Budget 2009: Builders see hope of VAT cut to 5%
Alistair Darling could have the power to cut VAT on building and refurbishment bills on homes in the Budget this year, providing a much needed boost for the construction industry.
As VAT is a pan-European tax, the chancellor does not have the power to cut or raise all aspects independently. However, following an agreement with the European Council he can cut the tax on building work.
The Budget could well see a cut on the VAT on renovation and repair work to dwelling to five per cent - from the current level of 15 per cent.
Brian Berry, director of external affairs at the Federation of Master Builders, explained a cut to VAT to five per cent would "tick all the government's boxes".
He explained a cut in VAT on building work would act as a stimulus for construction and the economy, help meet eco-targets for green building and help to reduce fuel poverty.
"If it is going to happen, it will happen now," he said.
"It will make a difference. It will be a big boost to small builders, as a ten per cent cut will make the difference over whether people will have an extension or not or have repairs so their house is properly maintained.
"The government is very keen to keep people in employment and for every £5 billion spent there are 55,000 jobs in construction created."
He added construction could act as a catalyst for the economy with a domino effect.
"I can't see how the government can lose," Mr Berry said.
However, he admitted it is still not certain if the government will be able to cut VAT rates.
"We are still not 100 per cent certain on the timing. The [European] agreement might not be ready in time for April, but we might have to wait until summer," he explained.
"However, there is still pressure on the government."
The Federation of Master Builders is also calling for further boosts to construction and property through an increase in the stamp duty threshold to the UK average of £204,000.
Meanwhile the Home Builders Federation (HBF) is calling for the stamp duty to rise to £250,000 - taking most new homes out of stamp duty.
They are also calling for a complete reshake of stamp duty - so the current "slab system" whereby crossing a certain house price threshold results in a massive rise in tax.
Instead, the HBF is calling for a more graduated system so which buyers crossing one of the price thresholds pay stamp duty at the higher rate only on the price above the threshold.
"The cost would be relatively modest, given the low levels of transactions, and it would provide a further boost to housing demand," the body stated.
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