The 2.5 per cent cut in VAT announced by the Chancellor will make a small dent in the cost of renovation projects - a modest boost for homeowners choosing to improve rather than move. On a £200,000 project, the measure will cut the total bill by £4,500 - enough for a pair of decent sofas.

The temporary 13-month reduction applies to anything charged at the standard VAT rate, which includes most renovation projects, such as a loft conversion. Renovations on listed houses and adaptations to accommodate people with disabilities such as wheelchair ramps will continue to be exempt, while energy-efficient materials and dividing a property into separate dwellings will still be charged at 5 per cent.

Despite the concession, the Cut The Vat coalition wants the Government to go farther and reduce VAT on home renovations to 5 per cent to encourage homeowners to improve their properties. It argues that the new 15 per cent rate will not be enough in itself to encourage new renovations. “I don't think 2.5 per cent is enough for most people to be a deal-breaker,” says Jonathan de Wilton, a VAT specialist at the accountants Grant Thornton.

Patrick and Elaine Mulvihull bought their three-bedroom house in Newtown Linford, Leicestershire, for £375,000 in 2007. They spent £200,000 turning it into a dream home for them and their children, Isabella, 5, and Cameron, 3. It now has five bedrooms, views over the park, two balconies and a loft conversion. They finished in March with a VAT bill of £30,000. Had they begun work in December 2008, after the introduction of the VAT reduction from 17.5 to 15 per cent, they would have saved £4,500. “It wouldn't have made much difference to be honest,” says Patrick, 43, a school development director. “Maybe we'd have bought a couple of extra sofas.”

However, a reduction to a 5 per cent rate, excluding material costs, would have made a far bigger difference, reducing their bill by more than £15,000 to £184,750. “Now that really would have been fantastic,” Patrick says. “We had to borrow and renegotiate halfway through when plumbers told us we needed a real slate roof at £10,000. An extra £15,000 or so would have been very useful.”

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