Government backs down after weeks of protests over chancellor’s budget measures to alter VAT charges
The government’s reputation suffered a series of fresh blows as the chancellor, George Osborne, was forced to make two climbdowns over his budget, including scrapping the “pasty tax”.
Osborne is to reverse plans to charge VAT on food that is designed to cool down, such as sausage rolls and pasties, and will also reduce the new VAT charge on static caravans from the standard 20% rate to 5%. The climbdowns follow weeks of protest, including by Tory MPs, and will together cost the cash-strapped Treasury as much as £70m annually.
The budget concessions, announced by the chancellor in a letter to the Treasury select committee, were deferred until the Commons was no longer sitting.
Ministers will doubtless claim the latest rash of U-turns are an occupational hazard of coalition government, or the sign of a government willing to listen, but they will add to the sense of incompetence that appears to have gripped the government ever since the ill-starred budget, an event that has led to a precipitous decline in David Cameron’s personal poll ratings.
The two taxes were also seen as symptomatic of a government out of touch with ordinary working people. Cameron had defended the move, designed to put 20% VAT on all food sold “above ambient temperature”, insisting he loved a pasty.
George Eustice, the leading Tory south-west MP campaigning against the tax, said: “This welcome announcement means all pasties will be exempt from VAT, and shows this has been a genuine consultation.”
Under the changes, the government will charge VAT on warm food designed to be eaten warm, for example on rotisserie chickens sold hot by supermarkets.
The VAT due to be enforced from October would have added 50p to a £2.50 savoury food item. The Treasury had been planning to raise £110m from the measure, but will now only raise £70m.
Critics said the proposals were incredibly complex since it would be hard to define ambient temperature.
In the other change, VAT will instead be set at 5% for static caravans used for holiday purposes. That means an expected income of £40m falls to between £10m and £15m.
A Treasury spokesman said: “At the budget we announced proposals to address anomalies that have built up in the VAT system and have led to similar products being taxed differently.
“We have now finished the consultation on these proposals and are taking on board the points made, while still making sure we meet the objective of a clearer and more consistent system that we set out at the time.”