George Osborne forced into pasty tax U-turn
The government’s reputation has 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”, and ministers prepared to make a series of new concessions over secrecy.
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.
Following intense lobbying by the deputy prime minister, Nick Clegg, the justice secretary, Kenneth Clarke, is to drop plans to include closed inquests with evidence heard in private in his secret courts bill due to be published on Tuesday.
Clarke admitted he was making “substantial changes” to his original green paper, while senior Liberal Democrats claimed the balance between liberty and security had been transformed.
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, a Tory MP from Cornwall who campaigned 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 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 be set at 5% for static caravans used for holiday purposes. That means an expected income of £40m falls to £10m-15m.
Labour said it showed the government was a shambles. The shadow Treasury minister, Chris Leslie, said: “I think they were forced to listen to the total bewilderment of the public who were completely astonished at these rather odd decisions. The other reason they have made this decision is the Commons is in recess, so there is no ability to challenge them in parliament.
“On the Wednesday when the Commons returns, there is scheduled to be a vote that we have put down on the caravan tax – it was a narrow majority of only 25 last time, so they were facing defeat.
“They are not U-turning out of the kindness of their hearts; it is because they are being forced to do so.
“What a chaotic way to run a country. How on earth can you have a budget process that unravels in a day when you’ve got this kind of shambolic business?”
On Twitter, the shadow chancellor, Ed Balls, said: “After tonight’s budget U-turns, we need rethink on biggest budget blunders – tax cut for millionaires and lack of jobs and growth plan.”
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.”