With just weeks to go before the Budget on 23 March the FMB has written to George Osborne MP, Chancellor of the Exchequer, setting out its six main policy recommendations to help the building industry get back on its feet.
1. CUT THE VAT ON ENERGY EFFICIENCY HOME IMPROVEMENTS
Research commissioned by the FMB shows that the £45.5 billion a year housing repair, maintenance and improvement (RM&I) market will fall by two percent as a direct impact of the VAT increase in January, and that removing this £910 million from the market will result in 7,500 jobs being lost in construction, rising to 11,400 by 2019. While recognising the need to rebalance the public purse, the FMB is calling on the Chancellor for a more sophisticated approach to the issue of VAT and its use as a tool for delivering the Government’s low carbon policy objectives.
The FMB is believes that there is now a compelling case to review the VAT rules and rates for the installation of energy saving materials, which are overly complex and not serving the purpose for which they were intended. Although the installation of certain energy saving materials can be charged at the reduced rate of VAT, the installation of double glazing and energy efficient boilers is charged at the full rate of 20 percent. Equally, the current rules state that if the standard rate of VAT applies to the main job then the standard rate must be charged for the whole of the work regardless of any energy saving measures undertaken. A recent survey of the FMB’s membership showed there are potentially over 128,000 construction companies that do not know the VAT rules in this area, and the same could be assumed of their clients.
Research carried out by the London School of Economics on behalf of the FMB reveals that reducing the VAT rate on the installation of double glazing and energy-efficient boilers to five percent would potentially generate a further £195 million a year to fund other repair, maintenance and improvement work in the private housing sector. The FMB wants the Government to therefore permit a reduced rate of VAT of five percent on the installation of all energy saving materials and micro-generation systems and not just those that currently qualify.
In addition, if the Government is serious about retrofitting existing dwellings and ensuring the success of its forthcoming Green Deal next year, VAT must be reduced to five percent for all domestic repair, maintenance and improvement projects that include sufficient energy efficiency improvements.
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2. INTRODUCE A PACKAGE OF INCENTIVES FOR THE GREEN DEAL PROGRAMME
An ambitious programme of energy efficiency retrofits is vital if the UK is to meet its 2020 and 2050 carbon reduction targets. Estimates vary, but the cost of significantly upgrading the energy efficiency of the UK’s housing stock could be in the region of £7-£11billion per year over the next 15 years. A major ramp up from the existing investment of £1-£2 billion per year is required. The Green Deal is an important step in the attempt to improve the energy performance of our housing stock, but the forthcoming Budget must provide businesses with the certainty that the Green Deal will be an attractive proposition for consumers from the outset.
Market research commissioned by the Great British Refurb Campaign indicates that although the Green Deal is attractive to consumers as a concept, mass demand will be contingent on a number of issues including the financial package being attractive enough. In addition analysis undertaken by E3G indicates that interest rates on Green Deal finance would need to be as low as two percent or less in order to meet the Government’s ‘golden rule’ in most cases. Therefore, the FMB wants the Chancellor to introduce a policy package of fi nancial incentives that support the carbon reduction aim of the Green Deal programme, including Council Tax rebates or variable rates, stamp duty reform and a reduced VAT rate for improvements carried out through the Green Deal.
In addition, the FMB wants the new Energy Company Obligation (ECO) to be used to incentivise most home owners to take up the Green Deal. Currently, it is thought the new ECO will be directed at hard to treat and low income properties but as yet there is no clarity on the size of the obligation.
There are still over five million pre-1914 properties in the UK and Government estimates show that one third of all homes did not meet a basic standards of ‘decency’ in 2007. If the ECO does not meet the scale of the subsidy required, the Government must consider alternative sources of finance to ensure homes are made fit for 2050.
3. LINK STAMP DUTY LAND TAX TO THE LOW CARBON RETROFIT CHALLENGE
As with VAT, a precedent exists in the new-build housing sector for using Stamp Duty Land Tax (SDLT) relief to reward high environmental performance (HM Treasury 2007). Stamp Duty should now be reformed to introduce a link to the energy performance of buildings with SDLT payments varied according to Energy Performance Certificate Rating. In the existing homes market a time delay should be introduced to entitle the buyer to Stamp Duty relief if they undertake measures to improve the energy performance of the property.
As well as providing a boost for the Green Deal, this measure would help to reverse some of the negative impacts caused by the slowdown in the housing market and must be given serious consideration.
4. DELAY THE CUT TO EMPTY PROPERTY RATE RELIEF
Plans to cut the threshold for Empty Property Rate Relief from £18,000 to £2,600 in April will harm local businesses and development. The effective removal of Empty Property Rate Relief in April 2008 has been an unmitigated disaster, and the modest temporary increase in the threshold for financial year 2009/10 has provided only limited respite. The measure is in direct conflict with a wide range of government policies, and has produced results diametrically opposed to its stated aims. Rather than acting as an incentive to re-develop and re-let vacant property, it is forcing developers to destroy viable properties that they cannot let due to the recession, as they cannot afford to pay the tax. Far from increasing supply, it is reducing it, thus laying the foundations for soaring commercial rents which will act as a break on the recovery. Furthermore, the policy also acts as a deterrent to much needed regeneration schemes as developers and potential buyers are reluctant to risk having to pay rates on empty properties should conditions worsen and they find themselves unable to find tenants. The policy is a disincentive to investment at precisely the time when more investment is needed, not just in the construction industry but the wider economy as a whole.
Therefore, the FMB is calling on the Chancellor to delay the cut to Empty Property Rate Relief until any savings to the public purse are not overshadowed by the negative impact on development.
5. HALT THE RISING COST OF FUEL
The FMB believes that the Government must abandon the planned increase in fuel duty. At a time when small businesses are already struggling to survive, many are reporting the increasing fuel costs as the last nail in the coffin. Many businesses from a wide variety of sectors simply cannot afford to sell, let alone deliver, their services at the current price of fuel. An automatic rise in fuel duty in April could mean another five pence per litre (23 pence on a gallon). This is at a time when the UK already has the second highest diesel price in Europe, and following the rise in VAT, well over half the cost of a litre of fuel can be attributed to tax.
Therefore, the FMB wants the Chancellor to take this opportunity to make a genuine difference to small businesses and abandon any plans to hit them with a further hike in running costs.
6. INTRODUCE A WIDER REFORM OF STAMP DUTY LAND TAX
Tighter lending conditions mean that first time buyers are struggling to afford their first property. Stamp Duty Land Tax is another impediment to those looking to either get onto, or move up the property ladder. Radical reform of stamp duty is needed to help kickstart the housing market and help first time buyers. Stamp Duty should be suspended for first time buyers, and the stamp duty threshold for existing owners should be increased to, and pegged at, nearer to the average cost of a typical home, currently just over £200,000. Furthermore, stamp duty needs to be reformed so that it becomes a graduated tax based on a series of thresholds similar to income tax. In practice this would mean that Stamp Duty would only be levied on the portion of the sale value of the house which is above the threshold. For example, for a house sold at £250,000 the one percent levied would be calculated only on the £50,000 above the threshold and not the full value of £250,000.
The FMB is also proposing that there should be incremental increases of one percent per £150,000 thereafter up to the £2 million pounds and above mark which would be charged at five percent.
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