Cut the VAT on building repairs and conversions

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Bill Esterson MP calls for a reduction in VAT on renovation and the refurbishment of properties.

Sefton Council is consulting on its Core Strategy and, using the figures in the Regional Spatial Strategy, says it needs 480 new homes each year. To achieve this target, the council has suggested three options, two of which imply significant incursion into the green belt.

The new National Planning Policy draft framework does not continue the brownfield-first policy; councils are not allowed to include windfall development sites like the Maghull prison site in my constituency which would deliver several hundred homes, and councils cannot use empty homes as part of their target. So the 6,000 empty homes across Sefton are not included in Sefton’s figures. The lack of a brownfield-first policy, and the inability of councils to include empty homes or windfall sites, means that councils need to have an alternative strategy for building the homes that especially our young people need; the affordable housing which is in such short supply at present.

That is why I believe that a sustainable policy is needed and that a cut in VAT on renovation and refurbishment of empty properties would make a significant contribution to delivering the targets for housing, at the same time as protecting the green belt and important urban green space as well.

The VAT regime perversely incentivises new-build on greenfield land, which currently attracts zero VAT. A VAT cut to five per cent on the renovation and re-use of existing buildings would allow greater emphasis to be placed on urban regeneration (on which VAT is currently levied at 20 per cent).

The campaign to cut VAT has a wide coalition of support. The 'Cut the VAT' campaign is run by the Federation of Master Builders, and supported by many organisations, including the Campaign to Protect Rural England and the Federation of Small Business.

There would be many benefits from reducing VAT on building repairs and conversions. There are strong environmental, economic and social grounds for doing so. In general, subjecting repairs and conversions to VAT is damaging as it acts as a deterrent to urban regeneration, proper maintenance of buildings and care for the historic environment.

The differential between VAT rates on new build and repair creates a perverse incentive to leave buildings in a state of disrepair or to demolish sound buildings rather than encourage their effective use and maintenance. This is because it adds to the cost of bringing buildings back into use, through repair, renovation or conversion. This contributes to a cycle of decline, as run-down areas are generally a less attractive proposition for investors and developers, even though they may present significant opportunities. I believe that the government would agree with that analysis.

The additional cost VAT adds to repairs and refurbishment distorts the market so that it favours new build over re-use and refurbishment. This means that developers are incentivised to bring forward new development on greenfield sites, before attempting to bring existing resources back into useful occupation. As well as assisting regeneration, making productive use of existing buildings can play an important role in conserving scarce resources, such as land, energy and building materials bound up in them. Such an approach also contributes to reducing waste.

Government statistics indicate that there are over three-quarters of a million empty houses in England. There are a large number of other empty and under-used buildings. This is an enormous waste of resources. A reduction in VAT on refurbishment would create a level playing field between refurbishment and new build.

Historically it has been argued that due to EU laws a reduction in VAT was not possible. However ECOFIN (The European Economic and Financial Affairs Council) agreed in March 2009 to allow member states to reduce VAT on housing repair and maintenance, so this barrier would appear to have been lifted. The cut in VAT on renovation is now an option which would promote regeneration, bring empty buildings back into use and minimise use of greenfield land.

Turning to the impact on the construction industry:

-A cut from 20 per cent to 5 per cent would reduce the competitive advantage of rogue traders and help rescue many legitimate local firms from the brink of collapse.
-Dozens of small and medium-sized businesses would benefit considerably from a VAT cut on home repair, maintenance and improvement work. That’s why the campaign has the support of the Federation of Master Builders.
-It would make important home repairs more affordable and help protect consumers from cowboy builders who currently flourish by evading VAT.
-This is a logical step to help boost the economy and the government should get on and do it as a matter of urgency.

Bill Esterson has been Labour MP for Sefton Central since 2010.

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