Submission to the HMRC consultation on ‘pasty tax’ – Tim Leunig
The letter below was sent to the HMRC consultation ‘VAT: addressing borderline anomalies’ on 18 May 2012.
The current decision is to tax at the standard rate of VAT ‘all food which is at a temperature above the ambient air temperature and which is above that temperature at the time it is provided to the customer’. Greggs plc has called the tax as formulated by HMRC ‘unworkable’. Its chief executive Ken McMeikan has presented the Treasury with the company’s solution. Rather than determining VAT based on the ‘ambient temperature’, which it is argued would be too variable and confusing, Greggs instead proposes that VAT should be levied on ‘food that is being sold intentionally hot’. This would include ‘all food kept hot for sale in a heated environment after cooking, all food re-heated to order and all food supplied in heat-retaining packaging’.
At first glance this solution seems simple, but it is similarly unworkable. A VAT regime based on whether or not an item of food has been kept hot throws up a number of inconsistencies. For instance, a McDonald’s Quarter Pounder is in the ‘keep hot’ rack, so Greggs think it should have VAT levied. But if you ask for one made to order (without gherkins, say), it doesn’t go into the keep hot rack, and so according to the Greggs rule, it should be VAT free. The same is true for fish and chips – cod is usually kept hot, but haddock is made to order, one has VAT and the other does not. What counts as ‘heat-retaining packaging’ is also tricky to define, as most packaging has some heat retaining effect – even a brown bag will retain some heat.
I propose a clearer alternative: whether or not the product must of necessity be hot for sale. Those products that must be served or kept hot would fall under the standard-rate VAT, while those that may be hot when first cooked but continue to be saleable (at the same, not a reduced price) as they cool would remain at zero. Freshly baked bread as it cools remains perfectly saleable, while cold cod and McDonald’s burgers are thrown away.
CentreForum, the liberal think tank