Controversial plans to charge VAT on Cornish pasties will not now be introduced, Chancellor George Osborne has announced.
In this year’s Budget, the government said it intended to end the VAT exemption on hot food, such as pasties and sausage rolls, and on the sale of static holiday caravans. Both these measures led to protests from MPs across the House of Commons who said it would affect jobs and hurt growth.
In a letter to the Treasury select committee, Osborne today confirmed the proposals would be altered.
Currently, VAT at 20% is not charged on most food and drink, including hot baked goods, but is payable on hot takeaway food. The proposed introduction of this rate for pasties and similar foods will not now go ahead. However, the government still intends to charge VAT on food intended to be eaten warm, for example on rotisserie chickens sold hot by supermarkets.
Osborne’s letter stated that the government had consulted on the proposed changes, which were intended to ‘address anomalies’.
As a result of the consultation ‘VAT should be consistently applied to food that is kept hot or marketed as hot, but not to food that is allowed to cool naturally’, he stated.
‘This is a more practical way of achieving our original intention… whilst addressing the practical points for businesses, particularly small bakers.’
Introducing VAT on static holiday caravans was intended to bring them into line with mobile caravans, which are already charged the tax.
However, it will now only be levied at a new 5% rate, with the tax increase delayed from October to April next year.
Osborne said that the change was ‘only ever intended to apply to the sale of residential caravans’. Following consultation, the government was now ‘satisfied that the boundary between residential and non residential caravans is not clear cut,’ he added.
The 5% rate would ‘reflect their position between permanent residencies that are not liable for VAT and other caravans which are liable for standard rate VAT’.
A Treasury spokesman added: ‘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.’
Other Budget measures announced on March 21, including the introduction of a new limit on tax relief that can be claimed from donations to charity, have also come under fire.
Labour said that the VAT change showed the Budget had been ‘a total and utter shambles’.
Shadow Chief Secretary to the Treasury Rachel Reeves said: ‘These partial u-turns show just how ill thought through the Budget was and how out of touch David Cameron and George Osborne are.’
She urged the government to rethink what she called ‘the biggest blunders in the Budget’ including the announcement that the 50p top rate of income tax would be cut to 45p from next April.
