With many home improvement projects consisting of small value orders, will a VAT reduction really make much difference?
In recent weeks there has been much said about reducing the VAT to 5% on home improvement products and one of the main reasons given is that it will “boost the industry”. The Cut the VAT Campaign Coalition comprising comprising The Federation of Master Builders, The Glass and Glazing Federation and others amongst the list of 34 representatives has written to the Chancellor of the Exchequer stating the reasons why there should be a VAT reduction.
These members of well known and well respected trade bodies, businesses, lobby groups and other organisations would like a VAT reduction from 20% to 5% as part of The Chancellors forthcoming Autumn Statement on 5th December.
Will a VAT reduction as proposed really give the entire home improvement market a boost?
Here is an alternative point of view. Any proposed reduction in VAT would indeed work very well in theory in boosting the economy, but the wider question remains whether the door and window sector, as well as other sectors would actually embrace it or simply raise their prices accordingly!
Anyone who looks back at typical installations they did 10 or 15 years ago will see that prices for a complete house of windows and a few doors have hardly changed in that time. Every year the double glazing industry will bemoan the price increases by major glass manufacturers, increased prices in gaskets, aluminium or other raw materials. Yet it is often discussed that most window companies simply absorb any price increases fearing losing work to more competitive companies as a result.
When double glazing prices have remained constant over so many years, why would a VAT reduction possibly make any difference?
One only needs to look at how old some of our trade price lists are to realise that window and door prices generally have not changed nor were they generally affected when the VAT increased to 20% from 17.5% so why would a reduction necessarily work in the opposite direction?
The reality is, and despite the recent reports that the fenestration sector is returning to growth, that the vast majority of home improvement companies will simply adjust their prices.
Our retail quotations are generally only held firm for 30 or 60 days so in essence a quotation you did several months ago would quite likely be quoted again. It would be for many, a perfect opportunity to claw something back and not accurately reflect the VAT reduction of 15%.
There is no Recommended Retail Price on double glazing so any perceived benefit to the consumer is in the hands of the window company.
Unlike general consumer goods with a Recommended Retail Price any VAT reduction will be instantly visible. We are not a consumer goods industry that buys from wholesalers and has a RRP to contend with. A consumer when buying a new car will know what the price of their chosen model will be. With home improvement products it is impossible to guess.
The window industry prepares its quotation depending upon the nature of the job, the site conditions, ease of access and if we can get away with putting extra in to cover project management, scaffolding and towers, working drawings, general hassle factor and so forth. Our quotations are all quoted on a made to order basis and especially with discounting being the norm in double glazing, it is impossible for the home improvement industry to be totally transparent about savings in VAT. This is further reinforced by the number of one man bands, small businesses as well as large concerns that operate in home improvements with no set standard on pricing. The sector will simply adjust prices and claw back what it can. The only real saving will be from those companies buying from trade manufacturers having set price lists on standard products. If those prices don’t change then obviously they will be cheaper however that is not to say the saving will be passed on to the homeowner.
It may also be wise to have a look at your average order values. If you are an installation company, have a look and see what your average order is. Have a critical look at the work you do and analyse it. If you carry out a lot of smaller work such as one new front door that you sell for £1100 plus VAT would a £165 reduction in the VAT really swing that order when most would discount it by 10% to secure the work anyway?
Would a £2000 reduction in VAT on a complete house full of windows or an even higher saving on a £40000 extension actually make that much of a difference to someone who is not on a budget – a customer who wants the very best, highest quality products and is prepared to pay for the luxury? Probably not!
Retail or Refurb
The main economic value to a reduction in the VAT rate apparently rests in the property development market. Certain types of refurbishment projects already qualify for a lower VAT rate, which in turn can ease cash-flow for developers. The reduced rates generally apply to new homes and redeveloped homes. The thinking is that a reduction in the VAT rate to 5% would trigger more home-improvement work and refurbishment work – thus creating more jobs and a boost to the construction industry.
Any VAT reduction of course is welcomed and we applaud the efforts of the Cut the VAT Campaign Coalition comprising long established, respected, well known and experienced business people and organisations.
The post Will a VAT reduction really boost the window industry? appeared first on Aluminium Trade Supply.
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