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The fudged outcome of last week's ECOFIN (European Council of Finance Ministers) discussion on VAT has boosted the hopes of those campaigning for a reduction of VAT on housing renovation and refurbishment work in the UK.
ECOFIN was unable to agree the draft directive which would revise VAT rates for labour-intensive services, including housing RMI, but EC Finance Ministers, including Gordon Brown, unanimously agreed to extend the pilot scheme on reduced VAT rates for such activities for another two years.
Whilst this means that Belgium, France and Italy, which have already applied reduced rates on domestic RMI can continue to do so, it is unclear whether others will be able to follow suit. However, Andrew Large, director of external affairs at the Federation of Master Builders (FMB), sees no reason why the current trial in the Isle of Man should not be extended throughout the UK.
Said Mr Large:
"The fact that Gordon Brown voted to extend the pilot scheme is not insignificant. If he had been against the principle of a reduction in VAT he would not have supported the proposal."
The FMB, which has long campaigned for the reduction of VAT on the renovation and refurbishment of housing, will continue to press the Chancellor to adopt a 5% rate of VAT for such work in the lead up to the publication of his Pre-Budget Report.
The ECOFIN decision brought the Finance Ministers into conflict with the European Commission, which said Member States should either adopt the draft directive or apply normal rates. The Commission is prepared to accept only a six month extension on pilot schemes during which Member States should agree on the directive.
However, Andrew Large believes the pilot schemes will be able to continue for two years, saying:
"The main sticking points within the VAT directive do not relate to the building industry, and it is likely to take more than six months to reach a compromise where national interests are at stake. When colder heads look at this again in the new year they are likely to see the sense of continuing with the status quo for a longer period."
First posted: 5 December 2003. Last modified: 5 December 2003.
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