Current Government policies are encouraging rather than curbing the activities of the cowboy builder. In a call to action for a level playing field, Gordon Marjoram, newly elected President of the Federation of Master Builders, demanded a cut in the rate of VAT levied on domestic maintenance and improvement building work and described recent handling of industry concerns on the Construction Industry Scheme as "clumsy". The Federation is the building industry's largest employers' association and represents over 14,500 building companies.
The UK black market economy is estimated to be worth £80 billion per year. Some £20 billion of that is construction-related. The punitive rate of VAT on domestic repair, maintenance and improvement work encourages homeowners and landlords to pay cash-in-hand and so receive an automatic 17.5% discount. This not only penalises legitimate VAT-registered builders but also represent a massive loss of revenue to the Treasury. Furthermore, it supports the activities of cash-in-hand, no-questions-asked rogue traders.
Cowboy builders generate more consumer complaints than used car traders, yet the Government, despite its rhetoric to end "rip off Britain" has done little to stop them working. The Government has made moves to introduce a national builder registration scheme. However, the effectiveness of the Quality Mark scheme currently being trialled in Birmingham and Somerset is undermined by the additional costs that reputable builders will have to carry to become registered and the lack of an incentive, such as a lower VAT rate, to join.
The Federation has identified four main issues which the Government must address if it is to have any real impact against the activities of rogue traders:
- An immediate reduction in VAT on domestic repair, maintenance and improvement work to 5%
- A radical rethink of the Construction Industry Scheme
- Introduction of a statutory requirement for builders to provide an insurance-backed warranty that gives full customer protection
- Examine possible legislative means to curb the illegal economy. Voluntary regulation will not work.
During his inaugural speech as President, Mr Marjoram said:
"All we want is a level playing field, improved customer protection, and reduced red tape. The morale of Britain's legitimate builders is crumbling in the face of ever increasing business costs which illegal traders easily evade and the fact that the continuance of the high rate of VAT of domestic work encourages the activities of the cowboy builder."
He continued:
"Is it not surprising that homeowners and landlords are attracted by a 17.5% discount and so try to find the cheapest solution by employing a cowboy. This means cash up front, no VAT, no National Insurance Contributions, no training costs and disregard for health and safety. Does the Government really want this situation to continue? It's inaction on the issue of VAT suggests that it does."
Mr Marjoram also strongly criticised the Construction Industry Scheme as being "seriously flawed" and doing nothing to deter bogus builders:
"CIS is undermining reputable firms. It encourages larger firms to stop using smaller ones as sub-contractors because they have too much paper work to complete. Individual tradesmen are switching in droves to domestic work to avoid paying immediate tax deductions. For many small firms deducting tax immediately from all their payments has virtually crippled their cash flow."
The Federation has repeatedly warned that the Scheme will harm small building firms and encourage still further the illegal economy. Despite assurances from the Chancellor that something will be done, the Inland Revenue has refused to take even short-term action to reduce the burden on small firms. Added to all this is the enormous increase in employment and health and safety legislation, the objectives of which are laudable but the end result is an avalanche of red tape.
Speaking at the Federation's AGM and National Conference, Mr Marjoram called on FMB members to lobby all Members of Parliament attending the forthcoming party conferences and demand urgent action against rogue traders and growing problem of red tape.
"We have to get the message across that there is a better way to build a modern Britain. The Government must prove with action and not words that it intends to no longer penalise legitimate builders and will provide a legislative framework for customer protection."
First posted: 23 October 2000. Last modified: 23 October 2000.
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