Industry celebrates over government's tax U-turn

"This is a great day for bakers, no matter how large or small," Ken McMeikan, chief executive of Greggs told British Baker, following the government's U-turn on pasty tax. The move, which would have seen 20% VAT slapped on all hot bakery products, prompted a nationwide campaign by bakers for the government to rethink its proposals. This included a rally of more than 500 bakers at Downing Street to deliver a petition with more than half a million signa-tures to the government.

In the two months since the proposals were revealed in Chancellor George Osborne's Budget speech, the government has increasingly come under fire from the baking industry, the media and a whole host of MPs. However, 10 days after the extended consultation date had passed, the government made a decision, and it had listened to the bakers, amending the definition of what it deemed a "hot" product to be.

A spokesperson for the Treasury confirmed that products, which, after baking, were placed on normal shelving and were not kept hot by any means, or marketed as hot (see table below), would not be subject to VAT.

The news made the headlines of national newspapers on 29 May, including The Sun's "Pasty la vista, tax man", The Guardian's "Cold comfort in Osborne's pasty tax climbdown" and "Osborne blows hot and cold on 'pasty' tax", which featured in The Times.

"There are not many days when you get a government decision of this magnitude, and one that you believe to be absolutely right for the industry," said McMeikan. "I cannot tell you how pleased I am for the whole baking industry.

McMeikan added that one of the things he said to everyone at Greggs was that, as the largest bakery retailer, it had a disproportionate responsibility to represent the views of the wider baking industry and try to prevent small bakery firms and shops closing.

He applauded the government for listening to the views of the baking industry and its alternative proposals, and for keeping its word about there being a consultation period. "I'm delighted to say that they've come back with what we thought was the right way forward, and they do deserve credit for that."

Gill Brooks-Lonican, chief executive of the National Association of Master Bakers (NAMB), said she was absolutely ecstatic. "Stephen Gilbert, (Liberal Democrat MP of St Austell and Newquay) phoned us to tell us the news. It's been non-stop here. Members have been ringing and telling us that they had given their support, but never quite believed that it might happen."

Brooks-Lonican puts the government's change of mind down to a combination of factors, including the work of Stephen Gilbert, the press and the likes of Greggs, not to mention the fact that the industry had a well-reasoned argument, and alternative proposals.

She added: "The NAMB contacted no end of bakers to gain statistics, such as just how many staff might have to be laid off as a result of the tax, and worked out how much the government would have to pay all these people if they went on the dole. The proposals were unworkable, and the government actually listened. It's a brilliant result for us."

Labour, however, has described the U-turn in a less positive manner. Rachel Reeves MP, Labour's shadow chief secretary to the Treasury, said: "George Osborne's Budget has been a total and utter shambles. This U-turn, just a few weeks after ministers were defending the pasty tax, shows just how ill-thought-through the Budget was and how out of touch David Cameron and George Osborne are."

Despite the general view that the government's decision has been a success, not all bakers view the campaign as such. One baker told British Baker that "in essence this still remains a disaster for the vast majority of the industry". While he admitted that it served the interests of the likes of Greggs, he said: "Smaller businesses will not be able to increase prices to cover the 20% VAT, nor will they be able to afford the replacement of heated cabinets with glass ones, let alone shift the volumes required to maintain a warm product."

Liberal Democrat MP Stephen Gilbert (St Austell and Newquay), who campaigned in favour of UK bakers, appeared on BBC Radio 5 Live's Breakfast show and told presenter Nicky Campbell: "The government has ditched what was going to be an unfair and unworkable tax on millions of people's everyday lunch and, in its place, we have a simpler solution that will protect jobs and high street bakeries and will be enforcable by HMRC."

Meanwhile, Conservative MP George Eustice of the Camborne, Redruth and Hayle constituency, said: "There will always be borderline areas in the law and the way it is set out. What we have now is something far clearer than before, and far clearer than in the government's proposal in the Budget. What the government has done is launch a genuine consultation alongside this announcement."

l For more reaction from the industry, see page 6.

Reactions from

the industry

Mike Holling, chairman of the

National Association of Master Bakers:

"The government has made a common-sense decision as the suggested proposal was an unworkable solution from the very beginning. We want to thank British Baker, high street bakers and everyone for their support. The fight is not over, but the government has listened and come to the decision to change their proposals for the better. It is a victory for the UK craft baking industry."

Stephen Gilbert, Liberal Democrat

MP for St Austell & Newquay:

"The strength of feeling from local people and the national baking industry has been clear since these proposals were announced. Since the Budget, I have worked with the industry to find an alternative. This alternative, which I proposed in meetings with the Minister and through parliamentary debates, is a workable solution that creates a level playing field with other sorts of hot food and won't endanger jobs, investment or growth."

Mark Muncey, chair of the

Cornish Pasty Association:

"We are very pleased that the government, after consultation, has reversed the legislation to some extent. This is fantastic news for our members and alleviates concerns over the implementation of the tax in October."

Ray Grace, proprietor of one-shop

Market Square Bakery in North Higham

Ferrers, Northants:

"We bake, cool, chill and then re-heat in a microwave so it won't affect us. We have always charged VAT. But the government has done well to consult and listen. I'm pretty sure some bake-off operators don't pay VAT. Now it is clear and everyone knows the situation."

Clive Williams, past president (2010/2011), National Association of Master Bakers:

"It was a tax on the working person so this is really good news. I am proud of the NAMB and am grateful to all customers who signed up to the campaign and I am very proud of the baking industry, which has pulled together as one on this. It would have been a nightmare to operate with shop staff having to guess when 'ambient' temperature was reached. And our customers would have been penalised for buying a fresh product instead of going down the road to a chiller cabinet at a garage."

John Waterfield, managing

director of Waterfields Bakery in Leigh,

Lancs:

"It's good news because the interpretation was unworkable both from an 'ambient temperature' and 'practice' point of view. Like many bakers we have been using conditioning cabinets. Now we have to decide, do we sell hot savouries from the oven baking steadily throughout the day, attracting no VAT? Or keep them hot once baked, attracting VAT? At least this decision has taken away all ambiguity."

Alan Clarke, chief executive of

Scottish Bakers:

"Bakery products contribute £594.7m to the Scottish economy and the proposed legislation was flawed by proposing to tax bakery products sold over ambient temperature. Ambient temperature changes with each season and this would have just led to confusion among customers, bakers and the tax collectors."


The New VAT rules

l If a product is kept hot once it comes out of the oven ie placed on a hot plate, in a hot cabinet, or in heat-retaining packaging, then it will be subject to VAT
l If the product is placed on normal shelving after it comes out of the oven, and no attempt is made to keep it hot, then it will not be subject to VAT
l If the product is marketed as hot ie there is a sign saying hot pies then the intention is there to sell the product as hot, so it will be subject to VAT


TWITTER REACTIONS TO PASTY TAX U-TURN

John Mann MP @JohnMannMP
Now we've had the U-turn on #PastyTax Osborne's got to go to Greggs and have a pasty.

Satterthwaites @Satterthwaites
@GeorgiBBmag Under present rules, goods baked in the shop and placed on a hotplate are VAT-free. Not sure if that will still be the case :-(

Gillian Bradley @BradleysBakery
@BritishBaker Great news one headache less in the day-to-day running of a small business (-:

CakeyPigg Originals@CakeyPigg
@BritishBaker Yay for partial victory. Expect a lot of 'lukewarm' pasties to be around from now on.
Andrew Neil @afneil
I recently told owner of #greggs there was no chance of pasty U-turn. That'll teach me to believe the Treasury.

Cornish Pasty Assoc @Cornishpasties1
Delight at Treasury's £40m pasty tax U-turn

Campbell's Bakery @ScottishBaker
@BritishBaker I use a heated display for hot savouries, same as all bakers I assume but have paid VAT forever!

Malcolm Johnstone @greyrigg
@BritishBaker @wrbm Common sense prevails, rare with this government but welcome nonetheless. #pastytax


'PASTYGATE' TIMELINE

21 March Budget announced by George Osborne highlighted plans to enforce a 20% VAT on hot takeaway products, due to take effect in October. Greggs' share value dropped £20m.
26 March BB's 'Say NO to the 20% Pie Tax' campaign launched in collaboration with the National Association of Master Bakers (NAMB).
27 March George Osborne questioned by Labour MP John Mann in front of the Treasury Select Committee on his last Greggs pasty purchase.
28 March David Cameron blundered over his most recent pasty purchase from the West Cornwall Pasty Co in Leeds station, despite the firm not operating an outlet in the location over the past five years. Ed Miliband and Labour party members purchased eight sausage rolls from Greggs.
30 March BB and the NAMB's joint e-petition received more than 500 signatures.
2 April The Sun's 'Save Our Savouries' petition reached the 100,000 signatures milestone.
19 April Liberal Democrat MP Stephen Gilbert's tabled amendment in parliament was narrowly defeated by 35 votes.
26 April More than 500 bakers attended a demonstration, handing over half a million signatures to No 10 Downing Street. McMeikan said: "We come here today with peaceful intentions but resolute determination to fight to the bitter end."
17 May Bakery industry representatives met with HMRC to discuss a workable solution. Treasury indicated a final announcement would be made during the summer.
18 May The 'pasty tax' consultation period closed, extended from the initial deadline date of 4 May.
23 May MPs questioned the tax in parliament and Labour's John Mann claimed the proposals had been put forward by an "out of touch, anti-English, inept on detail Treasury and government".
28 May The government performed a U-turn, revising the plans on 20% VAT.

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