A 5% VAT rate on repairs and maintenance to domestic property is justified by the construction jobs it would save and the improved energy efficiency it would bring to the UK housing stock, says a new report commissioned by Repairing Britain campaigners.
The 'Repairing Britain' campaign wants the UK government to reduce the rate of VAT from 15% to 5% (due to revert to 17.5% on January 1, 2010) for repairs and improvements to domestic property.

Teesside University Business School was asked by the property repair specialist Rok to assess the cost to government of reducing VAT to 5%. Its report (published November 19) found the cost to government of such a VAT cut in 2010 would be £2.6bn, however demand for such services could increase by 10%.

The report said that on its own, the VAT reduction seemed unlikely to stimulate sufficient demand to compensate for the loss of revenue, but there is some evidence to suggest that it may create a significant number of jobs.

The report says the proposed VAT reduction is unlikely to create the 300,000 jobs in the construction industry that have been lost in the industry but experience from other European countries suggests tens of thousands of jobs could be created.

It also reported that the cost of unemployment to the Exchequer throughout 2010, ranged from £1.2bn if 100,000 construction workers remain unemployed, to £3.5bn for 300,000 unemployed and £5.8bn for 500,000.

The report says the estimated value of housing repairs, maintenance and improvements by VAT registered businesses in 2009 is £20bn. The proposed VAT cut would therefore reduce current tax receipts by £2bn (10% x £20bn) on an annual basis.

In 2010, the figure is estimated at £21.3bn, so a VAT reduction to 5% would lead to a loss of tax receipts of £2.7bn (12.5% x £21.3bn).

A survey by the Scottish Building Federation which suggested a reduction in VAT from 15% to 5% on property repairs would generate £80 million of additional spending in Scotland over a twelve month period. For a VAT reduction from 17.5% to 5% in 2010, it represents a 5.25% rise in spending on property repairs.

The report stated: “While the VAT reduction is an important initial step in stimulating demand for repair work, further measures are also likely to be needed'.

As commissioner of the report, Garvis Snook, chief executive of Rok, has sent a copy to the Chancellor, Rt. Hon Alistair Darling MP, in advance of the pre-budget report expected next month.

Snook, the Repairing Britain campaign's spokesman said: “We welcome the findings of this report which give validity to our arguments that a change in tax on property repairs could be cash neutral. The report supports our belief that a tax cut could keep more people in work at a time of rising unemployment and help the country return to financial stability and growth”.