Shabana has written to HM Treasury regarding the prospect of a VAT exemption for cladding and fire safety remediation costs.

Shabana has campaigned alongside those affected by the cladding scandal for the last 18 months, and has previously written to the Government calling for urgent interventions to support leaseholders.

Constituents have written to Shabana calling for VAT to be scrapped on cladding remediation costs, in light of new powers on taxation after the UK’s departure from the EU.

In her letter to the Chief Secretary to the Treasury, Shabana asks the Treasury to consider bringing forward a VAT exemption on cladding remediation and associated costs to remove fire safety defects from affected buildings, in addition to a levy on developers involved in the cladding scandal.

You can read her letter in full below.

Letter to the Chief Secretary

Dear Chief Secretary

I am writing regarding the plight of residents in Birmingham and across the country affected by the cladding scandal.

Over the last eighteen months I have campaigned on behalf of constituents affected by the cladding scandal, where leaseholders in buildings clad in combustible materials are facing bills of tens of thousands of pounds for remediation works. The scandal has since widened to include those in buildings affected by a wide range of fire safety defects due to poor construction.

I welcomed the Government’s initial response in the Budget last year, when over £1bn was announced for the Building Safety Fund to address remedial works for affected buildings. However, it is clear that this action does not go far enough, and I have since called for the Government to reach a new settlement for leaseholders that includes funding for other fire safety defects and costs for interim measures, including support on extortionate insurance premiums.

As attention turns towards the Building Safety Fund and the efforts of leaseholders beginning the long process to make their buildings safe, I have been contacted by a number of constituents regarding the Government’s position on VAT and remediation costs.

On 31 December 2020 the UK exited the European Union VAT regime, taking back control of the management of VAT rules and reclaiming powers to change VAT rates on various goods and services. The Government has since flexed its new regulatory powers on VAT for the public good, including eliminating the tampon tax on sanitary products, demonstrating the possibilities of a flexible VAT regime based on individual policy decisions.

Indeed, operating within the rules and outside of previous EU directives on VAT, the UK has been able to zero rate VAT on the construction of new buildings and the sale of new homes. Developers and construction companies have long benefitted from the generous fiscal policy of successive Governments, including most recently in the form of billions of pounds in Government support grants during the pandemic and the stamp duty holiday windfall.

Ministers agree that leaseholders are the victims of this scandal and I would urge the Government to bring forward proposals to levy developers as part of the solution to fund remediation works. However, in addition to this my constituents are right to suggest a total VAT exemption for remediation works would be a viable solution to reduce the costs associated with remedying poorly-constructed buildings. If, as promised, the lion’s share of remediation costs will be borne by the Government, then forgoing the collection of VAT on remediation works will not significantly impact the public purse, and would in fact remove a great deal of tax administration.

Please could you inform me what assessment has been undertaken by the Treasury in order to support such a measure, and what discussions with the Ministry for Housing, Communities and Local Government has taken place regarding a VAT exemption for remediation works associated with cladding and defective high-rise buildings.

Yours sincerely

Shabana Mahmood MP

Birmingham Ladywood