Cut VAT to stimulate economic growth and create greener homes

The Government should cut VAT on home improvement works from 20% to 5% for a temporary 5-year period to generate an economic stimulus worth £51 billion, create 344,000 new jobs, and accelerate their green home upgrades agenda.

Analysis conducted on behalf of the FMB and RICS by CBI Economics has found that cutting VAT on Repair, Maintenance, and Improvement (RMI) activity for the period 2021 – 2025 would lead to:

• £51 billion total additional output in the construction sector and wider economy
  
• £24 billion additional Gross Value Added (GVA) across the economy
  
• 344,000 additional full-time equivalent jobs in construction and beyond
  

This would cost the Government £2.7 billion in lower overall fiscal contributions.

If the proposals were enacted by UK Government at the start of 2021, the likely benefits for this year alone would have included:

• £9 billion economic stimulus
  
• £4 billion in additional GVA
  
• 61,000 jobs
  

In 2021, this would cost the taxpayer £600 million in lower overall fiscal contributions.

Cutting VAT will not only help tackle the ‘cash in hand’ part of the market, but by making home upgrades more affordable, it will also make much needed energy efficiency home upgrades more accessible to all households.

With the UK Government proposing regulation to require the majority of private-sector homes to achieve EPC C by 2030, homeowners will need the financial support and incentives to take action – something which a VAT cut would support.

Matthew Howell, UK MD of RICS said: “If Government is serious in its desire to build back better and help level up the country then we have to be bold and do things differently. Cutting VAT on home improvements, as this research highlights, is exactly the sort of fiscal measure which will have a long and positive consequence for the economy, helping to create jobs and opportunities in those areas and industries hit hard by the pandemic, and drive up energy efficiency in many homes and buildings.

“This is an important first step in hardwiring sustainability into our approach to the economy. The UK Government needs to embrace it as part of a wider package of measures to really make a difference. Chartered surveyors across the country stand ready to support this national drive to a more sustainable approach to growth and development.”  

Brian Berry, Chief Executive of the Federation of Master Builders (FMB) said: “This research shows that cutting VAT is a win-win in terms of economic growth, jobs and protecting the environment, as the FMB has long-argued. The Chancellor must cut the VAT to 5% on home improvements, levelling up across the country with a boost to small building firms, and unlocking additional cash for households to spend on improving both the general repair and energy efficiency of our homes.

Berry concluded: “If we don’t make energy efficiency upgrades more accessible and easier to deliver, the Government will fail to meet its net zero targets. Cutting VAT and Government grants are measures that should be brought together under the umbrella of a National Retrofit Strategy that sets a clear direction of travel for both businesses and consumers.”