It is important that good policy recommendations are evidence-based, which is why the 21 original members of the Cut the VAT coalition commissioned a report to review the effect of a cut in the rate of VAT; ‘The Opportunities and Cost of Cutting VAT: The effects of selected reductions in the rate of VAT on the labour element of housing repair, maintenance and improvement,’ (Download PDF, 500 KB).
This report was launched in February 2010, at the House of Commons and its findings strongly support the campaign’s assumptions that a targeted cut in VAT to 5% would be beneficial to the UK economy, as well as resulting in a higher standard of living.
In January 2011, the standard rate of VAT increased from 17.5% to 20%. In December 2011, the research was updated to take into account changes to construction output statistics, industry forecasts and to the standard rate of VAT; 'VAT reductions in the housing repair maintenance and improvement market,' (Download PDF, 317 KB).
Key findings:
Reducing VAT to 5% for all maintenance and home improvement works would benefit the UK by creating over 100,000 new jobs in the UK and would enable the Government to achieve its target of cutting carbon emissions by 80% by 2050.
Such a cut would also have considerable social and financial benefits for the public sector by reducing the VAT bills of housing associations and local authorities, enabling more of the current expenditure to be used for improving the UK’s 4.9 million units of social housing stock.
Furthermore it would benefit millions of UK homeowners by reducing bills for those who cannot afford vital repairs to their homes; help bring empty properties back into use thereby assisting with the alleviation of the housing supply crisis; remove the perverse incentive to demolish existing buildings to avoid the VAT bill; and help protect consumers by cutting the competitive advantage of the informal economy estimated to be worth £9.3bn a year.
Key figures:
A reduction in the rate of VAT on the labour element of domestic repair, maintenance & improvement (RM&I) works from 20% to 5% would have the following key effects:
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Provide a total economic stimulus in the region of £1.7 billion in 2012 alone, rising to over £20 billion by 2020.
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Create 26,650 jobs in the construction sector, as well as an extra 34,400 new jobs in the wider economy in 2012. A cut to 5% would create an extra 100,600 jobs in the UK by 2020.
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Create an extra 3,625 construction jobs in Scotland, 1,461 in Wales and 572 in Northern Ireland by 2015.
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Release an extra £374 million a year to improve the UK’s social housing stock, which required a total expenditure of £7.9 billion in 2010.
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Help renovate or bring back into use approximately 20,160 homes per year over the next decade, by 2020 this could see up to 181,000 extra social homes brought back up to the Government’s Decent Homes Standard.
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Stimulate additional spending of around £1.45 billion on energy efficiency measures over the decade, which could result in over 163,000 extra homes installing double glazing, insulation and energy efficient boilers between 2012 and 2020. According to figures from the Energy Saving Trust this would save up to 393,600 tonnes of CO2 over the period to 2020.
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Significantly reduce the competitive advantage of the informal economy over legitimate traders.
Impact of the report:
The findings from these reports have played an important part in reinforcing that a targeted cut in the rate of VAT would be beneficial to the UK economy as a whole.
At the launch event in February 2010, Lorely Burt MP said “this research proves what benefits a VAT cut could have for the UK. We need to act quickly to get people back into work and a cut in VAT would provide many jobs immediately and would continue to provide a sustained flow of jobs over the next decade.”
However, to maximize the impact of these important findings, we need your help. Please visit the ‘What can I do?’ section of the website to see how you can help raise awareness of the benefits of this reduction in VAT.
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