Editorial: VAT reduction on RMI common sense

contractjournal.com Newsletter - 02.03.06

Editorial: VAT reduction on RMI just common sense

The Federation of Master Builders has called for VAT on repair, maintenance and improvement work to be slashed to 5%. Online news editor Tim Wood urges the government to listen to what the experts have to say.

The Federation of Master Builders (FMB) has launched an online petition to put pressure on the Chancellor Gordon Brown before this month’s Budget to reduce VAT on repair, maintenance and improvement (RMI) work to 5%.

Its latest move comes 10 months after former construction minister Nigel Griffiths expressed support for a similar FMB campaign for a reduction in the rate of VAT to 5% on domestic refurbishment. 

Griffiths advised the trade association at the time to “keep up the pressure (on the Chancellor) and to keep the evidence coming”.

The FMB has done just that. It argues that last month the 25 EU member states agreed to allow lower VAT rates on RMI until 2010. While several countries already benefit from these lower rates, the UK has yet to introduce them.

FMB director general Ian Davis says: "When the other European nations signed up, the UK government said the Isle of Man could have a reduced rate of VAT, but the rest of the UK could not. Why should we miss out?

"We have until 31 March to tell Gordon Brown what it is we want him to do. If we do not, we will literally pay the price for years to come. Act now."

France did. Four years ago it implemented a 5.5% VAT rate on such work and as a result saw a dramatic rise in domestic refurbishment work and a reduction in the informal economy. Proof it works.

The FMB is backed by the Empty Homes Agency. Chief executive Jonathan Ellis says: "We are concerned that the high rate of VAT on refurbishment work will continue to reduce the number of homes we are able to bring back into use to meet the housing needs of the UK."

Should Brown listen to the likes of Davis and Ellis, not only would it benefit the country as a whole, but would also give the construction sector a welcome boost.

The cost of building has already gone up considerably since the start if the year. The major heavy materials producers have hiked up prices by between 20% and 30%.

Construction price inflation is also on the horizon, meaning some clients will start fewer projects.

The Chancellor, a born optmist when it comes to Labour economic forecasts, admitted in December that there is a slow down and that we are "in the toughest and most challenging year" for the British economy.

By agreeing to a reduction in VAT on RMI, Brown can give a massive boost to the construction industry's economy immediately and ensure that a sector which, let's not forget, provides 8% of GDP to his own government, has at least one less thing to worry about.