Seán O’Reilly, IHBC director, welcomed a widening push for reduced VAT for building renovation and repair, represented by calls from mainstream construction sector interests for VAT regime sympathetic to repair. Dr O’Reilly observed that ‘Given the political, economic and environmental turmoil we face today, reducing VAT to promote the care and repair of our buildings is one of the few easy wins for government. It responds to recession by creating jobs; to global warming, by reducing carbon emissions, and to political disillusionment, by demonstrating leadership’.
A tightly framed recommendation in a 178-page academic research paper (The Private Rented Sector, Dr Julie Rugg & David Rhodes, University of York, 2008), calling for a review of VAT policy on the renovation and repair of dwellings in the private rented sector, has kick-started the British Property Federation’s (BPF) call for a more sympathetic VAT regime for building repair, albeit in limited circumstances. The academic study framed its recommendation within a very narrow window – the private rented sector and the registered landlord – and adopted a specific strategy to ‘prevent the concession being used by individuals seeking to purchase dilapidated properties, improve them, and sell them on the owner occupied market’. However, BPF’s promotion of the business case for reduced VAT on repairs – highlighted recently by Heritage Link – is significant for the sector it represents, and the weight it carries, as noted further below.
Two key statements by the BPF have shown its awareness of the economic benefits of the proposals of Rugg and Rhodes. The BPF’s recently launched ‘Regeneration Manifesto’ supports their proposals: ‘We are keen to see the recommendations of this review implemented expeditiously’.(p.11) Also, in a 10-page Budget-related letter of 8 April 2009 the BPF adopted a slightly more open position than that of Rugg and Rhodes, noting that ‘Now that European Union agreement has been reached to allow [reduced VAT rates], the Government should consider introducing a reduced rate of VAT for residential improvements, perhaps for accredited landlords only’.
The moves by BPF coincide with new EU freedoms on VAT, which came into force on 1 June. These allow EU member states to apply a reduced rate of VAT on the renovation and repair of housing. Previously, member states were only able to do this temporarily as part of a pilot project, which the UK operated in the Isle of Man. As these pilots were framed around jobs promotion in labour intensive sectors, the environmental benefits were not included in the evaluation. However the results on the Isle of Man pilot reported significant benefits across the construction sector:
‘ the experiment has been successful in achieving its and the EU’s aims of creating employment and reducing the size of the shadow economy. In addition there have been other benefits to the Government and people of the Island, including improvements to the existing housing stock and reduced pressure on green field site developments. There has been far less pressure on builders to cut corners, reduce prices and work outside the system – the knock on effect of this, according to the Employer’s Federation is happier customers and staff, fewer complaints and staff movements, all of which contribute to improved profitability.’ (Labour intensive services Evaluation Report by Isle of Man Government Under The Labour Intensive Services (LIS) Experiment (Council Decision 2000/185/EC) p.27)
This and other pilots across Europe, set the context for the more recent relaxations in VAT controls by Europe, notably the option for VAT reductions in ‘renovation and repairing of private dwellings, excluding materials which account for a significant part of the value of the service supplied’. However it remains for the government to adopt such labour-friendly – and environment-friendly – reductions in VAT. So the push by the BPF on relaxation is an important widening of support for the opportunity to promote care and repair through fair tax.
The RIBA has also been active – and successful – in promoting a more sympathetic VAT regime for existing building stock, as previously reported on the IHBC’s News Blog. In a recent initiative promoting architects’ roles in the government’s retrofitting programme, Head of Policy at RIBA, Ewan Willars pointed out that ‘If the Government is serious about tackling emissions from our existing homes, it must reduce VAT on repairs and refurbishment to 5% as soon as possible – immediately reducing the costs to householder of making their home more efficient and sustainable’.
http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/
labour_intensive_services/
index_en.htm
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/08/1109&format=HTML&aged=0&language=
en&guiLanguage=en
http://www.planningportal.gov.uk/england/professionals/en/
1115316685206.html
http://www.york.ac.uk/inst/chp/Projects/PRSreview.htm
http://www.bpf.org.uk/topics/document/23631/bpf-pre-budget-2009-
representation-letter
http://www.bpf.org.uk/newsroom/pressreleases/document/23660/
manifesto-to-kick-start-crippled-regeneration
[Click here for Regeneration Manifesto]
http://www.architecture.com/NewsAndPress/News/RIBANews/News/2009/
RIBALobbyingSuccessOnVATCut.aspx
