Osborne foiled over pasty tax
GEORGE Osborne, the chancellor, was forced into another embarrassing U-turn last night as he watered down his controversial “pasty tax”.
Osborne had hoped to iron out quirks in the tax system when he set out plans in his March Budget to extend VAT at 20 per cent to hot takeaway food – but failed to predict the fierce backlash his plan provoked.
The chancellor was accused of hiking the price of affordable lunches at a time when consumers were already being squeezed.
David Cameron, the Prime Minister, defended the tax to MPs in April, arguing it was unfair for takeaway outlets such as fish-and-chip shops to pay the sales tax when other shops selling hot food do not have to.
But the chancellor has now flip-flopped, deciding to exempt purveyors of takeaway food who heat up their produce but allow it to cool down naturally, such as Britain’s biggest bakery chain Greggs.
Meanwhile food that is kept hot, such as the wraps sold in Pret a Manger and Eat, as well as the rotisserie chickens sold on supermarket delicatessen counters, will still see the 20 per cent levy imposed from October.
Hundreds of thousands of takeaway fans backed Greggs’ “Save our Savouries” campaign to scrap the tax, while the high street baker also urged its customers to write to their MPs in protest at the “unfair and unacceptable” tax.
The letter called the government’s plan to tax food served at above ambient air temperature “extremely confusing… and impossible to work out”.
Greggs suggested that only food kept hot for sale, cooked or reheated to order should be taxed – a position the government has now adopted.
Stephen Gilbert, Lib Dem MP for the Cornish seat of St Austell and Newquay, welcomed the volte-face.
“The Cornish people have won and there will be dancing in the streets from Land’s End to the Tamar,” he said.
It is not the first time the chancellor has rowed back on an unpopular tax. He partially reversed his damaging tax raid on North Sea oil and gas after investment in the sector plummeted in 2011.
Osborne has also caved in to pressure over plans to add 20 per cent VAT to the sale of static caravans. The sales tax will be levied at five per cent instead.
MPs had warned tourism in areas including Wales would be damaged by the tax, while some manufacturers had called for the plans to be scrapped, claiming the levy would hit sales and jobs.
The Treasury said the boundary between residential and non-residential caravans was not always clear-cut and so it was fairer to apply only a reduced rate of tax. The introduction of the caravan tax has also been delayed from October to next April.