UK Pasty Tax Plans Binned

by Robert Lee, Tax-News.com, London

30 May 2012

The UK government has performed a u-turn on one of its more controversial Budget measures, the unpopular "pasty tax", announcing that the planned introduction of value-added tax on hot baked goods will no longer go ahead.

The decision comes in the wake of widespread protest from groups such as the National Association of Master Bakers (NAMB) and the baking retailer Greggs, which argued that the pasty tax could result in higher unemployment, store closures and reduced investment. A petition with over 30,000 signatures against the measure was delivered to the government, while members of the NAMB organized a march on the Prime Minister's residence in Downing Street late last month.

The government had intended that from October, freshly baked goods, including hot pies, pasties other savouries would be brought in line with other hot takeaway food and charged the standard 20% rate of VAT. The initiative was intended to smooth out anomalies in the VAT system, but the Greggs Chairman Derek Netherton warned that it would be unworkable and only lead to further uncertainties. Indeed, it emerged that if the food then cooled down again, VAT may not be levied. Ministers were accused of being out of touch with the public, and both the Prime Minister and Chancellor were ribbed on the alleged infrequency of their purchases of Greggs pasties.

The government's climb down means that only food intended to be consumed warm - such as rotisserie chickens sold in supermarkets - will be charged VAT. This will see the Exchequer's revenue from the reform drop from a projected GBP110m (USD173m) to GBP70m. A Treasury spokesperson said the government had taken on board the points made during its consultation on the changes.