Watch out for the refurbishment boom

The Isle of Man was the unlikely setting last May of a groundbreaking decision that has boosted the local refurbishment market and struck a blow against cowboy builders. The Manx Treasury slashed the rate of value added tax on repair and maintenance work from 17.5% to just 5%.

May 2001 - the suspected general election date - will see this decision have a wider impact. The Tory Party is understood to back a reduction in VAT for refurbishment across the board, while the Labour Party is promising piecemeal concessions.

Government's concessions
The government's concessions were outlined in last November's urban white paper. The industry hoped for sweeping changes to tax regimes to promote refurbishment of run-down town and city centres. Instead, the white paper outlined a few highly specific tax breaks. Not ones to look a gift horse in the mouth, the construction industry has welcomed the white paper changes . But it was disappointed that the tax cuts did not go further.

Construction managers and consultants have been lobbying the government for four years to try to reduce the VAT rate on refurbishment. Contractors' groups, such as the Federation of Master Builders, insist that the reduction of VAT is vital to combat cowboy builders. Brain Flint, deputy director general of the FMB says: "Bona fide companies like ours 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." Chris Blythe, chief executive of the Chartered Institute of Building, echoes Flint's sentiment. He says cowboy builders are criminals avoiding tax. He adds that if properly registered building companies can compete with them on a level playing field, this will have a great impact on wiping out the rogue traders.

VAT cuts would also allow the construction industry to meet the government's honourable green intentions. John Prescott has outlined a vision for high-density urban housing to avoid further infringements of the green belt and all the bad press that brings. But refurbishment entails more risk. Housebuilders would much rather build on green sites with few surprises, good access and no neighbours.

While Gordon Brown has made some concessions to the lobbying of the construction industry, more could be done. Helen Moody, urban policy planner at the Local Government Association, says the jury is still out as to whether Brown's concessions will have any effect.

Against a move to cut VAT
The major housebuilders are understood to be lobbying against a move to cut VAT. A source close to the House Builders Federation admits that the majors are still hoping that the government will release more green belt if the pressure on housing builds up. If there is a bigger VAT cut, says the source, it would let the government wriggle out of the situation. She adds that the government would argue that they have made a substantial investment in trying to bring brownfield back into use.

Housebuilders have baulked at the idea of marketing urban living. Ian Roxburgh, Wimpey's former managing director of land management, says families want security, privacy and safety. He argues that terraces with communal gardens do not provide this.

Despite the protest of the housebuilders, the government is determined to promote regeneration using the tax breaks in the urban white paper. This will mean a boom for refurbishing flats above shops and other imaginative mixed-used schemes. But if the industry can force a cut in the VAT rate, refurbishment will be fuelled and cowboys will be marginalised.