Let’s help small tradesmen lift up our economy
As the Chancellor mulls over his options for stimulating the economy, reports suggest that a temporary cut in VAT could become the favoured choice. This could be a positive step and would encourage people to go out and spend. It would be simple to administer and has the benefit of having been used in the past. However, there are other options, too. To really give the economy a lift, we need to look to small entrepreneurs and those homeowners who have been protected financially through the Covid-19 lockdown.
In Sweden, in 2008, the government introduced ROT – tax relief for domestic repair, maintenance and support. Relief was limited to €5,000 a year for the labour costs of carpenters, plumbers, builders and the like for home improvement. Independent reports show that it created 30,000 new jobs, 27,000 of whom were previously unemployed. A simple multiplier would suggest the potential to create up to 160,000 entrepreneurs here in the UK, a whole army of new employers to help us to get building again. It should be enough to stimulate thoughts in the Treasury to offer the Chancellor options for more targeted support.
There are many people, particularly those in the public sector, who have been protected financially throughout lockdown. Some families will be in a stronger financial position than they were previously as a result of earning the same salary and not travelling to work or being able to socialise. But they may need incentives to spend.
Such a scheme would be an immediate boost to homeowners for the benefit of tradespeople, many of whom voted Conservative for the first time at the last election. It would have a major impact in the Red Wall seats, where the proportion of small businesses is greater.
The temporary nature of the policy would bring a cost to the taxpayer, but it would possibly not be as high as the initial model may suggest. The motivation in Sweden was to reduce the amount of “undeclared work”. While this is not the driving factor here, that too would be a positive benefit to the Treasury.
The result would be increased economic activity across the country, creating demand and employment among key groups in some of our most deprived communities. The policy could also be associated with our apprenticeship ambitions and form part of our plan to achieve net zero carbon emissions by 2050.
VAT reductions across the board are expensive but the beneficiaries are far and wide. It is a policy that would undoubtedly stimulate activity. However, some of the greatest gainers would be online retailers who will have already done well out of the change in spending habits during lockdown. It is time, instead, to stimulate the builders and plumbers, with homeowners benefiting in the process.
This proposal would be more targeted than a VAT reduction and send a clear signal of support to key groups. We should always remember that they must go out daily to win contracts to provide for themselves and their families. Many of us on the other hand, have the luxury of receiving a salary, irrespective of the immediate economic conditions.
Alun Cairns MP is a former secretary of state for Wales