SMEs face thousands of redundancies if VAT rises

Small builders are bracing themselves for thousands of job losses if VAT is raised to 20% as expected.

Economists are widely predicting that the new Conservative prime minister David Cameron and his new coalition government will raise VAT to 20% from 17.5% in its forthcoming Budget. But the news has caused worry among small to medium builders who depend on the domestic repair and maintenance sector.

Richard Diment, director general of the Federation of Master Builders, said: “The industry needs a decision like this like it needs a hole in the head. We commissioned some research by Experion in February and it showed that if VAT rose by 2.5 percentage points it would decrease demand by 2% in the housing repair and maintenance sector and cost around 7,500 jobs.

“The caveat is that our industry needs sound public finances, so what we believe is that the tool the government should use is varying rates of VAT for different areas. We would argue that with the fragility of the construction industry it would benefit from a special reduced rate.”

Michael Ankers, chief executive of the Construction Products Association, said: “We would like to see a reduced rate for housing repair and maintenance, but in the current climate it seems unlikely.

“We have discussed it with the Treasury in the past and they said, 'So you want is to give people a lower rate of VAT for building a swimming pool? That's how it would be seen.” Instead we're focusing on sustainable products. There is already a list of those with a 5% rate of VAT and we want to update that list.”