The Government is being urged to cut VAT on improvements to old buildings, removing a financial incentive to demolish properties and replace them with new premises. At present, new homes for sale are not subject to VAT, whereas building renovations and repairs are charged at the full rate, currently 15%.
Support from 100 MPs
Liberal Democrat MP Bob Russell has tabled an Early Day Motion, which has gained the support of over a hundred MPs from across the political spectrum. A similar resolution has already been backed by the Welsh Assembly.
Russell is keen to promote the use of older buildings, which he argues are often more attractive and more energy efficient than the buildings put up in their place. "We are doing too little to respect the past," he tells Primelocation.com. "It does seem a nonsense that there is a financial incentive to demolish existing buildings."
New life to old properties
If his measure were adopted, says Russell, it would help to bring new life to many older properties. "If you convert an old warehouse into four flats you pay VAT on the conversion," he explains. "If you build new, you don't. It's a disincentive to rebuild or renovate, against new build."
A change of policy would be good news for the environment, adds Russell. "I believe there is a lot of carbon tied-up in the built estate. We should be prolonging the life of buildings, unless they are past their sell-by date. I am a great fan of building renovation."
Lobby group
A lobby group has been formed to promote the principles in Russell's EDM, encouraging a permanent VAT reduction on building works to just 5%. The 'Cut the VAT Coalition' is backed by the National Trust, the Civic Trust and a variety of groups supporting an historic built environment and good energy use practice.
Richard Hyslop, the Cut the VAT Coalition's co-ordinator, explains: "There are significant advantages in cutting VAT especially at this time when the pressure is growing on government to provide more homes and at the same time bring existing properties into line with reduced carbon requirements. I am delighted that politicians across the UK are speaking out and calling on the UK Government to cut VAT. I only hope they are listening."
An incentive to improve
Friends of the Earth is also calling for an end to the fiscal discrimination against home improvements. FoE energy campaigner Dave Timms explains: "We think there is a very strong package of incentives that the Government could pull together to improve existing properties and [encourage] their overhaul."
Current policies, says Timms, are geared to pushing energy supply companies to introduce cheap improvements to homes, paid for by higher energy costs. But what is needed are renovations that are initially more expensive, but make fundamental improvements to homes' energy performance. These include effective insulation for homes with solid walls. But persuading homeowners to move out to have this work done requires financial incentives, which a big cut in VAT would provide, says Timms.
Kick out the cowboys
The campaign is also backed by the Federation of Master Builders – though for very different reasons. It argues that a cut in VAT to 5% would remove most of the financial incentive to use cowboys, who are engaged simply because they work in the informal economy, not charging VAT – but also often doing poor quality work.
Richard Jenkins, director of the FMB in Wales, says: "Rogue traders flourish by evading VAT and offering the customer a cheap deal as a result. Reducing the rate of VAT on domestic building work to 5% would reduce significantly the commercial advantage of the VAT-evading trader. The financial incentive to choose a rogue trader will diminish and a level playing field will emerge instead. In time, this will drive the rogue traders out of the market as customers focus on quality and value not just price."
According to the FSB, half of homeowners are willing to employ a tradesman who does not charge VAT in order to cut costs. It estimates that the total loss to the Exchequer on domestic building work from traders not charging VAT is about £780m. Additional losses are incurred because of traders' failure to pay income tax.
There is also a disadvantage for the homeowner. Getting a cowboy builder to put right poor quality workmanship can be very difficult, while taking legal action against a trader who has disappeared is impossible.