Partner Article

After the flood…The economic impact…

Much has been made in the press recently about PPI. Claims for PPI continue to roll in, with the cost of claims estimated to be a massive £20 billion – and this figure is almost certainly set to rise.

As much of this ‘windfall’ will be almost immediately spent by recipients, few could deny that PPI repayments have played at least a small part in the UK’s economy.

Could the recent floods be as lucrative to the local economies of Thames Valley, Somerset and other affected areas?

Much of the current focus is rightly on relief efforts for individuals and businesses. Without meaning to be crass, much work and money (with some reports estimating £10bn), will need to be spent on repairs, renovations, replacement goods and future-proofing flood defences.

Hopefully, the government will recognise that by employing local businesses and tradesmen in a ‘clear up’ campaign and flood prevention works, the local communities will at least get the full benefit of the financial aid being promised.

The VAT impact…

The Prime Minister has pledged there will be no limits to financial aid in addressing and repairing the damage caused by the storms and flooding. While such expenditure will hopefully boost the local economy, it’s worth noting that a £10bn ‘clear up’ cost will result in £2bn of VAT ‘flowing’ into the Treasury.

Unfortunately, current EU VAT rules mean we will be unable to exempt clear up costs from VAT. However, if the government is willing, we can under those same EU rules apply a reduced rate of VAT of 5% to all renovation, repairing and alteration of private dwellings, and to any temporary accommodation required in hotels, or to restaurant and catering services.

There are a number of benefits in applying a reduced VAT rate to all repairing and maintenance of dwellings across the UK. For those affected by the recent storms and flooding, VAT at a reduced rate would mean insurers paying out less in claims (resulting in subsequent premiums being lower), uninsured householders finding the cost of repairs less inhibitive, and local tradesmen won’t face such a huge VAT liability while waiting for insurers and/or householders to pay them.

As an added bonus, the government could also subsidise future flood defence prevention works from the 5% VAT ‘windfall’ that it would receive as a result of these events.

This was posted in Bdaily's Members' News section by Baker Tilly .