More than half of these small building businesses blamed the VAT rise for a fall-off in workloads, according to a survey by the Federation of Master Builders.

The trade body is using the damning results of the latest survey to step up pressure for VAT to be lifted on domestic repairs arguing it would cost the Treasury just £161m.

The FMB argues this would generate a total stimulus effect of £1.7bn and create 34,400 jobs by the end of 2012.

Brian Berry, Director of External Affairs at the FMB said: “The FMB warned the Government at the time that raising the rate of VAT to 20% would suppress demand for building work and cost jobs.

“Unfortunately our prediction has been borne out by our latest research which shows that the VAT increase is hurting the very small businesses that the Government is looking to for economic growth.”

He added: “More than 200,000 construction jobs have been lost since 2008 when the UK economy was hit by recession.

“There are obviously a large number of different factors affecting employment in the construction industry, but we do know from these survey findings that the rise in VAT has made things worse.

Separate research by Experian estimates that nearly 4,000 jobs were lost in the housing RM&I market last year as a result of the rise in VAT.

When the effects of ‘the multiplier’ were added in, the total employment loss to the UK economy could have reached 10,254 by the end of last year, and may rise to more than 17,360 by 2020, argued Berry.

The research also shows that a targeted reduction in the rate of VAT on just the labour element of domestic repair maintenance and improvement works could cost as little as £161m but could generate a stimulus of £1.7bn and create 34,400 jobs by the end of the year.

Such a cut could also release £374m of public cash to refurbish over 20,000 units of social housing stock and help meet the Government’s energy efficiency objectives.

“As the economy stalls the Government should be re-examining the case for a cut in VAT as a targeted reduction would help generate much needed jobs and growth on a very limited budget,” said Berry.