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Osborne in U-Turn on Hot Pasty Tax

George Parker, Financial Times

George Osborne’s political roasting over hot pies intensified on Monday after the chancellor was forced into a £40m retreat on his proposed “pasty tax”, as the Budget showed new signs of unraveling.

Chancellor of the Exchequer George Osborne holds Disraeli's original budget box as he leaves 11 Downing Street for Parliament.
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In another concession to the pleasures of middle Britain, Mr. Osborne also backed down from his plans to levy VAT on static holiday caravans in a move that will cost the Treasury a further £30m.

Rachel Reeves, Labour’s shadow chief secretary to the Treasury, said the concessions were further evidence that the March Budget had been “a total and utter shambles”.

The Treasury has been pinned down over the so-called “granny tax”, been forced to cut the cost of new VAT rules for restoring ancient churches, and faced a backlash over new rules on big charitable donations.

Although his decision to cut the top rate of tax from 50p to 45p may come to be seen as the most politically significant, the chancellor’s proposed tax on hot takeaway pies attracted the most vivid headlines.

Mr. Osborne, who admitted he could not recall eating a Greggs pasty, has concluded after a consultation that new VAT rules for hot pies were too complex and imposed a high burden on business.

In order to differentiate between hot and cold food, the Treasury initially proposed that only food sold above “ambient temperature” should be taxable, leading to the possibility that the weather could determine whether a pie was VAT-rated or not.

Under the new rules – confirmed in a letter to the Commons treasury committee – VAT will only be charged on hot pies stored in a hot cabinet; those placed on a rack to be sold when cold will be exempt.

The Treasury says most Greggs pasties fall into the cold-rack category. It now estimates the plan will raise £70m in extra VAT, against £110m under the original plan.

Separately Mr. Osborne has agreed that static caravans used for holidays will be charged at 5 per cent, compared with the 20 per cent originally mooted.

The addition of this apparent new complexity into the tax system is explained as a “step” between zero-rated static caravans used for homes and the 20 per cent charged for mobile holiday caravans.