Great Budget for Polish builders and black economyPosted: June 23, 2010
Polish builders will be rubbing their hands in glee at George Osborne’s announcement of a VAT increase.
On the face of it, the increase in the tax seems fair to everyone, as we all have to pay it on every non-essential item we purchase. But dig a little deeper and you will find – particularly at the margins of the VAT threshold and where the black economy thrives – that the law of unintended consequences will apply.
One of my family is a builder. On the basis of a very good year’s business, he went VAT registered; which means when he quotes for an extension, the punters automatically think he will be 17.5% more expensive than the “we work for cash” alternative. Now, that perceived disadvantage will be 20% – favouring the cowboys even more.
Someone else I know runs a respectable small transport business. Every week, he gets calls from east European white van men, offering to work for him on a casual basis. Trouble is, they never have the required security checks or relevant insurance cover that my friend’s big clients demand. But he’ll surely be losing more of his small business clients to Pavlov and his Transit van in months to come.
Another colleague runs an office maintenance company. Their handyman, fully insured and Health & Safety compliant, and using only the correct equipment, must be charged out at £40 plus VAT per hour. Which means already, before the VAT increase, small business clients are opting to stand on chairs and change their own lightbulbs – or get an out of work friend to do it for cash.
The irony is, with the squeeze on public sector spending, there are likely to be less public sector workers out and about to check up on compliance, making it all the easier for the black economy to thrive.