9th December 2008 – FOR IMMEDIATE RELEASE
The true size of the UK’s informal economy was revealed this week in a report, “HMRC: Tackling the hidden economy”, produced by the House of Commons Public Accounts Committee. The report highlights the fact that a staggering two million people are working in the informal economy and are costing the Treasury £2 billion a year in lost revenue; despite all this the chances of being caught are according to the report “minimal”.
As legitimate builders, members of the Federation of Master Builders (FMB) charge 17.5 per cent VAT (15 per cent for the next 13 months) on all work that they carry out. Cowboy builders do work for cash and do not charge VAT; this gives them a commercial advantage.
Cowboy builders flourish by evading VAT and offering the customer a cheap deal as a result. But 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.
Brian Berry, Director of External Affairs at the FMB said:
“Reducing the rate of VAT on domestic building work to five per cent will significantly reduce the commercial advantage of the VAT evading trader. The financial incentive to choose a cowboy builder will diminish and a level playing field will emerge instead. In time, this will drive the cowboy builders out of the market as customers focus on quality and value not just price.”
“Survey evidence from the FMB suggests that over 50 per cent 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 builders.”