Greggs hails 'pasty tax' U-turn

Bakery chain Greggs is celebrating following the Government's U-turn on the unpopular "pasty tax".

Chancellor George Osborne caved in on his plans to charge the 20% rate of VAT on hot baked snacks such as pasties and pies.

The climbdown, which followed a campaign to scrap the tax that was supported by 300,000 signatures, saw Greggs shares rise 8%.

Greggs chief executive Ken McMeikan said: "This is fantastic news for the customer more than anything.

"If we had to put up prices by 20% in the current marketplace when consumers are having a very difficult time we expected there would be an impact on sales but we don't know what it would have been.

"I think the Government deserves to be applauded."

The U-turn means the 20% tax will now be charged only on cooked pies and pasties that are kept hot, but not those that are still warm after coming from the oven.

Under previous plans in the Budget, savouries were to be charged VAT until they had cooled to ambient temperature.

But the pasty industry - including Greggs - claimed the plans were unworkable and marched on Downing Street to deliver a petition.

The furore proved a major embarrassment to the Government, which faced allegations that the hike would hit the poorest hardest.

The tax as previously planned would have hit Greggs' savouries range, which accounts for about a third of its sales. Some £30 million was wiped off Greggs' share price following the Budget in March.

The wider industry warned that the tax could cost at least 2,000 jobs.

Mr McMeikan said the new rules had cleared up anomalies in the tax system and would mean bakers who kept their savoury products hot would now not be able to avoid paying VAT.

He added: "It's a much clearer, workable way forward. We are very pleased for our customers."

The Treasury also scrapped plans for 20% VAT on static caravans and will instead charge 5% from April 2013 rather than October.

Graham Stuart, Tory MP for Beverley and Holderness, said: "We are delighted. It is great news for the manufacturing industry and also for the park and coastal communities all around the country."

The U-turns on pasties and caravans, which in total will cost the Treasury some £70 million, won praise from coalition backbenchers - some of whom rebelled against the Government in the Commons - but were mocked by Labour.

Shadow Treasury minister Chris Leslie said: "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?"

A Treasury spokesman said: "The Budget announced a consultation on a change to VAT on hot takeaway food, designed to remove inconsistency and ambiguity in the system and level the playing field across the takeaway food market.

"After extensive engagement we have improved the policy, addressing practical concerns, ensuring that the new regime could be as simple as possible to apply."