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Addition of more goods and service into the reduced rate category

Last year agreement was reached between all 27 EU Member States on extending the reduced rate of VAT to a number of additional goods and services.
 
In the UK, the reduced rate of 5% currently applies to, among other things, the supply of domestic fuel and power, the installation of energy-saving materials, children's car seats and sanitary and contraceptive products.
 
Following agreement by the European Council, the UK is able to apply the 5% rate to the following extra goods and services on a permanent basis:

  • audio books as well as books supplied on CD-ROMs
  • restaurant meals
  • hairdressing
  • domestic cleaning and window-cleaning
  • minor repair work (e.g. bicycles, clothes, shoes and household linen)
  • domestic care services such as home help and care of the young, elderly, sick or disabled
  • renovation and repair work to dwellings.

The Chancellor may announce that he is adding one or two of these to the 5% rate but it will not be all of them. The most likely would be renovation and repair work to dwellings and this certainly has the most support from campaigners in that sector.

According to the 'Cut the VAT' coalition report from Experian, issued on 23 Feb, over 50,000 jobs could be created if the Government cut VAT on residential repair and maintenance (more than 24,000 construction jobs and 31,000 wider economy jobs would be created by a cut to 5% VAT on the labour element of such work).

The coalition includes the Federation of Master Builders and Royal Institute of Chartered Surveyors. The research also suggests that “the VAT cut would contribute more than £1.4bn to the UK economy in 2010, rising to £17bn by 2019.The VAT cut could also release an extra £450m a year for investment in the UK’s social housing stock, enough to bring approximately 19,000 homes per year up to the Government’s Decent Homes Standard.”