Renovation of Empty Property (VAT)

Christopher Chope Excerpts

Tuesday 18th October 2011 Westminster Hall

[Bill Esterson (Sefton Central) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Chope.

I wanted to secure this debate because of the pressure to build on the green spaces and the green belt in Sefton and elsewhere. Sefton council is consulting on its core strategy and, using the figures in the regional spatial strategy, it says it needs 480 new homes each year. To achieve that target, the council has suggested three options, two of which imply significant incursion into the green belt. The draft national planning policy framework does not continue the brownfield-first policy, and councils are not allowed to include windfall development sites, such as the Maghull prison site in my constituency, which would deliver several hundred homes. In addition, empty homes cannot be counted towards a council’s target, and so the 6,000 such properties across Sefton are not included in the figures. All that means that councils need an alternative strategy for building the homes that we—especially our young people—need. Affordable housing is in such short supply. A sustainable policy is needed, and a cut in VAT on the renovation and refurbishment of empty properties would contribute significantly to delivering the housing targets at the same time as protecting the green belt and important urban green space.

The VAT regime perversely incentivises new build on greenfield land because it attracts 0% VAT. A cut in VAT to 5% on the renovation and reuse of existing buildings would allow greater emphasis to be placed on urban regeneration, on which VAT is levied at 20%. The “Cut the VAT” campaign has a wide coalition of support; it is run by the Federation of Master Builders and supported by many organisations, including the Campaign for the Protection of Rural England and the Federation of Small Businesses. There would be many benefits to reducing VAT on building repairs and conversions, and there are strong environmental, economic and social grounds for doing so. In general, subjecting repairs and conversions to VAT is damaging, because it acts as a deterrent to urban regeneration, the proper maintenance of buildings and our caring for the historic environment.

The differential between VAT rates on new build and on repair creates a perverse incentive to leave properties in a state of disrepair or to demolish sound buildings, rather than encouraging their effective use and maintenance. The differential adds to the cost of bringing buildings back into use through repair, renovation or conversion, and contributes to a cycle of decline, because run-down areas are generally a less attractive proposition for investors and developers, even though they might present significant opportunities. I believe that the Government would agree with that analysis. I am looking for the Economic Secretary to nod—she is not doing so.

The additional cost that VAT adds to repairs and refurbishment distorts the market in favour of new build over reuse and refurbishment, which means that developers are incentivised to bring forward new development on greenfield sites before attempting to bring existing resources back into useful occupation. As well as assisting regeneration, making productive use of existing buildings can play an important role in conserving scarce resources such as the land, energy and building materials bound up in the properties, and such an approach also contributes to reducing waste. Government statistics indicate that there are more than 750,000 empty houses in England, and there are many other empty and underused buildings. That is an enormous waste of resources, and a reduction in VAT on refurbishment to create a level playing field between refurbishment and new build would, therefore, make a lot of sense.

Historically, it has been argued that a VAT reduction is not possible because of EU laws. However, the European Commission’s Economic and Financial Affairs Council agreed in March 2009 to allow member states to reduce VAT on housing repair and maintenance, so that barrier appears to have been lifted. The cut in VAT on renovation is now an option that would promote regeneration, bring empty buildings back into use and minimise the use of greenfield land.

Turning to the impact on the construction industry, a VAT cut from 20% to 5% would reduce rogue traders’ competitive advantage and help rescue many legitimate local firms from the brink of collapse. Dozens of small and medium-sized businesses would benefit considerably from a VAT cut on home repair, maintenance and improvement work, and that is why the campaign I mentioned has the support of the Federation of Master Builders. Given these tough economic times, a cut would make a huge difference to many small firms, certainly in constituencies such as mine. It would also make important home repairs more affordable, and help protect consumers from cowboy builders who currently flourish by evading VAT. It is a logical step to help boost the economy, and I call on the Government to take it as a matter of urgency.

The UK economy is facing a weak recovery from the recent recession. Output in the construction industry shrank faster than the economy as a whole during the recession, and recent forecasts suggest there will be no significant sign of recovery in the industry until 2014. Successful trials in a number of EU countries strongly suggest that a cut in VAT on home repair and improvement work would reap economic benefits for the UK. Independent research by Experian, based on a standard VAT rate of 17.5%, suggests that the total stimulus effect of reducing VAT in the sector would be in the region of £1.4 billion in the first year alone.

According to the Office for National Statistics, 249,000 work force jobs have been lost in the construction sector alone since 2007, and that has had a big effect on the Government’s finances as well as a considerable human impact. We know from independent research that a cut in VAT on home repair and improvement work would create thousands of new jobs in the construction sector and the wider economy. Again, independent Experian research based on a standard VAT rate of 17.5% suggests that 24,200 extra construction jobs could be created in the first year alone if VAT on home improvements was cut to 5%. According to the same research, such growth in the construction industry would also lead to 31,000 new jobs in the wider economy.

Those significant job losses—249,000—risk creating a major skills shortage in future years, unless the industry can recruit and train sufficient numbers of people now. The number of construction apprenticeship starts fell by 4,010 between 2008-09 and 2009-10. Almost 1 million people under the age of 25 are currently unemployed, but when the construction industry returns to more sustainable levels of growth there will not be a sufficient number of people equipped with the right skills to meet demand. It will be difficult for employers to make more apprenticeship places available unless there is an increase in construction activity.

We are building fewer than half the number of new homes needed to match the rate of household growth in the UK, and it is therefore shocking that there are up to 750,000 empty homes. Many of those homes require considerable repair work before they can be lived in, and the high rate of VAT makes that a very costly activity for private owners, landlords and local authorities, who could otherwise renovate more existing properties to help ease the pressure on housing supply. Making home repair and improvement work more affordable would encourage the use of existing structures, rather than continuing the urban sprawl and the possible building on green belt land.

Existing homes contribute about 27% of the UK’s total CO₂ emissions, and there is a vast amount of work to be done if the UK is to meet the legally binding emission-reduction targets. A simple, single cut in VAT on home repair and maintenance work would help millions of households to upgrade their homes and make them more energy efficient. Without help to reduce energy use, the number of households living in fuel poverty will continue to grow, as they struggle to protect themselves against rising fuel prices.

According to trading standards organisations, rogue traders steal a staggering £170 million each year from unsuspecting home owners across Britain, and cause significant damage to law-abiding businesses. Rogue traders flourish by evading VAT in order to offer a cheap deal. However, all too often, the deal comes without a proper written contract or any kind of paperwork, making the enforcement of consumer rights almost impossible if something goes wrong.

Again, a simple, single action to cut VAT to 5% on home repair and improvement work would protect consumers and legitimate businesses by significantly reducing rogue traders’ competitive advantage. By charging 20% VAT on all home repair, maintenance and improvement work, the Government are exacerbating numerous serious social, economic and environmental problems. Introducing a reduced rate of VAT for all home repair and improvement work is a simple plan to relieve the country of many of those problems.

[Mr Christopher Chope (in the Chair)]

May I give our newest Minister a warm welcome from the Chair?