analysis

Cutting VAT on home building improvements has been a long-standing campaign issue for the Scottish construction industry. In a Scottish Building Federation membership survey published in June, more than 40 per cent said a targeted VAT cut would be the single most effective measure government could take now to boost the industry.

The results underline how strongly our members feel on this issue – and how much they believe cutting VAT on home improvements to 5 per cent would benefit consumers and the industry. The practical effect would be to save consumers 15p in every pound they spend on having construction work done to repair, maintain or improve their home. It would provide a much-needed boost for construction firms in what is still a very difficult trading environment.

With the housing market in particular stifled by a lack of confidence and affordable credit, one ray of hope for building firms is that an increasing number of householders are looking to make repairs and improvements to their existing home.

But with household budgets as tight as they currently are, many need stronger tax signals to persuade them to spend their money.

A public opinion poll commissioned by the Scottish Building Federation in 2009 found one in every two Scottish householders would spend more on home improvements if the rate of VAT on these works were cut to 5 per cent.

Two years later, if we were to ask the same question again, I suspect the percentage of those persuaded to spend more by a targeted tax cut would be even higher.

Over the past three years, the industry has suffered a significant loss of skills and capacity. We have seen progressively fewer young people entering the industry. Cutting VAT on home improvements would help the industry to stem those losses and to retain more workers and apprentices.

It would be a key measure to stimulate consumer spending and action in this area. And it would eliminate the current significant competitive advantage of cash-in-hand cowboy builders over legitimate VAT-registered firms and hopefully help drive more of them out of the industry for good.

There are a wide range of good reasons for supporting this policy. It will help to stem a worrying outflow of skills and capacity from the industry. It will make a major contribution to helping us meet our climate-change targets while stimulating investment in green construction skills. It will help drive the cowboys out of our industry. Most importantly – based on a wide array of evidence – it will actually work, making a genuine and far-reaching impact on consumer behaviour.

For all these reasons, I applaud the Scottish Government for backing the industry’s campaign to cut the VAT and to support Scotland’s construction sector.

l Michael Levack is chief executive of the Scottish Building Federation.