The Federation of Small Businesses (FSB) has said a five per cent flat rate for home renovations could help small businesses "struggling against a backdrop of decreasingly bad trade".
The industry had pushed the chancellor heavily in the run-up to the Budget for a cut in VAT on renovation - after a decision in Europe allowed nations to drop the tax rate on a number of services.
A survey by the FSB, out today, showed 59 per cent of respondents in the construction sector said their trade had fallen in the last six months, with 37 per cent concerned their future financial prospects were poor.
Nearly half of those surveyed said it was the lack of demand that was fuelling the negative impact on their businesses.
A key concern for business was the 15 per cent VAT rate on the cost of renovating a home, which they said "prevents potential customers from hiring their services in new building projects".
The ongoing campaign to 'Get Britain Building' has identifies that a VAT cut could significantly boost the construction industry.
John Walker, national policy chairman for the FSB, said: "Confidence in the smaller building projects around the country has dropped to a low, and people who were thinking of adding an extension to their home, renovating their bathroom or building a garage, should be given the incentive to go ahead.
"Lowering the VAT rate on home renovation projects will encourage people to spend their money and give a vital kick-start to the important, but currently beleaguered, construction industry. It will also help the government to meet its carbon emission targets by encouraging green home renovations.
"With more than 300,000 jobs in the sector under threat during the recession, and more than half of smaller construction firms and builders across the UK warning they will have to lay off staff in coming months, the construction industry needs support today."
FSB members also cited the cost of resources and the regulatory burden as problems contributing to their decrease in trade. Worries also surrounded the fact 53 per cent of firms had more and more companies paying them later over the last six months.
The Federation of Master Builders (FMB) has also long supported the campaign for a reduction in VAT for the construction market.
Director of external affairs at the FMB, Brian Berry, said: "We are delighted that the FSB has joined the 'Cut the VAT' campaign.
"The FSBs survey of its members is further evidence, if any were needed, of the difference a cut in VAT on home maintenance and repairs would have for construction businesses, particularly the smaller end of the market which is struggling at the moment as homeowners lose confidence in the housing market.
"Now that the EU has allowed member states to set VAT at five per cent on home maintenance and repairs if they wish there are no barriers to the UK government implementing it. The reasons are all there, the benefits are clear; all that is needed is positive decisive action from the government and the sooner the better."
