Government U-turn on 'pasty tax'

29th May 2012 07:47

The Government is to back down on plans to introduce VAT on hot savouries, such as Cornish Pasties.It will also cut the level of VAT it intends to levy on static caravans from 20% to 5%.The 'pasty tax' in particular proved damaging for the government, leading to accusations that its leadership was out of touch with ordinary voters.Bakery firms had called the rules unworkable, with the chain Greggs saying it would lead to further unemployment, high street closures and reduced investment.Presently VAT is not levied on most food and drink, or hot baked goods, but it is payable on takeaway food that is sold to be eaten hot.Under the new rules freshly baked food that is cooling down rather than being intentionally kept warm will not be liable for VAT.A statement from the Treasury said: "The Budget announced a consultation on a change to VAT on hot takeaway food, designed to remove inconsistency and ambiguity in the system and level the playing field across the takeaway food market."After extensive engagement we have improved the policy, addressing practical concerns, ensuring that the new regime could be as simple as possible to apply."We have addressed these in a way that allows us to remove the inconsistent VAT treatment, while not imposing any additional requirement on businesses to test the temperature of their products."However, Labour politicians called the government incompetent for its handling of the issue.