Chief Executive’s Blog: Will The Cut the VAT Persuade The Treasury?

Somebody needed to do some serious economic analysis of the implications of cutting VAT on repair and maintenance.  As I’ve blogged previously, the lobbying argument has been based too much on the benefit to the construction industry without thinking enough about the wider policy context. The new report from the Cut the VAT coalition, compiled by Experian, moves the discussion on considerably.  It quantifies the net loss to the Treasury, but goes on to quantify the benefit that giving up that revenue generates in the economy as a whole and towards achieving the Government’s policy objectives. It’s not an overwhelming case for action, however much the FMB and their colleagues will argue that it is.  The Treasury ends up between £102m and £508m down, without a clear idea of how much it won’t have to spend in other areas as a result.  That’s a more complex analysis, but not an impossible one.  The arguments that the EU’s change in the law is not relevant to the UK because the smallest businesses are protected from the burden of VAT by the relatively high entry threshold and the final beneficiary of a cut in VAT must be the end consumer have still to be tackled.  But this will give the Treasury something serious to think about.