A U-turn by the UK Government on the proposed introduction of a VAT levy on hot takeaway food will still include food sold in supermarkets.
In a letter to the Commons Treasury Committee yesterday (28 May), Chancellor George Osborne reportedly said VAT will now only be charged on hot pies stored in a hot cabinet; those placed on a rack to be sold when cold will be exempt.
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The decision is a reversal on plans announced in the UK Budget in March to charge VAT on food that is designed to cool down, such as sausage rolls and pasties. The levy, which became commonly known as the pasty tax, was expected to come into force in October but was widely criticised in media circles and by Greggs, the UK baked goods retailer.
However, hot takeaway food sold in UK supermarkets, such as chicken from a rotisserie and hot pork joints, will still be subject to the proposed imposition of VAT.
The letter noted: “We have decided, as a result of the responses we have received over the course of the consultation, the VAT should be consistently applied to food that is kept hot or marketed as hot, but not to food left to cool naturally. This is a more practical way of achieving our original intention – fair competition and consistency – whilst addressing the practical points for business, particularly small bakers.”
A Treasury spokesperson said at the Budget it had aimed to address “anomalies that have built up in the VAT system” and had led to similar products being taxed differently.
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By GlobalDataHowever, the spokesperson added: “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.”
The VAT would have added GBP0.50 (US$0.78) to a GBP2.50 savoury food item. The Treasury had reportedly been planning to raise GBP110m from the measure, but will now only raise GBP70m, it is understood.
ShoreCap analyst Clive Black said the “change of heart” by the Government comes as a “considerable relief” to Greggs stakeholders in particular. The firm’s key savoury range, which accounts for 30-35% of its sales, will not be subject to a 20% hike in prices from the autumn.
“We have to congratulate Greggs’ management and in particular its CEO, Ken McMeikan, for the way that he has gone about challenging the surprise Budget proposals… He engaged constructively with Government and sought to improve Treasury proposals that were frankly not thought through,” Black said.
