Cowboy builders ready to ride in and dodge VAT

SCOTLAND'S under-pressure building industry was bracing itself for another blow as today's VAT increase added to the costs of home extensions and renovations.

People who have seen work planned for before Christmas but delayed because of the weather now face seeing the cost rise due to the tax hike.

Builders say customers rushed to get work done before the end of the year and some pulled out if told it could not be done by today. They were not alone, as shoppers flocked to the New Year's sales yesterday to buy high-end goods before VAT rose to 20 per cent,

The tax rise compounds a difficult time for the building industry which has been hit by the recession and falling house prices. Although home improvements have been popular, with fewer people moving house, it is feared the realisation that they will not add as much value to properties as in previous years may act as a disincentive for many people.

There are also concerns that the 20 per cent VAT level will exacerbate the existing problem of a black market, made up of unemployed builders happy to receive cash in hand, taking work away from legitimate businesses which charge tax - which in turn may lead to a fall in tax revenues for the government.

Frank Spratt, owner of Frank Spratt Ltd, in Edinburgh, said: "The problem is an increase in VAT encourages black economies and cowboy builders. There is no way professional builders can compete while charging 20 per cent more. You've got a combination of an industry with high unemployment and a lot of people looking for work and very likely to take work on for cash - to a certain extent, you could argue the tax return will be down because less people will be paying it.

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"It does not help the industry and does not help the image of the industry.

"What people will not get (if they pay cash in hand) is the property insurance for anything that may go wrong, that's what these guys can't offer."

The Scottish Building Federation, an umbrella group for the industry, has urged the government to introduce a special VAT rate of 5 per cent or less to kick start the struggling industry, after carrying out surveys that found 50 per cent of people would invest in building work if the VAT rate was reduced.

However, rather than rejuvenate the industry, they fear the latest tax hike could deal it a fatal blow in many cases. Stephen Ford, owner of Ford Building (Edinburgh), said: "It's something we're concerned about, very much so.

"People are toiling as it is. Because the value of housing is down the amount they can borrow is down. The value of a finished extension is less and on top of all that they're now being asked to pay extra VAT.

"We had quite a few folk asking if we could get the work done by the end of the year - some we could, some we couldn't. Some were willing to pay extra, but some weren't.

"I think it could lead to an even bleaker economy.It's certainly going to hit the industry hard, there's no question about that. I think they should have looked at making the industry a special case, it's decimated at the moment.

"Every time you open The Scotsman there seems to be another notice of someone going into bankruptcy or receivership."

Meanwhile, people have faced the added frustration of work being delayed until 2011 because of ice and snow in December, and then seeing the additional VAT added to their eventual bill.

Mr Ford said: "It's unfortunate. I bought materials in advance for a couple of jobs and the clients paid for it before the VAT went up, but they will still have to pay additional labour costs. And I could only do that for work being done immediately after Christmas, not those planned for February and March."

There are also concerns for the retail sector.

Graham Bell, of the Edinburgh Chamber of Commerce, said: "Any rise on VAT is ultimately a tax on consumers, and generally speaking it is deemed to be hardest on people on low incomes.

"It's too early to tell if Christmas has been a success, but the worrying thing is that the Christmas and New Year period is the most important period for retail trade and crucial to shops' profitability over the course of the year. If they're not profitable they can't reinvest."