There’s an awful lot that we, as Liberal Democrats, should be proud of in this year’s budget: the uplift in the personal allowance that takes almost 2million of the lowest earners out of income tax; the support for small businesses to help stimulate growth and create jobs; and measures to give a helping hand to aspiring home owners.
But, there’s one measure which I’ve been unable to accept. Not just because it’s politically unpopular, but also because I believe Osborne has – on this occasion – got it wrong. I’m talking, of course, about the VAT extension to hot food dubbed the ‘Pasty Tax’.
As a Cornish MP, the impact that this proposal would have on my local economy cannot be understated. There are 2,000 people employed in pasty production alone (more in the supply of ingredients or in retail positions) and the industry churns out 86 million pasties a year, adding £37.5 million to the local economy.
A 20% increase in the cost of a Cornish pasty simply couldn’t be stomached by the bakeries and would likely see 400 redundancies and losses to the economy of £7.5million.
But, as disastrous as that would be – it’s not for that reason alone that I’m opposed to the plans.
I see my role as an MP to not only congratulate the Government when it does a good job, but also to point out when they get it wrong.
David Cameron and George Osborne have compared baked goods, such as the Cornish pasty, to a fish and chip supper or a chicken korma. But they are a world apart. Those products are cooked to order to be sold and eaten while they’re still hot. Pasties, on the other hand, are baked in batches and sold at various temperatures as and when a customer enters the bakery.
The impact of the proposed change would be that a customer purchasing a pasty two minutes after being removed from the oven would be subject to VAT, whereas a customer arriving half an hour later to buy a pasty which has cooled down to the ‘ambient temperature’ would not be. Ambient temperature, in case you are wondering, is the temperature outside the shop. The two customers haven’t set out to buy a different product, they had no way of knowing what the temperature of the product would be before they arrived in the store but one would be paying VAT while the other would not.
Then there’s the great debate over what the ‘ambient temperature’ actually is. The Government defines it as the temperature outside – meaning the point at which VAT is charged would change depending on the time of the year or even on the part of the country the customer is in. Judges have, for sometime, considered this to be legislatively useless.
Even if the Government found some way of better defining the ‘ambient temperature’, I still can’t see how this policy could possibly be enforced short of there being an army of HMRC inspectors with Government-issued thermometers patrolling our bakeries.
You see, this policy is just unfair, unworkable and unenforceable. I’m not opposed to the simplification of the VAT system but any change must be based on common sense and be workable in practice.
That’s why I’ve called on the Government to make no change to VAT on hot food if no attempt is made to keep the product hot after the cooking process has ended. With this minor change, the policy would be easier to enforce (because it would be based on the way the product is treated after cooking has ended rather than on the temperature of the individual product when it is sold) and would still enable VAT on products like rotisserie chicken which are stored in heat cabinets when cooked to be purchased hot.
I’m keen to work with the Government to find a solution that is fair and enforceable and am confident that one can be found which makes sense for the Government and for the industry. Over the coming weeks, I will be seeking meetings with Ministers and Civil Servants to explain the problems with the plans as they stand and will be proposing my alternative.
This campaign isn’t about causing difficulty for the Government – a Government which I am proud to support – it’s about finding a fair and workable solution that meets the sensible aim of removing, not adding to, anomalies in our VAT system.
* Stephen Gilbert is Liberal Democrat MP for St Austell and Newquay and chairs the Regional Aviation All Party Parliamentary Group
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32 Comments
Oh give up, we don’t have enough MPs for all these little rebellions over the less important stuff. You’re making the party look ridiculous. There is massive arguments going on at the moment in government, we can’t have it look like we’re preoccupied over these gimmicky things.
The Government is quite likely going to introduce regional pay, which will badly effect your constituency. How about doing lots of lobbying and blogs on fighting against that instead? The pasty tax has happened, move on.
To be fair, for hyperbole none of our MPs have gone as far as Bill Esterson, Labour MP for Sefton Central, who described the pasty tax as ‘an attack on the working class.’ Workers of the world unite!
Here’s an even better idea. Extend 20% VAT to all food. Why should people who buy prepared food pay more tax than those who cook at home? Madness. Widen the tax base and get rid of these ridiculous hair-splitting arguments about what should and shouldn’t be assessable for VAT.
@Stephen W
With regressive taxation like that we can afford to slash the highest tax-rate even further and show exactly what sort of part y we want to be.
But there’s already one tory party, so let’s not.
@Hannah
Pretty much summed up in “2,000 people employed in pasty production alone … adding £37.5 million to the local economy … 400 redundancies and losses to the economy of £7.5million.”
Maybe a petty issue but Mr. Gilbert and our other cornish MPs might not have constituencies to represent after the next election if they do not distinguish themselves from the conservatives on this matter. A lot of small majorities down there, and even if this is a tory policy Mr. Gilbert’s opponent in the next general election won’t have been the one voting for it.
1. VAT is not regressive, it’s broadly flat. As one would expect from a flat tax.
2. As I have said before, by all means make other taxes more progressive to compensate. But that’s no excuse for inefficient and arbitrary taxation.
By why bother actually engaging with what is being said when you can just accuse people of being Tories in favour of tax cuts for millionaires.
The Caravan Tax is just as bad (we’re talking static holiday caravans – the type you tow have always been VATable).
Static caravans were free of VAT because they were classed as dwellings. Second homes – which are so harmful to locals in Cornwall and elsewhere who can’t afford to buy (or even rent) – are also dwellings and are, of course, not subject to VAT. Since static caravans are a kind of poor man’s alternative to the second home it’s no surprise that Osborne has targeted them. Another blow against UK tourism on which Cornwall and other parts of the country are so dependent.
Oh and most static caravans are UK built, many in areas like Hull where jobs are in short supply.
If pasties cool in 30 mins, all the pasty shop has to do to avoid VAT is cook the pasties 30 mins earlier and let them cool. I am sure that pasty makers will be able to work that one out, and thus save 400 jobs and £7.5m in sales.
That said, the idea that the exemption should be for food that is not kept warm, and not thrown away if cold, is workable. This would catch Sainsburys selling hot curry, but exempt pasties. At one level I am surprised that LDs in govt had not notices that West Country LibDems would be up in arms – there is some political naivety here.
Fully agree. If we had a rational rate for all food we’d get rid of the. “crisps are Vatable, Wheat Crunchies aren’t” and could have all non exempt food charged at a lower level, reserving the higher 20% rate for true luxury items and one off purchases.
The Jaffa Cake VAT appeal should have triggered this sort of rationalisation years ago
The pasty makers also have other options, adapting solutions that are will tried on other areas. One is to make pasties that are 16.7% smaller, and sell them for the same total price. Has the added bonus of being healthier! Another is tor use a greater proportion of the cheaper ingredients and sell at the same total price. A third would be to re-define the pasty to use cheaper ingredients.
@Stephen W
VAT is regressive; even the IFS’ own figures appear to show this (http://www.taxresearch.org.uk/Blog/2011/01/04/why-vat-is-regressive/). It is flat as far as discretionary expenditure is concerned, but it is certainly not flat or proportional with regards to income. Whether that is good, bad, important or irrelevant is a different issue.
“Rationalising” the VAT system was not a publicised aim (is it in the coalition agreement ?) and this measure does not do so anyway. The pasty tax is inefficient and arbitrary. It introduces unnecessary issues about ambient temperatures, leaving in place all of the anomalies while bringing its own.
Increasing the rate of VAT and extending its reach is very much a tory policy, and has been for a number of years. When the conservatives were elected in 1979 the VAT rate was 8%. By 1991 it was 17.5%. Now it is 20%. In 2010, Nick Clegg led our Lib Dem campaign against a conservative VAT bombshell. I am bitterly disappointed (and on my way out) if increasing VAT really is now Lib Dem policy, and I am very sorry if you take offence at being called a tory.
I cannot help feeling that the people predicting that 20% of jobs will be lost must be the same people who said that the hunting ban would bankrupt half of vets, two-thirds of farriers, and lead to mass killing of horses!
I eat pasties. I won’t stop because of VAT.
@Stephen W
Actually, I just realised that I never called you a tory, so I am instead sorry if you are offended by being associated wit h tory policies.
@Stephen W
While it maybe debatable if VAT overall is regressive, adding VAT to food would almost certainly be. As a percentage of income, poorer people spend much more on food, (especially for home cooking).
The impact of the proposed change would be that a customer purchasing a pasty two minutes after being removed from the oven would be subject to VAT, whereas a customer arriving half an hour later to buy a pasty which has cooled down to the ‘ambient temperature’ would not be. Ambient temperature, in case you are wondering, is the temperature outside the shop. The two customers haven’t set out to buy a different product, they had no way of knowing what the temperature of the product would be before they arrived in the store but one would be paying VAT while the other would not.
Oh, COME ON. How many people buy cold ready-cooked pasties? If I went to a shop wanting to buy a pasty and they were cold, I wouldn’t buy it. This is an attempt to get-around the rule on VAT on hot food, and Stephen YOU KNOW THAT REALLY! The pasties are cooked and stored in a way that keeps them hot with the intention that people buy them and eat them hot. If there is no intention to gain sales by serving them hot, then there is a simple solution – keep them until they are cold and them sell them. If this is not an acceptable solution, Stephen, then you are just joining ina campaign started by our political enemies.
The idea is to find some small tax change, and then make out it uis a big thing, ultimately to spread teh uidea that all tax is bad. So, Stephen, you like the idea of spreading the “all tax is bad” message? It goes along with the “all state spending is bad” message. How much state spending is there in Cornwall compared to tax raised there?
@Stephen W
VAT is regressive (albeit mildly) across all income deciles according to the strict definition (as a proportion of income) and the ONS figures.
@Matthew Huntbach
Actually, lots of people buy cold ready-cooked pasties. Shop and supermarket fridges are full of Ginster, own-brand and other pasties and pies. I guess that the distinction will now be between chilled (no VAT), hot (inc. VAT), and pasties near ambient temperature (maybe VAT, maybe not, depends how long they’re out of the oven, who cooked them, who reheated them, what the weather’s like outside, etc.). This does not sound like a rationalisation of the VAT system to me 😉
I think Stephen Gilbert has no choice other than to join in a campaign started by our enemies if he feels that to give tacit approval to the pasty tax will cost him votes and his seat. Indeed, if he were in opposition and this tax measure were introduced I would expect him to oppose it even more vociferously.
Also, we have to accept (and should have expected) that in a budget which included a high-profile and controversial reduction in the tax-rate for the highest paid, every measure which increased revenue was going to come under intense scrutiny.
Personally I think that the pasty tax is in and of itself a minor thing, but is sadly emblematic of wider issues and for me a step towards adopting a Tory approach to taxation with which I have always disagreed.
@Matthew
P.S. I don’t think it is fair to suggest Stephen Gilbert believes “all tax is bad”; falsely attributing a foolish argument to him and then dismissing it and him is exactly the sort of things our opponents do to us. Gilbert simply seems to think that the so-called Pasty Tax is poorly thought out.
Yes whack 20% on all food. That will not drive prices up even faster. It’s really fair because it effects those on average and low wages exactly the same as it does high earners, plus with our awesome booming economy and the epic esteem our politicians are held in it will be really really popular. Yes an d tax kids clothes too. The little blighters have been getting off scot free for years. Tax everything except land and income, because that discourages aspiration. Joe Public needs the stick and George Bigloot needs a reward.
An while we’re at it pay Northerners less because their hovels are cheaper and more importantly they don’t seem to vote for us.
I am a Tory, and wouldn’t care if I was called one. The point is that just implying negative motives to some decision, rather than actually discussing the issue at hand is a deliberately disruptive and irrelevant way to argue anything.
As previously said, logically all products should face the same flat consumption tax rate, to avoid distorting people’s decisions by arbitrarily raising the prices of some items but not others. Helping the poor by putting 0% VAT on some things is absurdly wasteful because most of this vast subsidy goes to the rich, who spend vastly more on food. If you want to ensure people are not being taxed into poverty do it by making sure income tax is suitably progressive, not by handing billions and billions in subsidy to the rich.
To that end this absolutely tiny increase in the range of VAT is pretty irrelevant. Except that it is a step in the right direction, and that in a time of massive state deficit widening and thus securing the tax base should always be welcomed unless there is a very good reason otherwise. In this case there is none. Just special pleading.
Stephen W the rich do not pay vastly more for food if they did local butchers in the right locality would all be multi millionaires, . If you think 20% such a great idea put it front of the electorate., see how far it gets you.
@Stephen W
I think it is a mater of fact and historical record that Tories like to increase and extend VAT, and that Tories wanted to reduce the highest tax rate. If the Lib Dems are moving into that territory then they will not be taking me with them.
“Helping the poor by putting 0% VAT on some things is absurdly wasteful because most of this vast subsidy goes to the rich, who spend vastly more on food”
I disagree that this is at all proportional. A family of four with an annual income of £10000 would struggle to keep their weekly grocery bill below £100. A single person earning £50000 would struggle to get his up to £500. The poor are unfairly and regressively taxed by imposing and increasing VAT on essentials.
“If you want to ensure people are not being taxed into poverty do it by making sure income tax is suitably progressive, not by handing billions and billions in subsidy to the rich.”
I agree. But I also believe the tax system as a whole should be progressive, and those rich enough to accumulate wealth are proportionally less affected by taxation on spending.
“As previously said, logically all products should face the same flat consumption tax rate, to avoid distorting people’s decisions by arbitrarily raising the prices of some items but not others.”
Consider some of the things that are currently zero-rated for VAT (rather than exempt), do you really want these to cost 20% more:
Charity shops – selling donated goods
Building services for disabled people
Equipment for blind or partially sighted people
Equipment for disabled people
Talking books and vision aids for blind people
Dispensing of prescriptions
Water supplied to households
Books
Children’s painting and picture books
Newspapers
Magazines
Baby wear
Children’s clothes and footwear
Peter: I’m not sure that this VAT change was driven by a desire to raise revenue to pay for other policy changes in the Budget per se. It seems the Treasury has been eyeing up this change for a while, and slipped this one past ministers.
But in any case, let’s debunk this claim that there was a link between this and paying for the cut in the 50p income tax rate to 45p. That change was costed at about £100m, while the revenue projection from the restriction of tax reliefs largely enjoyed by the rich is £500m +. Admittedly, these figures are pretty speculative, but if they are anywhere near right it suggests the cut in the 50p rate was fully offset by the changes to reliefs.
By far the biggest requirement to raise revenue arose as a result of the coalition commitment (and Lib Dem priority) to increase the income tax personal allowance, which is costed at around £3.5 billion.
The VAT changes contributed in a minor way towards the revenue needed to pay for this, and in that sense the Budget continued the trend established by the coalition (and indeed all recent governments) of cutting taxes on income while increasing taxes on expenditure. You can debate whether this is the right priority, but the juxtaposition with the 50p rate cut is more a matter of political symbolism than reality.
I agree with Stephen W and Redndead that the VAT base is riddled with anomalies and should probably be broadened alongside a reduction in other taxes and other measures that would compensate those on low incomes. Either that, or all food should be exempt; the current distinctions are indefensible.
As it happens, having exempt, zero-rated and discounted rates of VAT (with the standard rate applying to little more than half of consumer spending) is an inefficient way of helping those on low incomes, as Stephen W says and as the IFS have argued: http://www.ifs.org.uk/mirrleesreview/design/ch9.pdf.
In cash terms most of the benefits go to richer households; in absolute terms richer households spend much more on food, children’s clothing, and domestic fuel and power.
By comparison even increases in personal allowances or in flat-rate universal benefits are more targeted, because there is a uniform cash gain. Provided a good chunk of the revenue raised from a broader VAT base is used for some combination of targeted support to those on low incomes (say an increase in the personal allowance and an increase in some means-tested benefits), the change could be distributionally neutral while removing the undesirable distortion of spending choices. (People would make their decisions about how much to spend on what based on relative prices that reflect the underlying cost of the goods rather than different tax rates.)
I must admit, I am in two minds about such a change. On technocratic grounds it makes a lot of sense: the anomalies in VAT are irksome from the standpoint of efficient tax system design.
However, the old Liberal desire to ease or preferably remove taxes on food and the necessities of life still resonates; and in general I’m not keen on removing tax concessions from the poor (albeit ill-targeted ones) and compensating them through the benefit system. Raising the personal allowance in isolation would not be sufficient, since the poorest households don’t pay income tax.
Nonetheless, having variable rates of VAT is inefficient and reduces consumers’ welfare, so on balance I would probably support a reform provided it was packaged carefully along the lines that the Mirrlees review has suggested.
A shop that lets their pasties go cold? Really? Even my tiny local post office (which bakes about 6 pasties at a time) manages to keep the stock hot. And no I’m not in the southeast, I’m in a neighbouring constituency.
No doubt geography stops him from admitting that this isn’t a genuinely new tax, it’s merely the closing of a ridiculous loophole. The statute was always supposed to catch pasties and they just had an easier get-out than fish and chips.
It’s only “unfair” to close the loophole if you think that a pasty is somehow the on-the-go birthright of the working masses in some special way that a burger, hot dog, cod or meat pie isn’t.
If it’s wrong for pasties it’s wrong for chips and burgers. Enough of the ambient temperature, angels-dancing-on-the-head-of-a-pin special case nonsense.
Can we stop framing these stealthy taxes as if they only effect the poor. The reality is that people ob average incomes are struggling with rising prices , fuel duty etc. When you think about a lot of the political debate and they way it’s covered treats average incomes as if they are low incomes. Most people are earning well bellow the 40 grand mark, The average wage is, what, 25k a year, with a lot earning even below that.
Cornwall is so poor it still, after years of european investment, needs more european investment. It has been consistently failed by Westminster policy and this is just another example of this. Perhaps we could talk the EU into directly supporting the industry as it seems pretty ear to me that the westminster elite just want to come to thier seccond homes twice a year and let us rot for the rest of it. We have a pasty van that comes to my workplace every day (a rail engineering depot not quite in cornwall) and on a weekend we must eat 50 on my shift. Proper working mens food that has been eaten in much the same way for centuries. I would have to think twice if the cost was much higher.
@Alex
Thanks for your informed comments. There’s a lot to digest about designing a better tax system, but there does seem to be an acknowledgement that VAT is regressive and policies elsewhere in the tax and benefits system are required to make the overall system progressive.
The Mirrlees recommendations may be right or wrong – that’s a debate for cleverer people than me (though I am uncomfortable with the idea of a universal consumption tax on everything we pay for). However, I believe it is irrelevant with regards to the implementation of the pasty tax. Before the 2010 election we campaigned against a tory VAT bombshell and the tories denied they had any plans to increase VAT, so I have no reason to believe that subsequent changes to the VAT system are part of a well-planned radical economic philosophy (unless they all lied or have had a Damascene conversion, in which case they have no mandate for it). They appear to be tinkering around the edges rather than implementing a coherent policy and I believe that you are correct that there were a few little “fixes” that the Treasury sneaked past ministers.
So on the specifics of the pasty tax in isolation, I still disagree with it as it is a regressive change and it makes the VAT system more complex, not less.
In the budget as a whole, I am sure that we would want to point out that the benefit to the lower paid of raising the tax threshold exceeds the cost of their pasties. Unfortunately we cannot choose which measures we put together and our opponents will legitimately point to tax being raised from lower paid pasty-eaters in a budget which cuts tax-rates for high earners.
As I remember the increase in VAT from 15% to 17.5% in 1991 was part of sorting out the Poll Tax debacle. Going back to taxing householders rather than individual adults would have produced an unspinnable hike in headline council tax bills so the Tories increased VAT to ameliorate this. This increased the dependence of local authorities on Government Grant, and made them more of a target for government control. As such it was one of the biggest ANTI-localism measures ever.
Some of my family, live in the Czech Republic, when general VAT is 20% (it used to be 22%) and VAT on all food is 14%. A dozen years ago many prices in the Czech Republic were very cheap by British (and German & Austrian) standards. Not quite so cheap now, as the exchange rate movements since have devalued the Pound about 45% with respect to the Czech Crown.
Peter Watson
Actually, lots of people buy cold ready-cooked pasties. Shop and supermarket fridges are full of Ginster, own-brand and other pasties and pies.
Yes, and these are not cooked on the premises and are not subject to VAT under the clarifications made in the Budget.
My point is that I believe shops which sell pasties and similar products hot from being cooked on the premises do so with the intention that they be bought and eaten while hot. It therefore seems to me that if we are to have VAT on hot take-away food, we should have VAT on them. That is a separate issue from the issue of whether there should be VAT on hot takeaway food. It seems to me all the claims about their hotness just being incidental are just not true, it is obviously just trying to exploit a legal loophole, and I am sorry, but I don’t like to see an MP of my party engaging in such behaviour. Just because some right-wing newspaper managed to come up with this name which misleadingly suggests this was a special tax only on a product associated with Cornwall does not mean we should jump to the tune of the right-wing press and accept their nonsense. If Cornwall deserves a special subsidy, then I believe that is best done through an explicit special subsidy to Cornwall, and not by a VAT loophole which applies to many things, just one of which is a foodstuff associated with Cornwall.
The whole idea of some foods being a luxury and others not is bizarre. Food is food and should be VAT free unless you sit down at a table and someone serves it to you, then you are being ‘served’ which is easily recognised as a service, ie they are adding value to the product. To divide food in any other way is destined to create anomalies and conflict.
Paul Watson
I don’t think it is fair to suggest Stephen Gilbert believes “all tax is bad”; falsely attributing a foolish argument to him and then dismissing it and him is exactly the sort of things our opponents do to us. Gilbert simply seems to think that the so-called Pasty Tax is poorly thought out.
I’m sorry, but I disagree. I do not believe that Stephen Gilbert would be making a fuss about this if it had not been for the invention of this name. Had this tax been named the “pattie tax” and made out to be an attack on Jamaican patties (a common foodstuff where I live), Gilbert would have had nothing to say, but other people would have made similar silly claims, I can imagine there being cries about it all being driven by racism. Sorry, but I prefer my politics to be rational and I prefer it to be truthful, and I don’t like to see an MP of my party jumoing onto a whipped up bandwagon central to which involves a claim I suggest he knows is untrue – that the hotness of pasties sold newly cooked is not a prime part of their sales pitch.
I do very much see this invention of a misleading name and this whipped up and misleading populist campaign as being underneath about trying to push across the message that politicians are evil people who delight in hurting others by imposing taxes – and therefore as part of the agenda of the “low tax, low state” movement, patron saint, Ayn Rand. Those promoting this movement are NOT friends of Cornwall, a place which is suffering because of the centralisation of the economy on finanical trading and the globalisation of the economy which has so damaged peripheral parts of the country, and which relies for the quality of life of its inhabitants on being a net receiver of government funding.
If we let them get away on small things like this, it means we have lost, because they will certainly do the same with any attempt to rationalise tax and make it fairer. They will always push the sob stories of any tax losers who can attract sympathy, but the ultimate aim is to fool us into identifying and feeling sorry with the rich when they are asked to contribute their fair share towards the running of this country, even when that tax is on income made not through their work but through the suffering of others (as housing capital gains is, for example). You will never see them suggesting alternative taxes to those they decry. The reality is that if we want state services, we must have taxation. So those who join in the anti-tax bandwagon, as Stephen Gilbert is doing here, ought at least to be honest and not complain about any cuts to state services.
There is no way to distinguish what food is essential, what is being bought as a gift (i.e. in competition with non-food items), what is being bought to overeat, to give to the dog etc. etc. – because it is the same products being bought by different people
The best would be to put full-rate VAT on it all, and use the new prices to recalculate cost of living to adjust minimum wage, tax allowances and benefits.