‘Cut home improvement tax to rebuild economy’

A “CONSERVATORY tax” cut should be considered by UK ministers to help boost the country’s flatlining economy, Alex Salmond has declared, in a fresh call for measures to stop the country plunging into a double-dip recession.

The First Minister has backed a targeted reduction in VAT on home improvement works, such as extensions and repairs, in the hope it could convince homeowners to press the button on long-standing plans to make over their properties.

A cut from 20 per cent to 5 per cent, as backed by the construction trade, would take £750 off the cost of a £5,000 extension.

Industry backers of a targeted VAT cut claim the time is right to stimulate such work, as many homeowners have given up on the property market and are instead thinking about using spare cash to improve their existing home.

But the UK Treasury warned last night that, before it could be considered, there would have to be far more work done to ensure the Exchequer did not lose too much money.

Mr Salmond’s call came amid warnings the next set of GDP data for Scotland could show it back in negative growth, and after labour market figures on Tuesday showed a sudden increase in unemployment across the UK.

The economic turmoil continued yesterday, as worldwide stocks tumbled again and some £62 billion was wiped off the value of companies in the FTSE 100 index.

Chancellor George Osborne is coming under fierce pressure from both Labour and the SNP to ease up on his deficit reduction strategy, amid claims it is not only cutting Britain’s debts, but also choking off the prospects of growth.

Mr Salmond has argued that the best way to inject a stimulus into the economy is by an increase in government capital spending, which would allow it to build more roads, buildings and infrastructure works, while boosting the construction sector.

He has held back from backing the call of shadow chancellor Ed Balls for a temporary across-the-board VAT cut. But he said specific VAT reductions should be considered in addition to capital spending increases.

He said: “There may be a case for cutting VAT in certain sectors, for example in home improvement. That would be an excellent initiative to cut VAT there to get a stimulus in that part of the sector.”

The First Minister’s comments were backed by the Scottish Building Federation (SBF) and other business groups.

In a survey two years ago, the SBF found 50 per cent of those asked said they would spend more on improving their home if VAT was cut to 5 per cent.

Colin Borland, of the Federation of Small Businesses, said: “There are a great number of people who are not moving house who are instead thinking of getting some work done on their property. If we cut VAT to 5 per cent, it makes it a bit more practical.

“If you are lucky enough to have pounds in the bank, it is not making much difference, given the low rates of interest. You are as well investing that money in the value of your home.”

But house builders warned that there could be unintended consequences, damaging to the economy, as the VAT cut could discourage people from buying a new property.

Homes for Scotland chief executive Jonathan Fair said: “Whilst we recognise this might be an attractive stimulus for the repair and maintenance sector, a new measure which encourages people to stay in an existing property when they might alternatively be considering buying a new home would have a negative impact on our industry.”

The pressure on UK ministers for a second stimulus has mounted in recent weeks on the back of the stormy economic conditions, which prompted some analysts to raise fresh concerns yesterday of a global double-dip recession.

However, the Chancellor has told MPs he is not veering from his deficit reduction plan, warning that any slackening in the pace of his measures would trigger an increase in interest rates for families.

On a “conservatory tax” cut, a spokeswoman for the UK Treasury said: “Reduced VAT rates of the kind suggested would make a significant impact on revenue. Any claim that a boost to construction would outweigh these effects would need to be looked at very carefully indeed.”

A Scottish Government spokesman said that investment in “shovel-ready projects” would have the best impact by boosting growth.

He added: “However, there is a case for targeted measures – such as a temporary cut in VAT in certain areas, such as home improvements and repairs – to stimulate private sector activity in construction.

“Such a move would encourage homeowners to invest in improving the quality of their homes, help provide work and sustain jobs, as well as complementing our ongoing efforts to support the construction sector.”