Half of small firms say they have seen a decrease in work over the last year because of higher tax rate
Over one in five small builders have said that the increase in VAT to 20%, which came into effect in January 2011, has caused them to lose staff.
A survey of 343 firms by the Federation of Master Builders found 22% said the VAT increase caused them to lose staff while only 2% said it had a positive effect on staff numbers.
Plus, half of firms said that the VAT increase had had a detrimental effect on their workload.
Brian Berry, director of external affairs at the FMB said: “The FMB warned the government at the time that raising the rate of VAT to 20% would suppress demand for building work and cost jobs.
“Unfortunately our prediction has been borne out by our latest research which shows that the VAT increase is hurting the very small businesses that the government is looking to for economic growth.”
A spokesperson for the Treasury said the VAT rise was part of the government’s deficit reduction plan and would return the UK economy to growth.
“There is support within the VAT system for the construction industry, with no VAT charged on new build housing, and a reduced rate applying to residential conversions and the renovation of certain residential buildings that have been vacant for at least two years,” they added.
The findings come as part of the FMB’s quarterly State of Trade survey.