Chancellor of the Exchequer Rishi Sunak

Cutting VAT cut on home improvement works from 20% to 5% for a temporary five year period would generate an economic stimulus worth £51bn and create 345,000 new jobs, according to new research.

Although it would cost the government £2.8bn in tax revenue, the economic benefits would more than make up for it, it is claimed.

Analysis by CBI Economics on behalf of the Federation of Master Builders (FMB) and the Royal Institution of Chartered Surveyors (RICS) found that cutting VAT on repair, maintenance and improvement (RMI) works just until 2025 would lead to:

• £51bn total additional output in the construction sector and wider economy

• £25 bn additional gross value added (GVA) across the economy

• 345,000 additional full-time equivalent jobs in construction and beyond.

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The FMB and RICS are calling on the chancellor to make the change. in his spring budget this week (Wednesday 3rd March).

FMB chief executive Brian Berry said: “If the chancellor really wants to level up across the country, cutting VAT on home improvements is a win-win, as this research shows. A temporary tax cut will give a much needed boost to small building firms, and unlock additional cash for households to spend on repairs and energy efficiency measures. A measure that the FMB has been calling for, for many years. It will also help the struggling Green Homes Grant scheme, as we know that homeowners are more likely to install green measures as part of wider home improvement works.”           

He 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.”

RICS managing director Matthew Howell said: “If the 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.

Howell concluded: “This is an important first step in hardwiring sustainability into our approach to the economy. The chancellor 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.” 

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