The Chancellor of the Exchequer's announcement that VAT will rise to 20 percent in the emergency Budget will boost the informal economy and cowboy builders as consumers resort to 'cash-in-hand' to avoid paying VAT on building work, warns the Federation of Master Builders (FMB).

Richard Diment, Director General of the FMB said: "Cash strapped homeowners will be more likely to resort to 'cash-in-hand' traders in order to avoid adding 20 percent to the cost of keeping their home in good condition. This in turn will leave homeowners more vulnerable to being ripped off or having sub-standard work done on their home. Every year over £170 million is stolen from unsuspecting homeowners by rogue traders and today’s VAT increase will be a further incentive for this figure to escalate.

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"The VAT increase makes no sense because for the Chancellor as there is no guarantee that the tax revenue will actually increase for the Treasury. Higher taxes send consumers into the informal economy whereas a low taxation economy stimulates growth. Independent research has shown that reducing the rate of VAT to five percent on the labour element of housing repair, maintenance and improvement work would have a multiplier effect of more than £1 billion as well as creating more than 55,000 extra new jobs this year alone."

Mr Diment concluded: "This VAT rise will have a disastrous affect on many businesses and people cross the UK. The new 20 percent VAT rate will hit the building industry particularly hard as the industry is still struggling to recover from a recession in which it has been the single biggest cause of redundancies and business failures. Today’s VAT increase will mean 7,500 jobs are lost in the SME construction sector this year. When you include the effects of the multiplier the total employment lose to the UK economy could amount to 23,000 jobs by the end of this year."

(CD/GK)