Conservatory tax cut ‘will cement fresh Scots growth’

HOMEOWNERS could benefit from a massive boost to their DIY plans under plans to slash VAT on home improvements.

Both SNP and Labour MSPs will urge the Chancellor George Osborne to cut VAT on work on extensions, conservatories and household repairs to 5 per cent, down from the current 20 per cent, in a move that would take £750 off the cost of a £5,000 job.

The change could mean savings of £2,250 on a garage conversion, £6,000 on a two-storey extension, £1,500 off the cost of a conservatory and £750 off a new roof for a small terraced house.

As well as giving a boost to the building trade, the reductions could bring a much needed boost to DIY retailers, who according to the latest report from the Scottish Retail Consortium, have been particularly badly hit by the economic downturn.

Proponents of the move say reducing the VAT to 5 per cent would deliver a boost to the construction trades and tempt families across the country who might be considering extending their own home, rather than moving house

The joint call from Holyrood comes ahead of Mr Osborne’s autumn statement on the economy this month, when figures from the Office of Budget Responsibility are expected to confirm lower than expected growth forecasts for the UK.

The building trade welcomed the call last night. Scottish Building Federation chief executive Michael Levack said: “It would give many building employers the confidence they need to be able to recruit and retain more apprentices.

“What’s more, evidence from the Isle of Man, where a 5 per cent VAT rate on home improvements has been in place for years, shows that the spending stimulus it provides actually boosts the overall level of tax income from these works.”

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.

The change could also stimulate a growth in the DIY retail sector – which is currently one of the areas hardest hit by the economic downturn.

Ian Shearer, director of the Scottish Retail Consortium, said: “There is no doubt that the non food retail scene is particularly suffering at the moment with the economic downturn relative to the food sector.

“In terms of big ticket items like homewares and DIY, these retailers have felt the downturn particularly accutely.”

First Minister Alex Salmond signalled his support for a ‘conservatory tax cut’ in August, when he said it could help improve the economy.

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.”

His comments were backed by business leaders. 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.”

Mr Osborne is facing pressure to loosen the purse strings with a mixture of extra spending and tax cuts in the hope it can help boost growth – especially as the eurozone crisis continues to hit the economy hard.

But in heated exchanges at Westminster yesterday, UK ministers said they could not deviate from their deficit-reduction agenda at a time when bond markets were punishing indebted countries across the world with higher borrowing costs.

Scottish Secretary Michael Moore said a “conservatory tax cut” had not worked the last time it had been tried and was too costly to pursue now.

It is likely the VAT issue will be used by SNP ministers to make the case that it should have control over sales tax, as it seeks to persuade Labour MSPs to back its bid for more powers or independence.

Announcing the SNP’s support for the cut yesterday, Fiona Hyslop, the secretary for culture and external affairs, said it should also apply to derelict buildings, particularly those with a heritage value, which face demolition because of the cost of restoration.

She said: “Reducing VAT to 5 per cent for building repair, refurbishment and maintenance work is a measure that is widely supported in Scotland, and the UK government needs to listen.

“Such a move would also encourage owners and communities to invest in homes and neighbourhoods across the country, and provide added stimulus to the hugely important construction industry, one of the strongest sectors in Scotland today.”

Shadow Scottish secretary Margaret Curran said last night: “The government must pay attention to the concerns raised about the construction industry in Scotland, where 10,000 jobs have been lost in just three months and where the number of Scottish companies facing bankruptcy has risen by 135 per cent in just two years.”

She said: “The government must support Labour’s call – and that of the Scottish Building Federation – for a one-year cut in VAT on home improvements.”