Tax rise forces landlords to renegotiate repairs contracts and cut services
VAT hike will cost associations £125m
Housing associations will cut building programmes to minimise the impact of the planned Value Added Tax hike, which will add up to £3.5 million to their annual operating costs.
From 4 January, associations will have to pay VAT at 20 per cent instead of the current 17.5 per cent.
The move, announced by chancellor George Osborne in last month’s emergency Budget, will add an estimated £125 million to associations’ annual operating costs, according to London & Quadrant Housing Association, effectively cutting already over-stretched maintenance budgets.
The average increase for a medium-sized association will be around £250,000 a year, according to the Chartered Institute of Housing.
Unlike councils, associations cannot reclaim VAT, meaning their costs will rise at a time of cuts in grant and a sluggish economy.
Associations are faced with either having to make efficiency savings elsewhere to cover the costs or trying to absorb them.
Peter McCormack, chief executive of 12,000-home Derwent Living, said the increase will add £500,000 a year to the association’s bills.
‘The biggest increases will be to the cost of repairs, and repairs are what our tenants value the most,’ he said. ‘We are looking at cutting back on community development and marketing activities.’ He added that there wouldn’t be ‘massive redundancies’.
Other associations, such as Moat, are considering whether purchases can be brought forward to beat the 4 January deadline, while others are considering reducing the number of purchases they make.
Plus Dane, which owns or manages 15,000 homes, in a decision led by tenants, last week moved its £32 million maintenance contract in-house, a move which the association says will save £500,000 a year in VAT.
Ken Perry, chief executive of Plus Dane, said: ‘We can’t claim we anticipated the increase but we knew there would be changes in taxation.’
Other association chief executives are more relaxed about the changes.
Martin Heys, finance director at 12,500-home One Housing Group, said his association has a surplus of several million pounds which it will use to cover the cost.
Keith Exford, chief executive of 54,500-home Affinity Sutton, said the increase will add £3.5 million to its costs. He said: ‘We are not cutting back on anything just yet but it will mean reducing operating costs.
‘It might mean making some difficult choices, less development or less investment in communities.’
Sir Bob Kerslake, chief executive of the Homes and Communities Agency, said: ‘It [the VAT rise] clearly will take money out of operating costs, the question we can ask is how much they [housing associations] are able to reduce the impact by making greater efficiency savings.’
The extra cost of VAT
£3.5 million
Affinity Sutton
£2 million
Circle Anglia
£500,000
Derwent Living
£500,000
Liverpool Mutual Homes
£250,000
Festival Housing Group
£138,000
South Liverpool Housing Group
Have your say
You must sign in to make a comment
Readers' comments (2)
Sleeper | 16/07/2010 10:16 am
RSL's will need to absorb the increase in 2011/12 but should get some respite in 2012/13 since the VAT increase should push up RPI, as it did in Jan 2010 when VAT returned to 17.5%. This will translate to steeper rent increases based on Sept 2011 RPI. However, in the long-term RSL's will have to carry the extra cost of this tax and cut their cloth accordingly.
Unsuitable or offensive? Report this comment
Captain Okpeki | 16/07/2010 10:34 am
Whilst the VAT rate increase is unwelcome, perhaps it will trigger a change of RSL/HA attitude to VAT recovery. Many business sectors incur irrecoverable VAT and take a proactive active to mitigate its impact. Maybe its time RSLs and HAs did the same.
Dave Cameron has suggested the government will review VAT refund for charities but even if a policy change is implemented, a culture shift is needed to ensure real improvement is achieved.
Captain Okpeki
www.eki.org.uk
Unsuitable or offensive? Report this comment