VAT rise has cost jobs warns Federation of Master Builders

More than one in five small building firms have shed jobs as a result of chancellor George Osborne's decision to raise VAT to 20pc, according to an industry survey.

In its latest state of trade survey, the Federation of Master Builders (FMB) said the hike - seen as crucial part of the government's armoury to cut the deficit - had also meant falling workloads.

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 20pc 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.

'More than 200,000 construction jobs have been lost since 2008 when the UK economy was hit by recession. There are obviously a large number of different factors affecting employment in the construction industry, but we do know from these survey findings that the rise in VAT has made things worse.'

Mr Berry said that even a targeted reduction in the rate of VAT on just the labour element of domestic repair maintenance and improvement (RM&I) works could cost as little as �161m but could generate a total stimulus effect of �1.7bn and create 34,400 jobs by the end of 2012.

'Such a cut could also release �374m of public money to refurbish over 20,000 units of social housing stock and help meet the government's energy efficiency objectives,' he added. 'As the economy stalls the government should be re-examining the case for a cut in VAT as a targeted reduction would help generate much needed jobs and growth on a very limited budget.'