Architects have attacked as simplistic a government plan to slap a £500 million annual tax on new greenfield housing.
The plan to levy vat on new greenfield housing was proposed last week by the secretary of state for the environment, transport and the regions, John Prescott, in anticipation of the 21 March budget. Prescott suggested the tax to chancellor Gordon Brown in a bid to help the government hit its target of building 60 per cent of new dwellings on previously used sites. But the building industry warned that inner-city housebuilding will be hampered, not helped, by the measure.
Urban Taskforce co-author Ricky Burdett and independent advisor to the Housebuilders Federation, John Stewart, told the aj that the supply of brownfield sites for housing developers could be hit by the plan and that subsidies, rather than taxes, are needed to encourage developers to build on brownfield land or refurbish existing homes.
'It will be impossible to impose vat on greenfield building alone, so you'd have to apply it to all new homes,' Stewart explained. 'The extra cost to housebuilders will not be absorbed by a rise in house prices or the construction industry taking a profit hit, but will reduce the value of land'. He said that this would, in turn, reduce the supply of land, already in shortage, and particularly hit brownfield sites which are typically more expensive than their countryside counterparts.
'We need a change in culture among developers and planners. The only way to do this is through incentives,' Burdett said. He added that the detr has consulted the Urban Task Force on the vat issue in recent weeks.
Prescott is aiming his proposals at an anomaly, which means no vat is levied on housebuilding while vat on refurbishment and extensions is charged at 17.5 per cent. Prescott hopes to persuade Gordon Brown to put vat on the materials used in building on greenfield land in an effort to make development of brownfield sites and refurbishment of existing buildings relatively cheaper.
The tax plans emerged after Prescott met the chancellor in private last Monday to propose an end to the zero vat regime. But it is not thought that Prescott asked Brown for tax breaks on refurbishment. If Brown decides to end the tax break on new building, European regulations mean he will have to levy vat at full rate - 17.5 per cent.
Officials at the Treasury and Customs and Excise played down the possibility of a package of carrot and stick measures to encourage brownfield developments.
'What the detr wants to achieve is laudable but whether the vat system is the best way to achieve this is unknown,' a Customs spokesman said. Tax changes could also mean a loss in revenue for the Treasury, which has calculated that a 5 per cent vat on new housing would raise £550 million a year while a reduction in vat on refurbishment to 5 per cent would cost £1.1 billion.