Get Britain Building!

With the UK construction industry facing its most serious challenge in nearly two decades, arguably even longer, current remedies to help the industry are having little effect.

It is against this background that the FMB is helping to lead a new campaign called ‘Get Britain Building’ which sets out to rally politicians across the political spectrum to support the construction industry and get it back on its feet. The campaign which is being led by the FMB, the Modern Masonry Alliance, British Precast, and the Builders’ Merchants Federation is being launched on 10th February and is calling on the Government to implement our ten point programme to ensure that the building industry is best placed to survive the recession.

The ‘Get Britain Building’ ten point plan is calling on the Government to:

1. Cut VAT from 15 percent to five percent for all building repair and maintenance work.

Reducing VAT from 17.5 percent (15 percent for the next 13 months) to five percent for all building repair and maintenance work would allow many of our empty homes to be brought back into use as the current high rate of VAT makes them too expensive for owners to maintain or refurbish and encourages neglect leading to demolition and new build. Reducing the rate of VAT would also make it easier for people to make energy efficient improvements to their homes; not only reducing the carbon emissions of these homes but also making them more economic to heat and light.

A cut in VAT would also help tackle the informal economy which is endemic in the construction industry. Rogue traders flourish by evading VAT and offering customers a cheap deal as a result. All too often, these rogues disappear with deposits, perform shoddy work, and cannot be found when there are complaints. Without a proper written contract, the enforcement of consumers’ rights becomes almost impossible. Getting the job put right by a replacement builder can cost thousands of pounds extra. Reducing the rate of VAT on domestic building work would significantly reduce the commercial advantage of the VAT evading trader. The financial incentive to choose a rogue trader will diminish and a level playing field will emerge instead. In time, this will drive the rogue traders out of the market as customers focus on quality and value not just price.

Survey evidence from the FMB suggests that over 50 percent of customers would employ a VAT dodging builder to cut their costs. The evasion of VAT on domestic building work is endemic and the informal economy is estimated at £4.5 billion, which suggests a VAT loss of around £780 million per year. The proper enforcement of the existing VAT law is not a viable option, as it would mean a VAT Inspector in every home. Cutting the rate of VAT is the only way to ensure the eviction of rogue traders.

A coherent strategy needs to be developed and implemented to tackle the UK’s existing housing stock both in terms of helping to create more homes and making the UK’s existing stock more energy efficient and greener. Currently there are 850,000 empty homes in the UK which could be brought back into use. Given that homes are responsible for 27 percent of the UK’s carbon emissions and that roughly 75 percent of our current housing will still be standing in 2050, urgent action is needed now to make our homes greener and more energy efficient.

In terms of making our homes greener, a recent research report, ‘Building A Greener Britain – Transforming the UK’s Existing Stock’, by Oxford University calculates that there is a new market worth between £3.5 and £6.5 billion per annum to refurbish our existing homes. What is needed however is an urgent push from the Government to kick start this market which would not only help the building industry but help meet the Government’s targets to cut carbon emissions and reduce fuel poverty.

3. Ensure responsible lending to prudent borrowers coupled with the reintroduction of mortgage interest tax relief.

There is currently a crisis in the housing market with many first time buyers unable to get a mortgage let alone afford a first home. The latest figures from the Council of Mortgage Lenders (CML) shows gross mortgage lending totalled an estimated £18.7 billion in October 2008. This monthly total was 44 percent lower than gross mortgage lending of £33.4 billion in October 2007.

Despite the desperate economic situation we are now facing there are still a large number of hard-working young people who would love the opportunity of owning their own home, have stable jobs, and have saved a deposit. However, many are having to rent as they are unable to secure a mortgage. This situation needs to be addressed urgently and banks and mortgage providers need to start approving mortgages for those who are clearly in a secure position and who are able to repay what they borrow. Getting the mortgage market moving again would provide a real boost for the house building industry, it would also allow young people to own their own homes, put down roots and start families. Further help should also be provided with the reintroduction of mortgage interest relief at source (Miras).

Buy-to-let investors are still able to offset their mortgage interest against income, thus reducing their net tax. This is prompting concern that property speculators are buying up new homes, pushing up house prices and squeezing new owner-occupiers out of the market. Those first-time buyers that can get a mortgage are on average, borrowing 5.1 times their earnings to buy a home, according to Nationwide.

Miras was introduced in 1983, replacing a system by which borrowers paid the interest repayments on their home loans and then claimed the tax back. Home owners saw an immediate reduction in their monthly repayments. At its peak, nearly 11 million home loans qualified for Miras relief. In 1991 Miras was set at the basic rate of tax. After 1997, the Government reduced Miras to a ten percent rate of tax, before abolishing it in 2001. We therefore call on the Government to bring back the Miras tax relief scheme to help overstretched first-time buyers and help get the housing market moving again.

4. Set targets for all local authorities to fast track the planning process to release and designate land for social housing to ensure sufficient land, in the right locations, is made available to facilitate the completion of new social houses by the end of 2010.

There is currently a crisis in the housing market with many first time buyers unable to get a mortgage let alone afford a first home. Alongside this there are over 90,000 families living in temporary accommodation and 1.6 million families on council house waiting lists. Against this background the case for building new homes is therefore very clear. However, news from the National House Building Council (NHBC) shows new home starts being at their lowest level since 1945 and this despite the Government’s pledge to build three million new homes in England by 2020 to help ease the housing crisis.

The public sector needs to be encouraged to become more proactive in ensuring that the Government’s commitment to build 75,000 social and affordable homes is delivered. The role of the new Home and Communities Agency should be central to this aim with an emphasis on assembling land and investing in infrastructure needed for development on this land.

5. Simplify the planning system.

The planning system is the single most important factor inhibiting the construction of new housing. Despite recent reforms to the planning system we still believe more radical changes are needed to make the planning system more streamlined, less bureaucratic, more predictable, and quicker. Such changes could have a dramatic impact on helping to stimulate building activity and help build the three million new homes that are needed.

6. Produce a plan to show the precise timings and location of public spending on schools and hospitals to ensure that projects are completed in 2009 and 2010 respectively.

Schools
In November 2008, the Government announced that more than 350 new primary schools would be built, new facilities will be constructed, and major refurbishment carried out at a further 850 schools and smaller building works will take place at another 350. Ministers have given the green light to plans put forward by 133 local authorities. A further 15 local authorities will now be given expert advice to help get their plans up to speed, so that more funding can be released in April. Ministers said work on the 1500 schools will begin over the next two years.

The Department for Children, Schools and Families has contributed around £1.75 billion towards the work with local authorities matching the funding to bring it up to £3.55 billion. In total, 41 local authorities have met all the requirements set out in government guidance and will receive funding for projects in both 2009/10 and 2010/11. A further 92 will receive funding to carry out work in 2009/10, with extra support to develop their plans before funding is confirmed for 2010/11. Under the Government’s Primary Capital Programme, at least £7 billion will be invested in total to rebuild or refurbish half of all primary and primary age special schools by 2022/23.

 
At a time when the construction industry requires stability and clarity, as to our future we call on the Department of Health and The Department for Children, Schools and Families to set out a clear timetable for the building of all schools and hospitals that are to be completed in 2009 and 2010. This will provide the construction industry with a clear timetable for what is to be built, where and when and will allow the industry time to prepare accordingly.

7. Introduce a section 106 agreement holiday and then subsequently cap the value of section 106 agreements. Abandon the proposed Community Infrastructure Levy.

Section 106 agreements are already adversely affecting the affordability of housing by increasing the costs which have to be recouped via the sale of the remaining housing stock on any given site. However, more alarming is the Government’s proposed Community Infrastructure Levy (CIL) which is a further tax on housing development at a time when it is least needed. The Government needs to be aware that the CIL will only serve to act as a potential barrier to the provision of much needed affordable housing and should therefore rethink or better still abandon its proposed introduction.

8. Reduce the regulatory burden.

The Government wants the construction industry to be efficient but restrains it from becoming so by constantly introducing new regulations or changing the existing ones, thus increasing the size and complexity of business obligations. This drains business resources, disproportionately impacts on SMEs, and increases the competitive advantage of the informal economy. All of this impacts on the overall competitiveness of the construction sector. We therefore call on the Government to treat legislation as a last resort, not a first option, and to focus instead on simplifying the existing regulatory burden.

9. Reform stamp duty so that higher rates of stamp duty only apply to the proportion of the house price which is in the relevant band i.e. a graduated tax, like income tax.

The Government’s announcement that stamp duty land tax will not apply to purchases of residential property of £175,000 or less is welcomed but with the average home in England costing £178,364 those benefiting will be few in number. What is needed is a more radical reform of stamp duty so that higher rates of stamp duty only apply to the proportion of the house price which is in the relevant band i.e. a graduated tax like income tax.

The abolition of empty property rate relief in April 2008 has had an adverse impact; rather than acting as an incentive to reuse, redevelop and re-let vacant commercial property, it has had exactly the opposite effect. Examples of the negative impact its abolition has had on property development and regeneration include the demolition of 450,000 square feet of buildings by Sergo, the biggest commercial property company in the UK; the demolition of The Lightning public house in Ealing; and the destruction of sizable sections of the Alexandra Business Park in Sunderland. Such action (while understandable) is unacceptable at a time when there is a need to regenerate rather than destroy our existing building stock. The unnecessary destruction of property is in short a disgraceful waste of time, money and resources that is distorting the market by removing rentable properties from it. Furthermore, it is discouraging the creation of new capacity in the future.

 
There is also the impact on pension funds, many of whom rely wholly or in part on property portfolios to supply the income required to meet their liabilities. One pension fund has already said that it will not be able to meet its obligations due to the new tax liabilities on its property portfolio and is desperately seeking advice. Despite spending tens of thousands of pounds on upgrade works, reduced rental rates, offers of licenses instead of leases, and even the willingness to allow sub-letting, no tenant has been found. The effect of this tax increase on pension funds is to exacerbate the already considerable loss of income resulting from unoccupied properties. It is against this background that the campaign is calling on the Government to reverse this policy which is serving no one and is actively damaging the economy at a time when it needs all the support it can get.

For more information contact Richard Hyslop, FMB Public Affairs Manager at: richardhyslop@fmb.org.uk

A full report on the launch of the ‘Get Britain Building’ campaign will appear in the March 2009 issue of Master Builder