On hearing the news that hot food from bakeries or supermarkets will lose its VAT exemption, pasty enthusiasts’ jaws collectively hit the floor. Some claimed that they could hear the death knell for Cornwall’s most beloved export ringing in the distance – but that low rumbling might just have been the sound of the Westminster establishment running to a photo opportunity outside the nearest branch of Greggs.
In last week’s Budget the Chancellor pledged to close VAT loopholes and iron out some of the tax’s most egregious complexities. Simplification is to be welcomed – but as the pasty tax demonstrates, there is a risk that what passes for simplification is in fact just an extension of a poorly designed system.
Expanding VAT on food products hits those with the least the hardest. Regressive taxes are bad for consumers and they are bad for business, particularly at a time when effective demand is so fragile.
But the pasty tax has thrown into stark relief some of the oddities associated with the VAT regime. Takeaways, for example, have welcomed the change, pointing out that there is no obvious reason why consumers should pay more for a pasty in a fish and chip shop than they do in a chain bakery. They are right - but the Chancellor’s proposals will make a bad system even worse, by turning consumers away from the High Street.
It is clear that the government needs to raise revenue, and it is just as clear that the country’s tax system needs a rethink if it is to become fair and effective. But the pasty tax is a step in the wrong direction. The government must generate the income it needs in a fair manner – not by hiking the prices of staple foods.