Hot Takeaway Food (VAT)

Simon Danczuk Excerpts

Wednesday 23rd May 2012 Westminster Hall

[Simon Danczuk (Rochdale) (Lab)]

May I say “Well done” to the hon. Member for St Austell and Newquay (Stephen Gilbert), who I will call my hon. Friend, for securing this important debate? He has made an exceptionally intelligent contribution to a significant discussion.

I will speak only for a couple of minutes, but I want to register my concerns about the tax under discussion, and touch on the impact that it will have on the high street and hard-working families. As my hon. Friend the Member for North Tyneside (Mrs Glindon) pointed out, it is possible that 300 shops will close as a result of this proposal. The current rate of retail vacancies in shops across our high streets stands at around 14%, and I cannot help thinking that this proposal will have a further impact.

As has been said, we want more bakeries and a diverse range of shops across the high street, yet this proposal puts at risk retailers such as Greggs and Greenhalgh’s in my constituency, as well as independent shops such as Wells bakery on Oldham road in Rochdale, which is a fantastic bakery that makes the best meat and potato pie that people can get their hands on. We want a retail mix and vibrancy, but this proposal creates a real problem and puts a burden on those businesses. It comes on top of the 5.6% increase in business rates—the largest increase in 20 years—that retailers and other businesses have experienced since it was brought in last September and applied this financial year, and we are adding further taxes to that.

In the context of diversity, one point that has not yet been raised is the impact of this tax on other segments of the retail mix, in particular Asian sweet centres. A number of such places in my constituency, particularly on Milkstone road, sell not only Asian sweets but samosas and pakoras. Will the Minister say whether this tax burden will also apply to those products? I have no doubt that my constituents will be interested to hear whether this is also a samosa tax, as well as a pasty tax.

Finally, let me look at the impact of this tax on hard-working families, because I get the impression that the Government do not understand ordinary working people’s lives. Yesterday, the Deputy Prime Minister spoke about snobbery in education, but I believe that snobbery is also attached to pies, pasties and samosas.

Members might be aware of a lady from Rochdale called Gillian Duffy who challenged my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown) during the last general election. Gillian is a very good friend of mine, she occasionally bakes me a cheese and onion pie, which I enjoy. For some unknown reason, The Guardian newspaper got hold of that information and ran a story about it, ridiculing me for eating Gillian Duffy’s cheese and onion pies, as though that was in some way inappropriate. People are snobbish about the fact that people, perhaps in northern towns or in Cornwall, like and enjoy pies and pasties.

[John Mann]

They are all sushi eaters.

[Simon Danczuk]

That’s right; absolutely. In reality, pies, pasties and samosas are part of the staple diet of ordinary people, and we should not forget that. The Government are placing an additional burden on hard-working families. People in Rochdale I speak to think that this tax is absolutely absurd. They laugh at the Government and find it peculiar that such a tax would be applied. It feeds the public perception that the Government just do not get it and are on a different planet, and I urge them to drop these proposals.

--- Later in debate ---

[Mr Gauke]

I am grateful for that intervention. There is a carve-out in this measure that relates to bread. My hon. Friend refers to pretzels made from a dough mixture. HMRC will provide guidance on the definition of bread, so that matter will be covered once final decisions have been made.

Before I turn to some of the arguments against the proposal, I should like to step back and remind hon. Members of why we have proposed this change. As I announced to the House on 18 April, we extended the consultation period until last Friday in the light of the responses received and I have, of course, been listening to the contributions to this debate and will ensure that they are taken into account in the Chancellor’s decisions.

Ensuring that VAT will apply to the sale of all hot food—to the extent that it does not already do so—is one of a series of VAT measures announced in the Budget designed to make the VAT system fairer to all traders, and to make it easier to administer and comply with.

The current rules on the VATability of hot takeaway food have been made particularly complex and unfair by a patchwork of different legal decisions over the decades, as my hon. Friend the Member for St Austell and Newquay pointed out. VAT has always applied to food consumed on the supplier’s premises, notably in restaurants and cafes, and was extended to hot takeaway food in 1984. The definition of hot takeaway food in the 1984 legislation is that the food

“has been heated for the purposes of enabling it to be consumed at a temperature above ambient air temperature”

and that it

“is above that temperature at the time it is provided to the customer.”

There have been repeated efforts since the 1980s to chip away at this boundary. A number of businesses have argued in litigation that, although the food they provide to their customers is hot and is taken away, it should not be taxed as “hot takeaway food”, but it should instead be zero rated.

Some have argued that, in heating the food, their intention was not to provide their customers with food to be eaten hot, but to follow rules of hygiene, to finish the cooking process, to provide evidence of freshness, to create an aroma, or to improve appearance, crispiness or texture of the product. Such arguments have not always been successful, but where they have been, they have allowed some businesses to secure VAT-free treatment for a range of hot food products such as hot rotisserie chickens, meat pies, pasties and panini. However, other businesses have continued to apply VAT to the similar hot food products that they sell. They have accepted, or the courts have ruled, that their intention is to heat their food products so that their customer can eat them hot. Under the current rules, the VAT rate applied to hot takeaway food depends on the particular supplier’s purpose in heating the food.

In reference to a point made by my hon. Friend the Member for Montgomeryshire (Glyn Davies), a small independent fish and chip shop will have to charge 20% VAT on its hot chicken, but a major supermarket will argue that its rotisserie chickens are zero rated. One baker who keeps his sausage rolls in a hot cabinet to provide his customers with a hot snack will charge tax, but the baker next door who also keeps them hot and argues that this is to maintain an appealing aroma will claim that they are zero rated.

The current situation is unfair, and it is right that we seek to change it. There was some agreement on that point from at least some hon. Members. That is why we are introducing new rules to ensure a level playing field. We have proposed the removal of the subjective element of the zero-rate definition, which has led to these anomalies, to provide more consistency in the taxation of hot food. As I mentioned earlier, we are adding a simple carve-out that bread, irrespective of its temperature, will not be liable.

[Simon Danczuk]

rose—

[Mr Gauke]

I will give way, but I am keen to proceed quickly.

[Simon Danczuk]

Will the Minister address the point that I made about the samosa tax issue?

[Mr Gauke]

On that point, our proposal is that if food is sold at above ambient temperature, it is standard-rated, which is the same as takeaway food from Indian restaurants.

We have heard a number of arguments about why businesses will find it difficult to apply the test on ambient temperature. The test to determine whether takeaway food is hot is not new; it has been in place since 1984. However, I accept that, in many cases, suppliers do not need to ask themselves that question because they accept that their takeaway food is meant to be eaten hot and thus they pay tax even if, on a handful of occasions, the food may not actually be hot. They may make use of one of the other arguments about the purpose of the heating, and thus do not pay tax, even if the food is hot. However, the test is reasonably straightforward and will be policed in a pragmatic way.

Some hot food will have been kept hot or provided straight from the oven and will obviously be standard-rated under our proposals. In most other cases, people know when something is hotter than the air around it. A leading high street bakery chain, which has campaigned against these changes, said on its own website that customers who want a hot sausage roll should test whether the sausage roll is hot enough by feeling the temperature through the bag.

It is important to inject some common sense into this potentially trivial debate about food that at one moment is hot and at another is at ambient air temperature. We are not expecting staff to take detailed temperature readings every time they sell a pasty. HMRC will take a pragmatic approach and provide businesses with guidance, taking into account businesses’ responses on how to implement the change.