Supplementary memorandum submitted by
VAT ON REPAIRS TO OLDER BUILDINGS
On behalf of Heritage Link, which represents
82 organisations actively involved in the conservation of Britain's
unique historic heritage, I write to urge you to take advantage
of the current opportunity for the United Kingdom to apply to
the EU Commission to exercise an option to introduce a reduced
rate of VAT on the labour input of renovation and repair work
to private dwellings.
This application must be made by the end of
this month, in accordance with the terms of the recent agreement
reached by EU Finance Ministers to maintain Annex K of the EU
Sixth VAT Directive until the end of 2010.
An application by the UK would not commit the
Government to exercising the option to introduce a reduced rate
of VAT, but it would have the possibility to take it up at any
time in the next five years. However, a decision not to apply
would close off this option, possibly indefinitely if Annex K
is not renewed again.
Moreover, an application now would ensure that
the decision on setting the rate of VAT remained with the UK;
not to apply would cede the decision to the EU by default.
The substantive benefits of the UK taking a
decision not only to apply but to introduce a reduction in VAT,
say to 5%, on the renovation and repairing of private dwellings,
excluding materials which form a significant part of the value
of the supply, are several.
Such a reduction in VAT would remove the distortion
that currently exists in the housing market in that an additional
cost is currently placed on renovation of existing buildings compared
with new build; this adds costs, overall, to the provision of
additional housing to meet current and future need. Removing this
distortion would be consistent with the objective of reducing
housing costs, an objective that was central to the invitation
to Kate Barker to produce her Report on Housing Supply.
The current anomaly, in which repairs incur
a 17.5% rate of VAT, is a disincentive to timely maintenance,
which in the long term adds cost. It is also a brake on the re-use
of vacant and under-used buildings.
Conversely a reduced rate would help the heritage
sector to address the cumulative backlog of repairs needed to
historic buildings and equip itself to make a full contribution
to the economic and cultural health of the nation. The value of
reducing the impact of VAT on listed places of worship has already
been recognised in the measures taken earlier by the Treasury.
As the Olympics approach and the potential for inward tourism
to Britainnot only Londonincreases, this need to
bring our heritage up to a good standard will grow until it becomes
central to the enduring success of the Olympics in this country.
Greater economic activity in repair and renovation
will support employment and the retention of conservation skills
needed in the longer term. Greater activity also means higher
income tax returns.
Also important is the fillip that renovation
of the built heritage often gives to local communities and to
regeneration. Building Preservation Trusts have a good record
of initiating regeneration schemes with heritage buildings at
their core. However, their scope to do this is limited by the
costs of such initiatives. A reduction in VAT would enable them
to take on more schemes, thus paving the way for accompanying
private sector investment in refurbishment of neighbouring housing.
The greater scope for these initiatives would
counter the resistance that sometimes exists to the preservation
of historic buildings in the centre of potential regeneration
projects. Historic buildings would be much less likely to be seen
as a block to regeneration on the grounds of its cost; and as
a result more projects will become possible.
For all these reasons Heritage Link urges you
to take this opportunity, which would be a win-win for heritage,
regeneration and the wider national economy.
2 March 2006