CHIEF EXECUTIVE’S BLOG: TALKING TO THE VATMAN ABOUT POLICY

For the construction industry, the case for reducing VAT seems obvious and the Government’s lack of movement is frustrating and infuriating.  But is it so convinced of the righteousness of the case that it hasn’t thought enough about why the Treasury still says no?

This thought was prompted after I attended a meeting with the Treasury official responsible for VAT policy, as part of a Construction Products Association delegation.  We wanted to understand why the Treasury had not taken advantage of the recent decision of the European Council to allow a reduced rate of VAT on repair and renovation, and what it would take to persuade them.

Civil servants almost always begin a meeting like this with a re-statement of the Government’s position.  As a lobbyist, the most interesting thing for me as I listened to the Treasury side of the argument, was how little anyone seemed to have taken the official line into account in shaping the campaign.  Yet these points are being made time and again (admittedly in sometimes obscure language) in the letters Treasury ministers send in reply to the representations they receive.

In the American political drama The West Wing, President Jed Barlet tells one of his aides that the way to reach the right decision in politics is to ‘see the whole board’.  Several points emerged from the discussion, which suggested to me that the campaign to reduce VAT has fallen into the trap of only looking at its own pieces and seeing the areas on the board which will help it win.  They throw some interesting light on the Treasury’s approach to the issue:

• The Directive which the European Council’s decision amended is aimed at reducing the VAT burden on small, labour-intensive businesses (hairdressers, window-cleaners and the individual jobbing carpenter or bricklayer were cited as examples not primarily at supporting the construction market.  In most EU states, these businesses will be liable for VAT because the starting threshold for VAT is much lower, if indeed it exists at all; so they are liable for VAT.  The UK’s starting threshold of £68,000 is seen as protecting the smallest businesses from the VAT burden.  By the same token, these businesses would not benefit from a reduction.
• Any scheme which effectively distorts the market by favouring one product over another would be unacceptable.  This is why the Glass & Glazing Federation’s campaign to have windows with a high BFRC energy rating classed as energy efficient products to benefit from the lower VAT rate failed.
• Any change must be well targeted and cost effective, and must help the Government to deliver its policy objectives.  ‘Well-targeted- means it only benefits those it is intended to; ‘cost effective’ means that if it reduces tax revenue on the one hand, it has to produce an increase in revenue from another source, or it has to achieve the Government’s policy objectives more cheaply than if the Government had spent the money itself.  And as with any policy proposal, if it doesn’t help the Government of the day achieve it own agenda, then it’s doomed to failure from the start.
• The reduction in tax must be passed through to the final consumer.
• Problems of enforcement are not permitted to influence the principles of setting tax policy.  So the argument that reducing VAT will reduce activity in the black economy isn’t relevant.

A lobbying campaign succeeds because it is grounded in political reality.  It needs to understand the wider political context as much as the immediate policy issues, and it needs to be backed up by the research and evidence to make a persuasive technical case.  Above all, it needs to persuade the Government that it is in its own interest to accept the argument.  You won’t do that if you don’t understand the Governmen’s point of view in the first place.