A VAT cut on home improvement works from 20% to 5% for a temporary five-year period would generate an economic stimulus worth £51 billion and create 345,000 new jobs, according to the Federation of Master Builders (FMB) and the Royal Institution of Chartered Surveyors’ (RICS) research.
Analysis conducted on behalf of the FMB and RICS by CBI Economics has found that cutting VAT on repair, maintenance, and improvement activity for the period 2021 – 2025 would lead to:
- £51 billion total additional output in the construction sector and wider economy
- £25 billion additional Gross Value Added (GVA) across the economy
- 345,000 additional full-time equivalent jobs in construction and beyond
- This would cost the government £2.8 billion in lower overall fiscal contributions
- In 2021 alone, the benefits are likely to include: £9.5 billion economic stimulus, £4.6 billion in additional GVA and 64,000 jobs.
Cutting VAT would not only help tackle the ‘cash in hand’ part of the market, but by making home upgrades more affordable, it will also make much needed energy efficiency home upgrades more accessible to all households.
The FMB and RICS are calling on the Chancellor to use the spring Budget to make this change. In backing builders and the professional services working in repair and maintenance, the government would be supporting a sector that is still grappling with the effects of skills and materials shortages made worse by the pandemic and Brexit.
Brian Berry, chief executive of the FMB said: “If the Chancellor really wants to level up across the country, cutting VAT on home improvements is a win-win, as this research shows. A temporary tax cut will give a much-needed boost to small building firms and unlock additional cash for households to spend on repairs and energy efficiency measures.
“It will also help the struggling Green Homes Grant scheme, as we know that homeowners are more likely to install green measures as part of wider home improvement works.”
He concluded: “If we don’t make energy efficiency upgrades more accessible and easier to deliver, the government will fail to meet its net zero targets. Cutting VAT and government grants are measures that should be brought together under the umbrella of a National Retrofit Strategy that sets a clear direction of travel for both businesses and consumers.”
Matthew Howell, UK managing director for RICS, added: “If the government is serious in its desire to build back better and help level up the country, then we have to be bold and do things differently. Cutting VAT on home improvements, as this research highlights, is exactly the sort of fiscal measure which will have a long and positive consequence for the economy, helping to create jobs and opportunities in those areas and industries hit hard by the pandemic, and drive-up energy efficiency in many homes and buildings.
“This is an important first step in hardwiring sustainability into our approach to the economy. The Chancellor needs to embrace it as part of a wider package of measures to really make a difference. Chartered surveyors across the country stand ready to support this national drive to a more sustainable approach to growth and development.”
