15 March 2009

A VAT rate cut that could work

If the popular press is to believed (yes, I know it's stretch), the VAT reduction from 17.5% to 15% did nothing but cause retailers problems.

There were complaints that the cost of changing all the price labels wiped out the profit that any extra sales the reduction brought in.

True or not, we should not give up on VAT reduction as a means of kick-starting the economy, which is one of the reasons that kbb News supports the Cut The Vat coalition started by the Federation of Master Builders and others including the Bathroom Manufacturers' Association.

Now comes the welcome news that European Finance Ministers voted on 10 March to allow EU Member States to charge VAT at five percent on home maintenance and repairs marking a big victory for the coalition which has been campaigning to get the UK Government to cut VAT for all maintenance and repair work.

To me, reducing VAT on substantial home improvement projects makes more sense than the Get Britain Building Campaign, which advocates we build ourselves out of recession.

Leaving aside it was a boom in house prices that was one of the contributing factors to our current economic woes, building yet more homes when we cannot sell the ones that have already been built does not strike me as a good idea - even without the environmental impact.

The Empty Homes Agency estimates that there are 940,000 properties laying empty in the UK, a large proportion of which are run down and in need of some heavy-duty TLC.

Surely it makes more sense to sell these vacant properties first rather than add to the stock of unsold and empty homes?

A reduction to 5% would be a VAT rate cut that could work, providing almost one million homes with a minimal impact on the environment, and provide a lot of work.

Is this not a win-win-win solution?

1 comment:

  1. I agree with the drift of your thinking Grahame, but all those who said the 2.5% cut did not work had better not object when on December 31st the VAT rate will revert to 17.5%. As Enoch Powell would have said "I can already hear the chorus of execration! How dare the government increase sales tax against a background of rising unemployment and depressed retail sales!" Worst of all, our televisions and printed media will be chocka with adverts urging us to "buy now and beat the VAT increase!". Odd, a cut has no effect but an increase will be deemed to be a call to action.