Failure to cut VAT on repair and refurbishment will "severely compromise" government's anti-cowboy strategy.
The Treasury is set to reject the industry's lobby to reduce VAT on refurbishment work in next week's budget, say Whitehall sources.

The construction industry – backed by the DETR – wants VAT to be reduced as part of the fight against cowboy builders. Lowering VAT would enable legitimate builders to compete more effectively with rogue traders on price, as cowboys often do not charge VAT.

A spokesman for the Construction Confederation said: "Unless the Treasury gives some ground on VAT, the government's initiatives on cowboy builders, including the pilots in Somerset and Birmingham, will be severely compromised." The confederation's view was echoed by Brian Flint, deputy director-general of the Federation of Master Builders.

He said: "Bona fide companies like our members are paying 17.5% VAT on everything. That simply widens the cost gap between them and cowboy builders, making it harder for them to compete. The chancellor must address that." John Calcutt, chief executive of Surrey-based housebuilder Crest Nicholson, said: "Repair and refurbishment work is being unnecessarily penalised by the government at the moment. If you reversed that penalty, you would encourage more of that type of work to be done." Another issue that the industry is lobbying on is that of tax breaks for builders developing on brownfield sites.

Calcutt said: "What we don't want from government are fiscal measures that might penalise greenfield development. There are already measures in place that are better suited to controlling greenfield development than those in the chancellor's remit. We don't want a greenfield tax." However, RIBA president Marco Goldschmied said he hoped the chancellor would introduce fiscal measures to discourage housebuilding on greenfield sites.

He said: "I'd like to encourage a very significant greenfield tax. But more importantly, I'd like to see an annual tax imposed on undeveloped brownfield sites to penalise owners that don't free up sites for development." The Construction Confederation spokesman added that he would like to see the chancellor review the new construction tax scheme, which came into force this week.

He said: "The extra cost imposed on contractors because of this scheme is unfair. Other regulations, such as the Working Time Directive, are also nibbling into contractors' margins.

"We don't accept that government properly assesses the costs of these measures and the chancellor should address that."