Committee Report Highlights Need for Drastic Cut in VAT

The true size of the UK's informal economy was revealed this week in a report, "HMRC: Tackling the hidden economy", produced by the House of Commons Public Accounts Committee. The report highlights the fact that a staggering two million people are working in the informal economy and are costing the Treasury £2 billion a year in lost revenue; despite all this the chances of being caught are according to the report "minimal".

As legitimate builders, members of the Federation of Master Builders (FMB) charge 17.5% VAT (15% for the next 13 months) on all work that they carry out. Cowboy builders do work for cash and do not charge VAT; this gives them a commercial advantage.


Cowboy builders flourish by evading VAT and offering the customer a cheap deal as a result. But all too often, these rogues disappear with deposits, perform shoddy work and cannot be found when there are complaints. Without a proper written contract, the enforcement of consumers' rights becomes almost impossible. Getting the job put right by a replacement builder can cost thousands of pounds extra.

Brian Berry, Director of External Affairs at the FMB said: "Reducing the rate of VAT on domestic building work to five per cent will significantly reduce the commercial advantage of the VAT evading trader. The financial incentive to choose a cowboy builder will diminish and a level playing field will emerge instead. In time, this will drive the cowboy builders out of the market as customers focus on quality and value not just price."

(CD/JM)