Today the pasty is fighting back, but it shouldn’t be. For years it has enjoyed a special exemption and privilege which it should never have had. Companies and consumers of hot pasties have benefited unfairly while fish and chip shop owners and consumers who preferred pizza have had to pay more. Through a strange anomaly bakery goods were exempt from VAT, the Budget changed that, but today Cornish MPs are objecting to the change. Other MPs are now complaining about another reform which will see certain types of caravans subject to VAT as well.
Of course, one of the benefits of our electoral system is that the concerns of local areas of the country are represented in Parliament, but crucially those interests should not be acted on against the best interest of the country as a whole. Exceptions for VAT are a clear case in point. Put simply, it was the situation before that wasn’t fair, not the one that’s been created now. The problem isn’t that the Budget removed various exemptions; it is that it did not remove them all.
Britain’s VAT system is a mess, with arbitrary exceptions all over the place. In recent years this has led to absurd legal battles over whether Pringles are crisps and whether Jaffa Cakes are cakes or biscuits.
Speaking at the Institute of Economic Affairs yesterday, Mr Hockey, the Shadow Treasurer of Australia talked about his party winning the 1998 election despite having gone to the voter with the idea of introducing a consumption tax, called GST, on most goods and services. He talked about honesty being the key to success in politics, arguing that this meant getting the public to understand the need for change and the benefit of it. He went so far as to suggest that “authenticity is the most valuable commodity in worldwide politics”.
The row over pasties is a perfect example of how partial reform can make clarity of message and authenticity difficult. It is not fair that some products should have VAT on them and others not. The message that – we will simplify VAT by abolishing exemptions, which will compliance costs for businesses and be fairer – is clear. If combined with the a commitment to reduce the rate of VAT or lower income tax at the same time so people would be taxed less overall, this suddenly becomes an attractive proposition.
This is a simple and clear message the government could have fought on and won in the post-budget fracas. Could a single voter, or MP for that matter, explain the current rationale for what we pay VAT on and what we don’t? No wonder then this row has erupted.