The VAT rise to 20 per cent in January next year will mean the loss of 11,400 construction jobs over the next decade, the Federation of Master Builders (FMB) has said.
The FMB also warns that a further 34,000 will be lost from the UK economy by 2019.
Brian Berry of the FMB said the construction industry has already been badly affected during the recession and the VAT rise will only serve to make matters worse.
"The VAT increase will result in a two per cent decrease in demand for domestic repair, maintenance and improvement (RMI) work which will mean 11,400 job losses in construction alone by 2019," Mr Berry said.
"This will seriously affect the recovery of the construction industry, when it comes, as there won't be enough skilled workers available."
Mr Berry went on to say that the government's decision to increase VAT will not help its efforts to create a greener Britain, given that the job losses created by the increase will mean there will be fewer skilled workers to undertake the energy efficient work required under the Green Deal.
In addition, the FMD believes homeowners will also be worse off as they might be tempted to go to rogue traders who claim they can "make VAT disappear".
"The simple solution is to reduce the rate of VAT on home repairs as this offers the best hope of encouraging take up of the Government’s Green Deal as well as helping to create jobs in the construction sector," Mr Berry said.
In a recent interview with the Spectator magazine, chancellor George Osborne confirmed the VAT rise - scheduled for January 4th - will be permanent.
"We are talking about a totally different scale of revenue and the VAT rise is a structural change to the tax system to deal with a structural deficit," he said.