part of a comprehensive review of European VAT regulations, aimed at better harmonising the EU's national systems, which vary widely regarding which goods and services attract reduced rates.

At present, 12 member states apply reduced rates to the construction and repair of social housing projects alone.

The proposal from the Commission would extend this right to all housing construction in every member state.