SMALL firms in the construction sector believe a lower VAT rate on home renovations would kick-start activity in one of the worst recession-affected parts of the economy. A new survey by the Federation of Small Businesses (FSB), which canvassed the views of a specialist panel of FSB members in the construction sector, showed that 59 per cent of respondents said their trade had decreased in the last six months and that 37 per cent were concerned their financial prospects for the future were poor. Small building companies identified the VAT rate on renovating homes - currently at 15 per cent - as a concern, believing it discouraged potential customers from hiring their services in new building projects. The lack of demand in the private and public sector was the key factor identified by 49 per cent of small firms as most negatively affecting their business and causing the downward spiral in trade. The FSB is working with the Federation of Master Builders on a campaign calling for the VAT rate to be lowered to a flat rate of five per cent to give homeowners the incentive to spend and give a boost to the builders and small firms in the construction industry at an already difficult time. The FSB's Huntingdonshire chairman, Malcolm Lyons, said: "Confidence in the smaller building projects 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 would encourage people to spend their money and give a vital kick-start to the important, but currently beleaguered, construction industry. It would 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." The FSB may have a good point. With minimal interest rates generated by cash deposits, home-owners are looking for ways to generate returns on their savings. Signs of modest recovery in the domestic property market - which some commentators believe may have bottomed out in previously-expanding areas such as Huntingdonshire - suggest that property improvements may deliver significant medium- and longer-term returns on investment of that sort, which could be triggered by a change in fiscal policy.