The chancellor of the exchequer, George Osbourne, appears to have bowed to public and commercial pressure and revoked after his controversial budget statement in March.
The change of policy is likely to result in around £35 million to £70 million less tax revenue for the government per year and has been seized by Labour as an example of poor planning.
Dubbed ‘the Pasty Tax’, the new law would have forced retailers of hot pies, pasties and sausage rolls to charge 20% VAT on sales of the food. Previously responsibility for charging VAT on this type of sale was split in a way which the government said was unfair. Takeaways must charge the VAT, but over-the-counter sales in large shops and dedicated bakeries were exempt.
David Gauke, the treasury minister, said the decision was made following a “public consultation”. Now bakers who cook food which cools naturally during their working day will be exempt from charging VAT on their sales. Pasties and baked goods served cold would not be subject to VAT. Should the food be kept in a hot storage device or re-heated, the VAT would become applicable.
Ken McKeiken, the chief executive of Greggs bakers, told the BBC he was pleased that the tax laws had been made clearer and acknowledged that the government appeared to have listened to widespread industry concern about the tax change. Greggs were a vocal opponent of the change in the law, organising petitions which attracted more than a quarter of a million signatures against the policy. The company’s share price leapt by 6% when the news was announced on Tuesday, regaining some of the ground lost – around 14% – when the policy was originally announced.
A tax on static caravans has also been changed in the public’s favour, with a drop from 20% proposed VAT to just 5%. Further climbdowns are expected over the proposals to limit tax relief for charitable donations after the Conservative MP for Bury St Edmunds, David Ruffley, said the policy appeared to have been drawn up “on the back of an envelope” by the Liberal Democrat leader Nick Clegg. If the change is announced, it could be a huge relief for hundreds of charitable organisations which were facing a drop in funding over the coming years.
The coalition government, lead by Conservative leader David Cameron, suffered a storm of adverse publicity after its budget was announced. The so-called Pasty Tax was just one of a range of new taxes which were criticised for hitting working people hard while the richest in the country were awarded significant tax cuts on their wealth. The “Granny Tax”, which cut the income of pensioners, also came under fire.
According to the Independent, Labour currently have a clear lead in the opinion polls despite conceding one point to the Tories. Labour currently hold 42% while the Conservatives have gained slightly at 34%. The Liberal Democrats have an approval rating of just 11%.