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Hot Takeaway Food (VAT)

Volume 545: debated on Wednesday 23 May 2012

Motion made, and Question proposed, That the sitting be now adjourned.—(Jeremy Wright.)

It is a pleasure to serve under your chairmanship again, Mr Scott, and to welcome so many hon. Members. I place on the record my personal thanks to Mr Speaker for allowing the debate, which was originally slated for the day of Prorogation and so fell from the order of business. I am grateful to Mr Speaker for allowing it to take place today instead.

There is much to welcome in the Budget announced by my right hon. Friend the Chancellor, particularly the lifting of more than 2 million of the lowest paid out of paying income tax and the additional tax burden placed on those fortunate enough to be among the wealthiest in our society. However, I would not be doing my job as a Member of Parliament if I welcomed only the good news from the coalition Government and turned a blind eye to Government proposals that had a significant negative impact on my constituents and the country. The proposals for the extension of VAT to hot food, and in particular how they relate to baked goods, fall into that category.

I am, however, grateful to the Minister and to other colleagues in Government for the constructive way in which they have handled this issue and the concerns raised by me, my hon. Friends and the industry. I found them willing to listen and receptive to alternative solutions. It is surely in the best tradition of Government to recognise that none of us has a monopoly on wisdom. Their constructive engagement with me and others has been welcome.

I support the overall aims of the Government. It is right to seek to simplify the application of VAT rules on hot food, to close anomalies that have been exploited by supermarkets and others and raise revenue from those flouting the rules, to help tackle the national deficit and create a level playing field as between bakeries and other sellers of hot food, such as fish and chips. However, we have to do so in a way that actually creates simplicity, is enforceable by Her Majesty’s Revenue and Customs, is deliverable by businesses across the country, and, crucially, is understandable for consumers. The effect of the Government’s current proposals on the baking industry fall short in all four of those tests.

I would like to set out the practical problems and concerns with the Government’s proposals, and the likely economic impact on the baking sector if the proposals are not altered, and then present an alternative way forward that I hope will achieve the Government’s aims without any negative impact. I am not proposing, however tempting it is, to stand here and argue for an exemption for the Cornish pasty or the baking industry. I want to set out a framework that delivers the Government’s intention of consistency and simplicity.

I am delighted to have the support of my hon. Friends the Members for St Ives (Andrew George), for North Cornwall (Dan Rogerson), for Truro and Falmouth (Sarah Newton), for South East Cornwall (Sheryll Murray), and for Camborne and Redruth (George Eustice), and that of many other hon. Members from across the House and the country, including an alliance, however unlikely, with Devon.

It is understandable that the Government should seek to move away from the current situation in respect of VAT on hot food, where the basis of the test rests on the intention of the supplier. That is subjective, and has led to considerable inconsistency of application. In recent years, a plethora of case law tribunals have established significant anomalies—for example, two hours for zero-rated food, a position exploited by supermarkets in particular.

In place of that subjective and contestable test of intention, the Government’s proposals attempt to move towards a more precise test that centres on ambient air temperature, but that simply replaces one set of anomalies with another when it comes to baked products—pasties, sausage rolls, meat and potato pies and all the other savoury staples in our high street. There is little doubt that the ambient air temperature test will become the subject of significant dispute between bakeries and HMRC, with the potential for litigation. Why is that? The ambient air temperature is constantly changing. As the temperature of a naturally cooling baked product is also constantly changing, it raises the possibility of a pasty or pie at the same temperature being subject to different VAT rules in different parts of the country at the same moment. That is clearly a nonsensical position that will cause considerable difficulties in establishing a consistent ambient air temperature for every bakery in the country, a duty unlikely to be welcomed by HMRC. It will place an additional difficulty for the businesses concerned in deciding when to charge the customer VAT.

The proposed changes would be open to challenge in terms of legal certainty, and could tie up the industry and the Government in the courts for some time. The changes are contrary to the stated intention of the consultation—to simplify current rules and reduce uncertainty and costs for both businesses and HMRC. The ambient air temperature has already been found wanting by the courts. In the Court of Appeal, during the Pimblett case in 1988, Lord Justice Parker said:

“The test is a precise one. It involves a remarkable result that frozen food would be regarded as hot if the ambient temperature was one degree lower than freezing. A praiseworthy attempt to produce precision does not, in this instance, appear to me to have advanced clarity one whit”.

To an extent, that view seems to be shared by colleagues in the Treasury. In my discussions with them, it seems that the Government’s intention is not even to enforce the letter of the proposed rules, but to make a number of assumptions based on the quantity of each bakery’s products that should be standard-rated. That is untenable.

Any apportionment scheme cannot override the basic rules on supply, consideration and liability. That is even recognised in HMRC’s guidance. Any agreement based on the temperature of cooling products will be impossible, given the size and variation in bakeries and the fact that a reference point for ambient air temperature cannot be established.

There are a number of other practical difficulties for businesses. When do they issue a VAT receipt if requested to do so by customers? They will have to re-write till software systems and determine the price on which VAT would be charged, all set against the unworkable backdrop of legislation that will be prone to confusion and challenge.

Another issue relates to products sold on a seasonal basis—perhaps we can add mince pies to the list. At what point would HMRC agree with bakeries on the apportionment scheme for seasonal products such as mince pies? I doubt whether that would be able to be done in a timely way, and it shows that the Government’s tests are unworkable. If agreement on an apportionment scheme cannot be reached, the industry will have to fall back on legislation, which would be problematic at the very least.

The Government’s current proposals are unenforceable by HMRC and undeliverable by the industry. They will be confusing to customers and open to challenge in the courts.

My hon. Friend has ably demolished the Government’s primary claim that the measure is a means by which they can resolve an anomaly. The Treasury knows that wherever a line is drawn, even a new line, a new anomaly is created. Does my hon. Friend agree that under all Governments the Treasury tends to use sophistry when arguing that it is resolving an anomaly and that that is simply a way of increasing tax income?

My hon. Friend puts his finger on the Treasury’s intention, but I will demonstrate that the negative effects of the measure make it unlikely that any net additional revenue would be raised, when the damage to jobs, business rates and so on is taken on board. He is right to say that the Government expect to raise money from this measure—their impact assessment suggested that £50 million would be raised in the first year, rising to £120 million annually in subsequent years—but at what cost would that be to the baking industry in particular? I am afraid that it will cost jobs and investment in an industry that we want to see more of, not less, on our high streets.

My hon. Friend is making a powerful argument. Surely there has been unfairness in the takeaway industry, with the fish and chip shop up against the supermarket selling hot chickens, as he has already mentioned. There has to be a clear definition of what constitutes takeaway food, because that is lacking at the moment.

I share my hon. Friend’s concern. There needs to be a level playing field. I shall say how I seek to achieve that for the Government, but with a simpler test. He is right to say that there is confusion between different takeaway outlets and types of takeaway food. That is also reflected in planning law, in which takeaways selling fish and chips are in a different category from bakeries.

It has been estimated that some 2,000 jobs throughout the UK are at risk and 300 bakeries on our high streets are at risk of closure. With the impact of the ongoing recession and the significant supply side inflation of recent years, the baking industry is unable to absorb the imposition of the standard rate of VAT, and price increases are inevitable. Research from YouGov shows clearly that this proposal is unpopular with the public—69% of people have said that they do not support it—and that is also demonstrated in a petition signed by more than 50,000 people, which hon. Friends and I gave recently to Downing street. That research also suggests that the measure will change people’s behaviour, with up to one in three people saying that they will stop buying baked savouries. Consumers being able easily to swap to cheaper zero-rated alternatives will impact on the entire supply chain, but with no net additional receipts to the Exchequer.

As I said, the National Association of Master Bakers estimates that some 2,000 jobs will be lost nationally, many hundreds in Cornwall. Bakeries will close on our high streets, creating more empty units at a time when, through the Portas review and other measures, the Government are seeking to boost the high street. The overall economic costs created will undermine any additional tax from the baking industry.

Cornwall Food and Drink estimates that at least 100 businesses in Cornwall contribute to the production of more than 170 million Cornish pasties each year. The total turnover of the industry is thought to be more than £280 million, double the estimates of 2005. It is a growing industry. At least 25% of the turnover is spent in the local economy; the industry is thought to be worth £72 million indirectly, with £15 million going to Cornish farmers.

Pasty production produces other socio-economic benefits as well as purely economic ones—supporting village shops in rural communities, for example. It is a vital part of the Cornish economy, which still languishes on European aid.

In 2011, the university of Exeter showed that keeping retail prices down while suffering strong increases in input costs, particularly fuel and other costs, would seriously affect margins in the Cornish food and drink sector. The industry is clear that it cannot afford to absorb the potential increase in VAT, which will be passed to consumers.

What does that mean for my constituents? The impact will be devastating. The producers, retailers and suppliers will lose more than £100 million a year, an estimated 1,100 jobs will be lost and scores of high street bakeries will close. These proposals come at a time when retailers, including food-to-go shops, have already been hit by an additional £350 million business rate bill this year and when the sector overall already contributes £5 billion a year in VAT—some 9% of the total VAT take—despite accounting for only 5% of gross domestic product. The British Retail Consortium tells us that consumer spending is falling and household incomes are shrinking.

Sadly, there is no evidence that HMRC has considered the impact on the cost of welfare payments resulting from job losses, the reduced amount of corporation tax that the Revenue will receive, the loss of income tax and national insurance revenue as a consequence of the bakery industry’s contracting, and the high street supply chain’s being hit, including the loss of business rate revenue to local authorities.

There is also the socio-economic consideration, pointed out by the Association of Convenience Stores, among others. This change will hit the least well off the most. The poorest households spend almost one fifth of their net household incomes on VAT, but the richest spend only 9%. The measure will compound that, hitting the lunch of hundreds of thousands of people throughout the country.

What is the alternative? The Cornish Pasty Association, the National Association of Master Bakers, Greggs, the West Cornwall Pasty Company and others have suggested in their responses to the Government’s consultation that we need to return to the original intention. VAT was first extended to hot takeaway food in 1984 by the then Chancellor of the Exchequer, Nigel Lawson, who said in his Budget speech:

“Most food is zero rated, but food served in restaurants is taxed, together with a miscellaneous range of items including ice cream, confectionery…Takeaway food clearly competes with other forms of catering, and I therefore intend to bring into tax hot take-away food and drinks”.—[Official Report, 13 March 1984; Vol. 56, c. 303.]

That relates to the point that my hon. Friend the Member for York Outer (Julian Sturdy) ably made about the need for a level playing field.

The then Chancellor elaborated that statement in a written response to the former Member of Parliament for Leeds South, Merlyn Rees:

“The VAT extension to hot take-away food which I announced in the Budget applies to food and drink which has been deliberately heated so that it can be consumed whilst still hot. It does not apply to food and drink which has cooled to room temperature by the time it is sold, or to things like pies and pasties which are sold warm because they happen to be freshly baked, and not to enable them to be consumed while still hot.”

I could not have put it better myself. That is the fundamental difference between a meal cooked to order in a fish and chip shop—or a curry or a pizza—and a baked product, which is simply hot as a result of its production, but cools naturally over time. The former Chancellor recognised that baked products are hot or warm by virtue of being baked, not because they are made to order and hot for consumption in the same way as curry or fish and chips are. His position has not been challenged by subsequent Governments and it is my view, and that of my hon. Friends, that it should be upheld while we seek to clarify the additional anomalies that have arisen since 1984.

To put it crudely, we can hit the £280 million rotisserie chicken business and provide the level playing field with fish and chips, but we must maintain the additional principle of food being hot at the time it is provided to the customer, recognising the differences that the former Chancellor recognised many years ago. The additional principle should be that baked goods are zero-rated, except where they are kept hot for consumption.

In short, we seek to amend the Government’s proposals to include the provision that VAT on baked goods should be charged only if they are kept in heated cabinets or if other paraphernalia are used to keep them hot for sale, in the same way that battered fish and chips are kept hot for sale in a cabinet in fish and chip shops. That would not interfere with the Government’s proposals to charge VAT on hot food cooked to order and provided hot to the customer for consumption.

I am sure that the Minister will want to consult Treasury counsel on the exact wording of any change and that he has a mountain of responses from the consultation to wade through. However, my view is held not only by me, but my hon. Friends and the industry. In practice, our suggestion would mean that a pasty sold in a fish and chip shop that is currently standard-rated, because it is kept hot for sale alongside some pre-cooked fish or a battered sausage, would be on the level playing field sought by the Minister and my right hon. Friend the Prime Minister.

The alternative would mean that any pasty kept hot for sale in a bakery would also be standard-rated, achieving the level playing field that the Government want in a way that is enforceable by HMRC. By closing the loopholes exploited by the supermarkets, the measure would raise at least £56 million per annum, which is equivalent to the vast bulk of the Government’s expected revenue from the changes.

The alternative provides a simple test for business: VAT on baked goods that are kept hot artificially, and no VAT on those that are hot simply as a result of their cooling process. It avoids the legal uncertainty and likely challenge to HMRC, it delivers to the customer a clear and understandable difference in pricing—VAT on a product that is kept hot, no VAT for a product that is not—it allows flexibility for businesses to adapt their models accordingly and, crucially, industry suggests, it would have none of the damaging effects that I outlined earlier.

My view and that of my hon. Friends is that the Government’s proposals are unenforceable, are undeliverable by business, replace one set of anomalies with another, are likely to be heavily contested and will do significant damage to the Cornish economy and to high streets throughout the country. By contrast, the alternative proposal put forward by me and my hon. Friends is clear and consistent, is enforceable by the Revenue, closes the loopholes exploited by the supermarkets—therefore raising the vast bulk of the revenue that the Treasury wishes to obtain—and creates the level playing field with the fish and chip shops that my right hon. Friend the Prime Minister rightly demands. It is deliverable and would be publicly welcomed by the baking industry. I hope that the Minister will say in his remarks that he is actively considering our alternative as the consultation proceeds.

Order. Before I call the next speaker, let me say that the wind-ups will start at 10.40 am at the latest. I call John Mann.

Thank you, Mr Scott, it is an honour to serve under your chairmanship for the first time. I congratulate the hon. Member for St Austell and Newquay (Stephen Gilbert) on securing the debate and on his accurate description of the problem that the Government have got him into. I appreciate his panic, because with this betrayal of Cornwall one almost expects Mr Sacha Baron Cohen to appear at the door.

For 100 years, the Liberals have been out of power, then the first time that they can get into a real argument and debate it is on the destruction of the core Cornish industry. One could not make that up. Of course we know why it has happened. When I asked my innocent question of the Chancellor in the Treasury Committee, he was somewhat stumped by the fact that there might be a problem. The reason he was stumped is that he is not a man who pays any attention to detail—that has been proven time and time again. Ask him a factual question, he gives a vague answer. That is a problem for someone who is the Chancellor of the Exchequer meddling with detail. There is good reason why no Chancellor has meddled with such details since 1984—because the detail is so complex that whatever rules they come up with, it is possible to find a way round them. I shall explain some likely scenarios in a minute.

What has been the Government’s stock response, fed to their loyal Back Benchers over the past month or so? Fish and chips. Yet, coming from the country’s heartland of fish and chips, I do not recall anyone in my lifetime who eats fish and chips cold. Unless the Government surreptitiously intend to continue to spread VAT to include cold foods, in which case the nation would like to be informed of the plan, they need to reverse the absurd decision that was made.

Let me give some examples, because it is not only Cornwall that has been betrayed—England has been betrayed. I mentioned Bakewell pudding in the Finance Bill Committee yesterday, and Ministers started muttering about almonds. Attention to detail is everything for Treasury Ministers. When I talk about the Bakewell pudding, I am not talking of a processed derivative created by a Mr Kipling, sold in supermarkets with almonds on top and bearing no comparison to the traditional English Bakewell pudding. The Bakewell tart is an entirely different product and, because it is cold, is zero-rated. No, I am talking about the Bakewell pudding, the quintessential English product made as it has been for many centuries, using traditional methods, of which Prince Charles and many others, myself included, would wholly approve—doing things in the traditional way, passing on the skills needed to create the product. Now, solely because Bakewell pudding is made in the traditional way, it will be taxed at 20%. If the manufacturers of the Bakewell pudding were to use processed ingredients, they would be able to concoct a product—vastly inferior, but in some way with the same name; as I pointed out, a major manufacturer has already done so—which would be zero-rated, but we lose the English tradition, we lose the real food. There are other such examples.

By definition, the businesses involved are small businesses. Those traditions, kept in the traditional way, cannot be transported into some mass-produced product sold in supermarkets throughout the country and the world. That is the point and that is what we will lose if those traditional producers are disadvantaged by being charged 20% VAT under this cack-handed measure.

Let me give another example. There has been a rush to eat pasties among senior politicians, including the Chancellor. The Prime Minister allegedly once ate a pasty on Leeds station—a station I know extremely well, coming from Leeds—but from a shop that had closed two years previously, so it was a time-lapsed pasty which, by definition, must have gone cold in the time. But he ate the pasty.

Let us take a railway station such as Knutsford—let us assume that there is a station there, although I have not been to the Chancellor’s constituency—or think of our own stations. We might have a traditional English baker outside the station, baking away, producing Cornish pasties and the rest. Currently, those products are VAT-free, but they will now have the 20% applied, although the Government are still looking at how to define their new criteria. Inside the station we have a café; the baker passes the baked products on to the café, which sells them, and the Government might say, “Ah, hot product, it has got to be VAT-ed.” But how do we do that? It has been passed on and is no longer baked on the premises, so it must be zero-rated. We must make sure that there is no anomaly.

What about seats? If there are seats, we might apply VAT because it is a café. Yet it is in a railway station, and the railway station decides in this beautiful temperature to have some seats outside the café. The Government have their test of ambient temperature, so we have ambient temperatures inside and outside the café—I hope that hon. Members will go to Bakewell and see the on-street seating available for those who wish to purchase Bakewell puddings there. So, inside and outside, there are different ambient temperatures—ah, clever Government! We might therefore ensure that all the chairs are incorporated inside the café, but it is a railway station and Network Rail has put a couple of benches outside. Will we have different temperatures between the railway bench and the café seats, and between the café seats inside and outside? There is also the baker who serves inside and the baker who has a little hatch and serves outside. Such examples show precisely why since 1984 the concept of ambient temperature has been ducked, as Treasury officials have tried to persuade every single Chancellor since then to extend VAT. Of course, now that has happened, although things could get worse.

I know that the Chancellor likes his football, and the nation groaned during the Champions League final. People support their own team, but the Prime Minister, who is allegedly an Aston Villa fan, was cheering Chelsea. That is a contradiction. As the cup was lifted, the Minister for Sport and the Olympics was, rightly, in his place, and who was alongside him? The Chancellor, the new Chelsea supporter. When politicians are having problems, they pretend to support a football team that is winning. If it loses, they disappear into the hospitality room, but if it wins, they are there, beaming. I know what the nation said when it saw him on their telly screens. The Chancellor’s local team is Macclesfield Town, and I happened to be there for a match in January.

Will the hon. Gentleman explain the connection between hot baked food and football matches? I would be fascinated to hear it.

I am about to do that. Macclesfield Town’s stadium, like every football stadium, has a pie shop, but the Chancellor does not know that. When he goes to a football match, he is in the corporate hospitality room, so VAT is not an issue because he does not pay, just as he does not pay for his ticket or his travel, but that is another issue. The Chancellor does not pay for corporate hospitality, so whether something is VAT-ed does not matter to him. But I was stood there, hungry, having gone to Macclesfield to watch a cup match between Macclesfield Town and Bolton. I went to the pie stall, where pies are heated up on the premises. Will they be VAT-ed or not? If I buy a takeaway, will it be VAT-ed or not? If I heat it up in a microwave in the corner, will it be VAT-ed or not? If the shop staff heat it up in the microwave, will it be VAT-ed or not? Will there be a fancy process to avoid the VAT? It is fairly obvious how that can be defined.

The Government could introduce criteria for seating, so that if I sit down in the nice seats—there are not many seats at Macclesfield Town—I might pay VAT, but not if I stand up, as I did. Those anomalies will arise whatever way the Government move. My appeal to this out-of-touch, anti-English, inept-on-detail Treasury team and Government is to do their friends the Liberals a favour. They are up 4% in the north of England, and 2% in recent elections in my area, but the Government should give them a fighting chance in the south-west, and do the decent thing for England: get rid of this nonsense, and introduce a system that the country wants, which is no VAT on pasties, and no VAT on Bakewell puddings. Keep things as they are.

It is a pleasure to serve under your chairmanship, Mr Lee. I am delighted to follow the hon. Member for Bassetlaw (John Mann), who made a passionate speech in defence of the Bakewell pudding, which I hate to say I have not sampled, but I will remedy that. Hon. Members may be surprised when looking at me to learn that I enjoy the occasional baked goods from establishments—[Laughter.] I know that that is hard to believe, and that they expect me to go to salad bars, but now and again I like to support the baking industry.

In my maiden speech in the House, I took the opportunity to talk about the campaign for protected geographical indication status for the Cornish pasty, a battle that was fought and won. One can buy pasties with many interesting fillings throughout the country, but Cornish pasties can be bought only if they have been made in Cornwall, no matter where they were baked. That is a serious point, because it protects jobs, and the quality of the traditional recipe. In Cornwall, we are proud of the Cornish pasty, and if someone is eating one, we want them to eat a proper one. “Proper” is an important word in Cornwall, and that campaign successfully delivered the mark of quality.

Businesses in Cornwall that invested in making that hand-made product, which is now sent throughout the country and baked locally, have created a huge number of jobs. They have created permanent jobs, part-time jobs, particularly during peak times in the summer, and even jobs for students. I am aware of that because when I was a student, I spent a summer making proper Cornish pasties in Bodmin. I had the glamorous job of going in at 5 o’clock in the morning to peel onions until about 3 o’clock in the afternoon, and the pasties were ready for the next day. I am delighted that, the business having grown, the onions now come already peeled. That saves someone from having yellow hands, but the job provided valuable support for me when I was a student. As my hon. Friend the Member for St Austell and Newquay (Stephen Gilbert) said, the industry now employs a huge number of people in Cornwall, as does the retail side elsewhere in the country.

I followed what the hon. Member for Bassetlaw said. I would be delighted to pop to a station in my constituency to talk through the issues he raised but, sadly, I do not have any stations in my constituency. It is a mere 500 square miles, and there is no room for one, but I hope that the Government, who, as the hon. Gentleman said, take a close interest in Cornish affairs, will remedy that situation which, sadly, was not remedied under the previous Government.

The importance of the matter in the Budget has been questioned, and even in Cornwall people have said that many issues need to be dealt with: the state of the economy; sorting out public services to ensure that they are the most efficient and best delivered; and the inequality in funding. Cornwall receives lower school funding, and so on. It is right to raise such matters, and I, with my hon. Friends throughout Cornwall, will do so.

An issue should not be put to one side and allowed to go through unexamined, untested and unreformed just because it affects a specific group of people. Although it might affect a smaller group of people than some broader problems, it is incredibly important to those it does affect in terms of the economic impact and, as the hon. Member for Bassetlaw said, traditional skills. I was only peeling onions, and I was not let loose on crimping pasties, but I am sure that my hon. Friend the Member for South East Cornwall (Sheryll Murray) is very experienced in that, and could give a demonstration if visual aids were allowed during debates.

The Budget measures that my hon. Friend the Member for St Austell and Newquay welcomed include the increase in the income tax threshold, the biggest pension increase, and the commitment to the pupil premium—on Friday, with the Deputy Prime Minister, I talked to the head teacher at a local school about how that is having an effect. Those are good news stories, and it is good to hear from people how they are benefiting from them. However, we must not ignore the smaller issues that are incredibly important to some people.

My hon. Friend the Member for St Austell and Newquay pointed out the wonderful anomaly whereby when the ambient temperature is below freezing, a frozen pasty would have to be sold, with VAT, as hot food. That sums up the huge problem and a further anomaly. I suppose the Treasury could create an arbitrary cut-off point, but we are not going to the heart of the problem, which is a sensible, cogent system. We come, therefore, to the proposal that my hon. Friend and others have advanced: if a hot cabinet is used to keep something warm, it falls into the same category as fish and chips and other foods that are kept warm to the point of sale. That is easily seen, and easily inspectable by the poor employees of HMRC who may have to do spot checks, and there would not be negotiation about the proportion of hot and cold food sold in every shop.

If the Government adopt that sensible position, we might find that those who represent the industry making hot cabinets call for a debate in this Chamber. We had lots of petitions last night on behalf of the caravan industry, and wherever the Government turn, employers will be affected. However, there is a simple cut-off point, and people who want to buy hot food, wherever it is sold, can have that option and accept that they will pay VAT on the takeaway.

Bakeries are different. As my hon. Friend pointed out, if people are asked whether they want another takeaway in their town centre, the answer will probably be no. Many already exist, and we have heard about different use classes, which are appropriate in many locations. Bakeries belong in the heart of town centres. Nearby shops would love to have a bakery there because it increases the footfall and the sense of local provenance of the goods on sale. Bakeries give a very different feel to a town centre or a village—we do still have, clinging on, a few villages that contain bakeries.

Does the hon. Gentleman agree that the possible loss of 300 shops on our high streets as a result of this tax would be a severe blow, which would greatly affect high-street businesses and jobs across the country?

I entirely agree with the hon. Lady.

In conclusion, I wish to add a little extra plea for the Cornish pasty. My hon. Friend the Member for St Austell and Newquay was generous, and hands have been stretched across the river Tamar between Cornwall and England as people have spoken about their respective products that they value and support. In Cornwall, however, there is a feeling that the Government are taxing something that people might eat instead of a sandwich or some other cold product that they would find elsewhere. There is a cultural element to that. People love a pasty; it is what they grew up with and what their mums, grannies or aunties made at home. Everyone has a favourite shop to go to, and that is part of what it means to grow up in Cornwall. Furthermore, we are a very low-income part of the country.

The hon. Gentleman is making a good speech. Does he agree that the pasty was originally created for miners going to work? Nowadays, people around the country who are not able to have a plated meal often have a pasty or another baked product as a substitute. Does the hon. Gentleman feel that this tax discriminates against those people as it may not allow them to have a proper nourishing meal at midday?

The hon. Gentleman is absolutely right, and having been educated in Cornwall, he knows all about the importance of the pasty. As he said, the pasty was designed for taking down the mine and has a crust that can be left behind after being held with a dirty hand. It would have been baked hot, taken down the mine and consumed cold, as it was unlikely to still be hot by the time the miners got to it. Many other people will buy something hot from a bakery and eat it later in the day, which is different from the cold fish and chips that we have been hearing about.

To return to the Cornish perspective, the feeling is that there is a lack of recognition of a strong sense of identity and of Cornishness. To mention another visual aid, when the last runner with the Olympic flame left Cornwall and set off across the Tamar bridge, he held in his hands a Cornish flag that was sadly confiscated by the police who were running alongside. To many in Cornwall, such things send out a signal that English, Welsh or Scottish identity is fine, but we do not really want to know about Cornish identity. I know, however, that that is not the case in the Treasury, which understands the issue. As a Scot, my right hon. Friend the Chief Secretary to the Treasury understands that sense of Celtic identity, and I know that the Treasury will listen sympathetically. Along with my hon. Friend the Member for St Austell and Newquay, and other hon. Members, I urge all Treasury Ministers to look at the sensible alternative that has been proposed. It has a clear cut-off point and is enforceable, and I hope that the Treasury will respond positively to the consultation.

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.

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.

It is a pleasure to serve under your chairmanship, Mr Scott, and I congratulate my neighbour and hon. Friend the Member for St Austell and Newquay (Stephen Gilbert) on securing this debate.

As the granddaughter of a Cornish baker, nobody knows more than I what it is like to make a pasty. Yes, I know the ingredients, and yes, I can crimp a pasty. Today, I speak on behalf of my constituents in South East Cornwall who are all exceptionally concerned about the proposed VAT on hot baked food, although of course that is not restricted to the pasty.

The only time that I lived away from Cornwall was when I spent some years in Stoke-on-Trent, where the meat and potato pie was very popular. However, the pasty in particular is a big part of the famed Cornish heritage and history, of which we are all so proud. I will be discussing my deep concerns about the introduction of VAT on pasties and other hot foods, because this tax will affect many small businesses such as traditional bakeries in my constituency and will no doubt have knock-on effects on the already struggling town centres. In South East Cornwall, there are six very small town centres, which are seeing the life drained from them. If we see the bakeries decline as well, we will be going completely against the principle of what Mary Portas has been trying to do.

Does the hon. Lady agree that one of the unintended consequences—I believe that they are unintended—is that small bakers will be further hit by this tax applying to freshly baked products such as scones, doughnuts and muffins? They happen to be warm because they have just been baked, but are a whole category of food that clearly is not intended to be eaten hot. The tax will further penalise those bakers as against supermarkets.

That was an issue that I intended to come on to, because where is the definition of baked food? Will we find that we are paying VAT on hot bread that comes out of the oven? I urge my hon. Friend the Minister to consider all these implications.

I feel uneasy about how the tax will be implemented with the highly ambiguous term “ambient temperature”. That is variable and therefore very difficult to enforce. Thirteen businesses in my constituency are members of the Cornish Pasty Association. That is just over a quarter of the whole membership. Many of those are small businesses and they are mostly family-run businesses. They have spoken to me and to my hon. Friends the Members for Truro and Falmouth (Sarah Newton) and for Camborne and Redruth (George Eustice), who would have loved to be here today.

I shall point out one particular case. Mr Richard Rice is the director of Dashers Pasties, a pasty shop in my local town of Torpoint. He spoke to me about his concerns. It is a small business, with an annual turnover of about £160,000 a year. Torpoint boasts two supermarkets, and Mr Rice is concerned that the supermarkets may be able to afford not to pass the VAT on to the consumer, whereas local businesses such as Dashers will have to charge 50p or 60p more per pasty, which is a massive increase in the price of the product. Bakers are already having to absorb ever-increasing utility bills and the rising cost of ingredients. They believe that the only winners will be the supermarkets, which have the ability to keep their prices low.

My hon. Friends the Members for Truro and Falmouth and for Camborne and Redruth also met people from Rowe’s bakeries, who gave them a similar message. That sentiment was shared by the chairman of the Cornish Pasty Association, who led the demonstration earlier this month

“to raise awareness of the greater implications”

of this tax. A petition has gained 500,000 signatures. That roughly equates to the population of Cornwall. I hope that my right hon. Friend the Chancellor of the Exchequer and the Minister can see the knock-on effect that the tax will have and how people will clearly be disadvantaged.

When considering how the Government will implement the changes, we meet a whole series of problems—things that need to be simplified. “Ambient temperature” is a dependent variable and very difficult to enforce against. It would result in products being taxed based on the weather and heat retention, as we have heard from many other hon. Members. That could lead to significant legal action while tax inspectors and local hard-pressed pasty makers argue over the tax due.

I believe in a much simpler distinction—that a baked product is VATable only when an effort has been made by the vendor to keep the product hot. I signed an amendment to the Bill expressing that sentiment after the Budget was announced. The tax code is complicated enough. I hope that the Chancellor will consider that proposal as a serious alternative to deciding whether VAT is chargeable based on the ambient temperature. On 28 March, I wrote to the Chancellor, outlining my views and saying:

“Surely the last thing we need is to employ an army of thermometer wielding tax inspectors poking our pasties to see if they have cooled enough”.

I still believe in that sentiment and I hope that the Chancellor will consider what I have said today.

It is a pleasure to speak under your chairmanship, Mr Scott. I join in the congratulations to my hon. Friend the Member for St Austell and Newquay (Stephen Gilbert) on securing the debate. Those of us with a history in taxation wish that every new tax measure could be the subject of an hour and a half of detailed debate. I suspect that we would make much better law if that were the case.

This is an interesting situation. I think that we all agree that tackling tax avoidance and sorting out anomalies is something that the Government should do, but when they come forward with proposals, there is a huge outcry about them, because trying to sort out some of those anomalies is much harder than people think. The reason why this anomaly has lasted for nearly 30 years is that it is incredibly hard to sort out. I jokingly wonder whether, if the Government had called this a fat tax, it would have received a lot more support, but I am not sure that that is a road I would like to encourage them to go down.

Like many other hon. Members, I am concerned about the impact on high street bakeries, especially the small local ones that are a real attraction on the high street. I am talking about those shops on the high street that drag people in to shop there because they like the better-quality product, the choice and the service that they get, compared with the standard, bland products that they might think they get from a supermarket.

I can list many bakeries in my constituency. There is Luke Evans, which has a factory shop that has been in existence for 200 years. There is the Birds chain of bakeries, which I suspect the hon. Member for Bassetlaw (John Mann) will know well; it is a big chain in the area. It has just opened a new shop on Heanor high street, and given that Heanor is a high street with some challenges, anyone opening a new or revamped shop there is very welcome.

I have real sympathy for such businesses. Their shops sell a wide range of products. Pasties and sausage rolls are a sizeable part of that range, although nowhere near the majority of their trade. They are one very useful way of getting income and dragging customers in. However, they are clearly craft bakeries, selling freshly baked products. That is how they make their money. They are not trying to be a disguised takeaway or to flout the law. They are trying to run a perfectly sensible, viable and valuable business of long standing that we desperately want to support in our high street.

My hon. Friend is making an eloquent speech. Does he agree with my constituent Jonathan Grodzinski who runs Grodzinski’s bakeries, a business that has been in his family for well over 120 years, who says that the difference between his products and supermarket foods is the quality, which my hon. Friend has already mentioned? Mr Grodzinski’s concern is that customers will decide that they would rather buy cold food and that that will mean that they are buying food that is less than fresh, compared with when it first comes out of the oven.

Absolutely. I thank my hon. Friend for the intervention. The last thing that we want to do is to encourage people to buy horrible cheap food with only processed ingredients. That is much less healthy for us than buying proper quality stuff. I therefore have some sympathy for my hon. Friend the Minister in his predicament. It would be useful if he could set out what has tipped the Treasury over the edge into making the change. Was it a case of having to get the train home and thinking, “I’m a bit hungry. It’s been a long day in the Treasury. I can’t face the Chancellor’s bowl of jelly. I’ll have something from the station on my way. If I go to McDonald’s and buy a burger, I pay VAT, but if I go to that nice-looking pasty stand, which seems to be selling only hot pasties, for some reason there is no VAT”? Is that the contrast that tipped him over the edge or is it the fact that supermarkets are selling things that clearly should be VATable but they are manipulating their way around that? Is that what tipped the Treasury over the edge? It would be interesting to know.

I am grateful to my hon. Friend for taking my intervention, particularly as I missed the first part of the debate. He is very generous. Since I have been an MP, I have been approached several times by fish and chip shop owners. Perhaps unusually for an MP, they are the only approaches I have had—and I have had a lot—complaining bitterly about unfair competition, because people are selling pasties and using a microwave to heat them up after they have been sold. I understand exactly why people are concerned, but if we are challenging the whole concept of VAT on pasties, we need an answer—I certainly need one—on that issue.

I am grateful to my hon. Friend for that intervention. The point I was trying to make was about a craft baker on the high street who is not trying to be a takeaway in disguise for VAT planning, which is in contrast to what looks like something trying to be a takeaway, but is in fact something different. That is perhaps one of the things that has tipped the Treasury over the line. It would be interesting to know what mischief it is trying to fix. Which bad guys are we tackling? I honestly suspect that the bad guys are not the high street craft bakers who will be dragged into this. Their staff will be in a horrible situation.

I went to a couple of bakers in my constituency to see what the measure will mean. The sausage rolls are out of the oven and slowly cooling down in the very much non-heated—I was careful to check—displays in the shop. I guess that if they have been there for 20 minutes, they will still be hot, and therefore there might be VAT. If they have been there for 30 minutes, they might be on the border. If they have been there for 40 minutes, perhaps they are cold enough for no VAT. I have a horrible picture of the member of staff having to poke their finger into my sausage roll to check whether the one they are selling me is cool enough not to charge VAT on or still too hot.

There is a practical issue of how the shops will know day to day that the products sat cooling have cooled long enough for me to get a 20% discount, or have not cooled so the customer has to pay VAT. I suspect that such shops will put VAT on everything and put the prices up by 20%, and they will get a nice windfall for the bits that they can convince the Revenue are not VAT-able. In practice, they will not want to charge separate prices depending on whether someone buys a product marginally above or below the ambient temperature. That would be an unfeasible and rather strange situation for everyone to get into.

With his expertise in the intricacies of tax law, the hon. Gentleman makes good points. I suspect that the windfall he mentions will be offset by any decline in trade due to the 20% increase in the cost of the product, set against cold products such as sandwiches.

I suspect that that is probably right. This will put people off buying some products entirely. I was trying to say that I suspect that the customer will end up with a 20% price rise on all products and it will be down to the baker to match that loss of sale with the income that they get to keep on non-VATable stuff.

The Government need to produce coherent, understandable and enforceable rules. The suggestion that a product would definitely be VATable if any effort was made to keep it warm, by putting it in a heat-retaining bag, under a hot lamp or on a heated rack, after it had been baked would lead to an understandable and clear situation. I am not sure that it would tackle all the mischief that the Government seek to tackle, which is why it would be helpful to understand exactly what problem they want to solve. It would not stop something that looks a lot like a takeaway pretending to be a bakery, which I suspect is something that they would like to deal with.

I pay tribute to the hon. Gentleman’s tax knowledge, from which we are benefiting on the Finance Bill Committee. Does he agree that there is an EU law that requires changes in taxation to be clear and precise? From his knowledge, does he recognise that the Government could be challenged under EU law owing to the complexity of the potential change?

I spent many years in practice looking at areas where UK tax law could be challenged under EU law. As the years went on, the European Courts became a little more sensibly in favour of the tax authorities rather than the taxpayer, so I never like to predict what a challenge under EU law could achieve. The hon. Gentleman makes a fair point; as taxpayers, we are entitled to expect clear tax law that can be sensibly enforced.

Can the Minister think of other ways to tackle the mischief he wants to tackle without putting staff in every high street in a situation where they have to finger all the products they sell? I am not suggesting that they will literally do that; they will have to have some kind of technical probe or something.

Could the Minister find a way to exempt businesses in which the sale of hot baked products accounts for no more than half their turnover? Clearly they are not in the business of selling hot food, but are trying to sell cakes and bread, so such products are but a small part of their trade. That suggestion will not fix the problem for my hon. Friends from Cornwall, who are looking at businesses based entirely on pasties, but it would take away the worst position for high street shops, for which there are definitely unintended consequences. I fear that otherwise we will end up with a measure that will not work, will clobber the innocent, and those who flout it will find a way to redesign their businesses to get out of it. That is the worst situation—innocents caught in the crossfire. Some people have pushed the whole system too far.

We all know that thirty years ago, Lord Lawson tried to exempt bakeries that produced freshly baked goods. We have a picture of bakers putting things in ovens at 5 o’clock in the morning and customers queuing to buy hot bread, and that clearly should not be VATable. That is not really what happens in most high street bakeries, where the goods are baked in a central bakery and appear in the shop early in the morning. It is unlikely that I would get hot bread, unless I was in the shop nearest to the central bakery very early in the morning. We need to get away from that quaint image that probably applies only to a factory outlet bakery of the type that Luke Evans has. I do not think that most of the baked products I buy are hot, except for those that are carefully baked on site, and they tend to be the products that the customer wants to have a chance to eat hot. That is the line we need to work around.

What exactly are we concerned about? What mischief are we trying to fix? What are we trying to protect? The proposals the Government are consulting on will not get them to where we all want them to be and will need some careful revision.

It is a pleasure to serve under your chairmanship, Mr Scott. I thank the hon. Member for St Austell and Newquay (Stephen Gilbert) for securing the debate. It was intended to take place prior to Prorogation and I am glad that it was rescheduled for this morning.

We have had an extremely interesting debate, with some very intelligent and well thought through contributions and suggestions on which the Government can act. A thing that struck me on this virtual tour of the UK—via train stations, football clubs and various forms of hot snack—is how much unites, rather than divides, the different parts of the United Kingdom. In this instance, most of us, at least, are united in support of the industries based in our communities. In this instance, the bad guys—to quote a term used by the hon. Member for Amber Valley (Nigel Mills)—are the Government, but bad guys always have the opportunity to redeem themselves. I am sure that as we go through the Finance Bill, the Government will look at the suggestions made today and try to do so.

I want to cover a few points made by hon. Members. In his opening speech, the hon. Member for St Austell and Newquay highlighted the real issues about the ambient temperature test and the potential problems in identifying what an ambient temperature is in different parts of the country. As those of us in the northern parts of the country know, we have yet to see any form of spring, never mind summer. Not only do we have geographical variations, but we could have different ambient temperatures on different days of the week.

How will the Government devise the system? Will people come round using thermometers, as the hon. Member for South East Cornwall (Sheryll Murray) said, or probe with a finger, as the hon. Member for Amber Valley (Nigel Mills) suggested, to see whether hot snacks are above the ambient temperature? That seems to be nonsense.

During our deliberations on the Finance Bill Committee yesterday, my hon. Friend the Member for Bassetlaw (John Mann) gave a useful exposition on the difference between a Bakewell pudding and a Bakewell tart, which I confess is something that I had not previously understood. That only goes to show that we learn something new every day. Indeed, I learned today that the hon. Member for South East Cornwall and I have a shared heritage, because I, too, am a baker’s granddaughter, although I am not from Cornwall and could not begin to explain how to crimp a pasty.

The issues raised this morning are similar to those raised when we discussed the matter on the Floor of the House. I sensed a sharp intake of breath when the hon. Lady asked what hot food had to do with football. I am a football supporter and have supported my local team, Kilmarnock, since I was a child. I certainly did not choose to do so on the basis that they were likely to win trophies, given that during my lifetime they have won something on only three occasions: 1965, 1997 and this year, when they won the Scottish communities league cup.

As a vegan, I confess that the delights of some of the pasties that have been mentioned have passed me by, although, as I said during the debate on the Floor of the House, my son is an avid eater of the Greggs steak bake and my husband often chooses, as a vegetarian, to enjoy the Greggs cheese and onion pasty at lunchtime. I do not necessarily partake of such delicacies, but when my local team played at this year’s cup final, a local bakery in my constituency decided that I should not lose out on the experience by not being able to eat a Killie pie—the Kilmarnock football club pie, which is reckoned to be the best in Scotland—and made me a vegan Killie pie.

I have still not received an answer to one of the questions that I asked during the debate in the main Chamber. If I buy two freshly baked Killie pies from my local Brownings the Bakers—should it choose to continue the production of that wonderful vegan pie—and decide to eat one there and then and take the other away so that it will have cooled down later, would one be VATable and the other not? That is an example of one of the dilemmas and anomalies that have been thrown up again by a number of Members during this debate. Members have also identified that any system of taxation and of collecting VAT needs to be understandable, enforceable and workable. As the hon. Member for St Austell and Newquay pointed out during his opening speech, the proposals do not meet any of those tests.

I want to address some other points that have been raised. The second time that I sensed a sharp intake of breath and felt a shiver run down my spine—“shiver” seems to be the word of the week in relation to the economy—was when my hon. Friend the Member for Rochdale (Simon Danczuk) suggested that samosas or pakoras could be taxed. Notwithstanding the popularity of the Scottish bridie, there are parts of Scotland for which samosas or, indeed, pakoras, have become more or less part of the staple diet. Thousands of constituents would be extremely concerned if there was an additional tax.

The hon. Lady is making a powerful case. Does she agree that one of the interesting things about this debate is the fact that the scope of concerns has widened rather than narrowed? I have mentioned mince pies, the hon. Member for Bassetlaw (John Mann) has mentioned Bakewell puddings and the hon. Lady is now talking about samosas. Muffins, doughnuts and other products have also been thrown into the mix.

Indeed. That highlights the powerful case that, initially, the Treasury may have viewed the proposal as something that could be taken off the shelf, dusted down and presented as a way to correct some anomalies. However, as my hon. Friend the Member for Rochdale has argued, it did not consider the detail and the issue has become a problem. It has become a problem in relation not only to pasties—I am aware that we cannot deviate too far from the issue under discussion—but to the proposals for VAT on work on church buildings, on which there has been some movement.

Moreover, last night, multiple petitions were presented in relation to the caravan tax, and yesterday, I, along with a number of other Members, met representatives from the newly formed—it was formed in response to Government proposals—UK Specialist Sports Nutrition Alliance, which has pointed out that some of its members’ products do not appear to fall under the categories for which VAT was originally intended to be charged.

This series of Government proposals do not seem to have been properly thought through. Their impact on our high street has not been considered. That is important. We want to see people shopping on their high streets and spending what cash they have on local businesses in particular, and to ensure that our high streets continue to thrive. When the British Retail Consortium, the Association of Convenience Stores and the whole range of organisations that represent the baking industry, as well as ordinary people, think that the Government have got it wrong, it is time for the Government to think again.

I will not speak for much longer, because I want to allow the Minister as much time as possible to respond to the debate, but I want to return to the widening scope of things affected by the proposals. The hon. Member for St Austell and Newquay suggested during his opening speech that the Government were prepared to listen, but I am disappointed to say that I have not found that to be the case. We have raised the issue on the Floor of the House and have continued to raise it and a number of other issues in the Finance Bill Committee, but on every occasion—no matter what the subject—when we have asked the Government to go away, make another assessment, come back with a report and consider the implications, they have not done so.

Does the hon. Lady not accept that there is a consultation, so the Government are listening, and that we cannot expect them to respond until they have the results of that consultation?

I understand the importance of consultation, but consulting on something that will happen after the fact—when the Government say that they are going to do something and then ask people about it—is not necessarily the best way to do it. Those representatives of sports nutrition companies whom I met yesterday told me—the Minister will correct me if I am wrong or have misunderstood—that no one from that industry was consulted when the impact assessment was done.

There are issues to address. I am trying not to make this an attack on the Government, but I am disappointed at the lack of movement. I understand that consultations are important and hope that the Government will listen and consider making some of the changes that have been asked of them today. The torrid headlines that the Government had to endure when their proposals were first announced should make them realise that the country wants them to do something and change their plans. My favourite headline read: “Half-baked Tory tax a mistake-and-bake”. It was indeed a mistake—let us try to fix it.

It is a great pleasure to serve under your chairmanship, Mr Scott. I congratulate my hon. Friend the Member for St Austell and Newquay (Stephen Gilbert) on securing this debate and on his thoughtful and constructive speech. I thank all those who have contributed to the debate, including my hon. Friend the Member for North Cornwall (Dan Rogerson) and my hon. Friend the Member for South East Cornwall (Sheryll Murray), whom I congratulate in particular on her expertise on the matter. I am also grateful to my hon. Friend the Member for Amber Valley (Nigel Mills) for providing his expertise on tax, rather than on pasties. I also thank the hon. Member for Rochdale (Simon Danczuk) and the hon. Member for Bassetlaw (John Mann), who gave a characteristically passionate and, at times, entertaining speech.

Since the Budget, Her Majesty’s Revenue and Customs has been running a consultation on addressing a range of VAT anomalies, including the treatment of hot takeaway food. I am well aware that the changes that we have announced to the VAT treatment of hot food have attracted a considerable amount of attention. Indeed, I have had meetings with my hon. Friends the Members for St Austell and Newquay and for Camborne and Redruth (George Eustice) and representatives of the Cornish pasty industry.

The definition of hot food has caused much uncertainty, not least for Auntie Anne’s pretzel company in my constituency, which I visited last week. The company has put on hold quite big expansion plans because having to charge VAT would put it in competition with a whole new set of fast food outlets. The pretzels are baked on the premises from a dough mixture, and the company needs some clear guidance from Her Majesty’s Treasury that it will not be liable to VAT so that it can get on with its growth plans and with creating jobs in the local area.

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.

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.

I am grateful to the Minister for giving way as he sets out the Government’s thinking behind this matter. I hope there is room, following the consultation, for that thinking to develop. On the specific point of temperature, we have heard that many pasties are sold outside or through hatches and so on. Will the Minister tell us what would happen if the outside temperature is freezing or below freezing? That is the sort of issue that our constituents are raising with us.

I can assure my hon. Friend that we shall not start taxing food as hot if the outside temperature is 40°C and the item is warm only because of the air around it, or hot because the temperature is freezing. Existing simplification schemes are already available that allow businesses to calculate their VAT liability by reference to a fixed percentage of their turnover, without requiring staff to consider the temperature of every product sold. Pragmatic approaches to apportionment are, and have always been, a common feature in VAT.

Let me turn now to the proposal by my hon. Friend the Member for St Austell and Newquay. I am aware of the strength of opinion on this question, and I hear the proposal that he has made. The consultation was genuine. As it is also complicated, it would be premature of me to make a knee-jerk response to it within a few days of it closing. However, we are considering his and other constructive suggestions closely, and we are aware of the difficulties in operating a test based on ambient temperatures. As I said earlier, such a test has been in place since 1984, and it is no more than a legal definition of “hot food”. At present, it is rarely applied because businesses that accept that their food is heated in order to be eaten hot accept that it is taxable hot food, and those that argue that their food is heated for other reasons can escape VAT, even if the food is hot.

There are problems with my hon. Friend’s proposal, which potentially risks bringing hot pizza into the zero rate—I suspect that is an unintended consequence. However, it is one of many suggestions that we are considering, and we hope to be able to respond in the near future.

It has been suggested that this change could lead to business closures in the baking industry, and would disproportionately affect businesses in Cornwall, and that it should be delayed until there is stronger growth. However, it does ensure that businesses of all sizes and in all locations receive the same tax treatment for similar products and that that preferential tax treatment does not go to those with the most ingenious arguments, or the best lawyers, to support zero rating.

I accept that all taxes have an effect on growth and jobs, but VAT as a whole is less damaging than many other taxes. I hope that my comments today have provided more information on why the Government have made this proposal. The changes are designed to introduce new sensible objective tests that are less open to abuse and provide a level playing field for all businesses supplying their customers with hot food. I also hope that I have explained that we have undertaken a genuine consultation and will respond as soon as possible, and that we are listening closely to all the arguments.