The Chancellor of the Exchequer’s announcement that VAT will rise to 20% in January will boost the informal economy and cowboy builders warns the Federation of Master Builders.
Richard Diment, director general of the FMB said that consumers are likely to resort to ‘cash-in-hand’ to avoid paying VAT on building work,
“This in turn will leave them more vulnerable to being ripped off or having sub-standard work done on their home,” he said.
“The VAT increase makes no sense as there is no guarantee that the tax revenue will actually increase for the Treasury. Higher taxes send consumers into the informal economy whereas a low taxation economy stimulates growth.
“Independent research has shown that reducing the rate of VAT to 5% on the labour element of housing repair, maintenance and improvement work would have a multiplier effect of more than £1 billion as well as creating more than 55,000 extra new jobs this year alone.
“Every year over £170 million is stolen from unsuspecting homeowners by rogue traders and today’s VAT increase will be a further incentive for this figure to escalate.”
He continued: “This VAT rise will have a disastrous affect on many businesses and people cross the UK. The new 20% VAT rate will hit the building industry particularly hard as the industry is still struggling to recover from a recession in which it has been the single biggest cause of redundancies and business failures.”
At accountancy firm Grant Thornton, Phil Westerman, head of construction agrees:
“The tax and VAT hike announced today will add to the distress of an already fragile recovery in the construction sector. As consumer now face an increase to their tax bill and a rise in VAT, this will undoubtedly lead to a fall in the confidence they need to make larger scale purchases. Many will question if now is the right time to buy, if they have the funds to do so and if their jobs are secure.
“Another fear of a VAT rise is that it will lead to more cash strapped consumers resorting to cash-in-hand payments to builder for home improvements to avoid paying a higher rate of VAT. This is a practice that can only lead to the unfortunate promotion of a cowboy culture, which we certainly don’t want to see increase.”