Warmer Homes, Smaller Bills’: The Case for Builders VAT Harmonisation

Currently, builders across the UK are charged 20% VAT for refurbishing residential properties and 0% for new-builds. The 20% VAT rate is for most work undertaken on houses and flats, including work done by builders and similar tradespeople. The 0% VAT rate is for work on new build construction projects, or work closely related to it, including the demolition of existing buildings and site preparation.

The current VAT regime is a perverse charter for building decay and (heavily incentivised) demolition that presents a stubborn, unjust legal-financial constraint to building repair, retrofitting and rescue.

Yet, if current VAT rates were harmonised this would give builders a genuine choice between repair and retrofitting versus demolition and destruction. Given the extent of fuel poverty at a time of escalating energy prices and given the scale of carbon emissions from households and embodied carbon loss from demolition, the stakes are obvious for challenging energy injustice and meeting energy efficiency and carbon reduction targets.

Neil Gray, writer, researcher, and housing activist with Living Rent tenants’ union, interviews Malcolm Fraser, architect, writer and built environment campaigner about his long-term campaigning work on the Builders VAT issue.

VAT harmonisation, or VAT levelling, is not the sexiest political topic at first glance. Can you explain the current status quo, its limitations, and the issue’s relevance for a general readership? 

You would expect, given our general understanding of the need to conserve resources, and avoid waste and unnecessary expenditure, that financial levers would be in place to support such virtues. Distressingly, this is not the case and, shamefully, in homebuilding the levers go the very opposite way, encouraging the abandonment and dereliction of old homes, and their replacement with newbuild, gobbling-up land and resources.

As well as it’s carbon-virtues, repair is more labour-intensive so would create jobs. But it’s the big construction conglomerates and volume housebuilders that are the Government’s friends and funders, and they like a cleared site, over which they can roll their standard product – and, after all, repair and renewal tends to be led by small builders and professionals, and their voice is seldom heard.

Can you discuss your own history of engagement with the VAT issue? What brought you to raise it as a wider issue?

I wrote a column in 2003 for weekly architectural paper Building Design – for the above reasons – and they started a ‘Flat VAT’ campaign which was signed-off by then Deputy Prime Minister Prescott but turned down at the Treasury. I also personally lobbied then Chancellor Darling in 2010, and First Minister Salmond the year after – though, of course, such matters are reserved to Westminster. I’ve raised it many times in-between and since, at every opportunity, and to all professionals and politicians, including former Scottish Housing Minister Kevin Stewart, and all agree that the situation is daft. But it remains one of these dumb and – seemingly – unalterable policies, where we keep doing the wrong thing, because that’s what we do.

What kind of VAT harmonisation: upwards to 20%, or downwards to 0%? Or somewhere in between? What difference would each adjustment make and what are the political-economic consequences of each?

I have argued for it being a flat 5% across construction – there is a useable, existing VAT rate at 5%. Research by the Royal Institute of Chartered Surveyors (RICS) demonstrated that, after a lull, the amount of refit and repair the lower rate would encourage would mean that the tax-take levelled, given repair’s more labour-intensive nature: more of each pound (GBP) spent going on labour, less on materials, so that employment would rise (a magnificent ‘unintended’ parallel benefit) with the additional income tax swelling HMRC’s coffers.

But colleagues have pointed out that if repair is so much more virtuous than newbuild – and when the climate emergency is so urgent – why I am I not proposing a switch, to 0% for repair and 20% for newbuild? That might be best, though I note the virtue of simplicity: different rates producing red tape and opportunities for form-filing and additional consultancies in avoiding the higher one.

What, in your view, are the benefits of VAT harmonisation for the architectural and building professions?

I had an interesting discussion with a representative of the volume housebuilding industry. He said that if Government consulted on it, they would fight the change with all their might; but that if they lost, they would follow the money, and turn themselves into ‘volume house repairers’. I liked that truth, and I liked that name.

For architects, many are thoughtful types, who understand they have a responsibility to lead the built environment response to the crisis of waste. Others, who may have believed they were going to write their big egos across the world, may find that something quieter is more rewarding than the layouts for volume housebuilders, and cad monkey roles for banker-led PPP School projects, that they have ended-up doing.

What are the benefits of VAT harmonisation for residents and tenants? Why should they care about this issue?

Warmer homes, smaller bills. There’s an energy crisis on the way, short-term, and resource and climate ones approaching too.

What can VAT harmonisation achieve in more general terms? In previous calls for change, for instance, you have mentioned new construction employment, reduction in red-tape, renewed tax-take, urban regeneration, empty homes repair, sustainability, and heritage. Over the course of time have you found any additional benefits?

You’ve seen my list – it’s not bad! But the heritage one deserves some examination here. In the absence of useful levers for a view of ‘conservation’ that enlarges the term to encompass embodied carbon, cultural and community resources, civic society groups have had to rely on sentiment to protest the waste of buildings with hundreds of years of life left in them being cowped for landfill. But with VAT harmonisation, their arguments can and should be seen as sensible and affordable measures – caring for the wealth of the built environment.

In the 2019 Scottish House Condition Survey, disrepair to critical housing elements––central to weather-tightness, structural stability and preventing deterioration of the property––stood at 52%. Around 25% of all households were in fuel poverty and around 12.5% in extreme fuel poverty. What role can VAT harmonisation play in the battles against housing disrepair, climate change and fuel poverty? 

Warmer homes, smaller bills. It’s not only a contributor to these battles but almost an emblematic heart.

Who is supportive of VAT harmonisation? Who have been your allies on this issue historically and who might benefit from taking it up? 

There is support across the building industry, from architectural institutes the RIAS and RIBA, surveyors RICS, Scottish Built Environment umbrella organisation BEFS (the Built Environment Forum for Scotland) and architectural magazines including the Architects’ Journal RetroFirst campaign.

Who or what forces in your opinion are preventing VAT harmonisation and why? What is the political-economic reality behind building VAT legislation? 

The old, busted view that useful, wealth-directing economic activity is based on lots of short-termism and churn: destruction, rebuilding, destruction and so on.

Much of my own work relates to urban devaluation and the problems of ‘spatial fixity’ that the urban built form presents to capitalism, which craves creative destruction to present new investment opportunities regardless of current use values in the city. You mentioned ‘dealflow’ in a previous article for Bella, ‘Make do and Mend’. Would you say that built-in obsolescence has truly become a pervasive urban phenomenon?  

The elite of the building industry, their banker controllers and Government talk about ‘Dealflow’, as ensuring the flow of public money never ceases. If a wall falls down at a new PFI school that is a little too extreme, but emblematic of a general, shoddy approach to obsolescence that is central to the neoliberal capture of Government.

In their excellent book, In Defence of Housing, David Madden and Peter Marcuse argue that neoliberalism is buttressed by two central myths: (1) the myth of the free market; (2) the myth of the absent state. In my own research on housing and urban ‘regeneration’, I’ve been struck by just how much the reproduction of capitalism relies on state intervention for private gain. How do you see the current status quo on VAT fitting into such narratives? 

The VAT lever is a perfect exemplar of how the market is skewed, but housing is full of them: such as the obvious and well-recorded fact that our taxes, directed by Government into ‘Help-to-Buy’ for new mortgage-holders, are immediately translated by the market into housebuilders’ profits, CEO’s bonuses and higher house prices.

What effects would VAT harmonisation have on green belt sprawl and the much heralded but unjustly undertaken inner-city brownfield regeneration, aka gentrification?

A general switch from favouring a dispersed, greenfield site over the challenge of fortifying our existing towns and cities is needed, and levelling VAT is one part of the armoury. Inner-city and Town-centre first are policies I have helped introduce through the Scottish Government Town Centre Review, which reported in 2013. Clearly brownfield regeneration needs to balance the obvious, standard financial boosterism that drives developers, with simple social rental provision. There is some positive movement here including moves towards better land-assembly by Local Authorities and levers like Compulsory Sales Orders and improved CPOs, which I have supported via the Land Commission.

What steps do you think need to be taken to make VAT harmonisation achievable? Where do you expect to see blockages? 

Previously politicians have cried some EU limitation on VAT divergence, but my view has always been that this is a handy excuse, and that if the political will was there a way would be found. And, Brexit! Scottish politicians’ point-out that such matters are reserved to Westminster. Should I lobby there, here, or agitate for independence? All of them!

Are there other ways that we might better maintain and refurbish our built heritage? How do you see VAT harmonisation fitting into such a project?

Grants and incentives are good too – but VAT is the big, simple lever, that beats all.