CHANCELLOR George Osborne was last night accused of imposing his controversial “pasty tax” because he was afraid of fighting a European court ruling on VAT.
Eurosceptics have accused the Treasury of seeking to charge VAT on all hot food to see off a battle with the Fish Friers Federation, who say a European Court of Justice ruling means they should not pay VAT, partly because high street bakers are not charged the same rate.
If VAT was removed from fish shops it would cost the Government billions of pounds in revenue, a situation facing ministers if they lose in the courts.
Instead, critics say Mr Osborne has decided to see off this challenge by charging Newcastle-based Greggs and other bakers the same rate as fish and chip shops.
The controversy, The Journal can reveal, dates back to a European court case which was seized on by the National Fish Friers Federation as evidence they are being discriminated against.
The Treasury insist they do not have to apply the court’s Sixth Directive ruling but if they lost an upcoming legal challenge VAT revenues would be hard hit.
Instead it opted to increase VAT on all other hot foods, including Greggs, a move which is expected to bring in £120m extra for the Treasury by 2016.
Andrew Crook, treasurer at the federation, last night told The Journal that Greggs were welcome to campaign with them for a change in the law.
“We have called all along for a level playing field, that is what we want from the Government,” he said.
“Some 600 fish and chip shops are working together through KPMG to challenge the Government in light of the European court ruling.
“We said: ‘Why is my fish and chip shop charged VAT on all its food but if you go to a baker’s just a few doors down then you don’t have to pay it?
“We have been turned down at our first attempt to take this to court – that often happens, we are told – but there will be several more attempts to see this case brought before the European courts. If Greggs win their case we will still be facing an unfair law.”
Mr Crook’s case is based on a court ruling last March which challenges the VAT category covering hot takeaway food as well as catering services.
The court ruled that food cooked for immediate consumption is a supply of goods, and does not count as a service, for which full VAT is charged. The federation used this to argue that they should be in a lower rate, because they supply food, which is charged at zero rate.
HMRC counter that the UK has a specific exception from the zero rate for hot takeway food, and that would continue to apply.
The Treasury insists the decision to apply VAT to all hot foods is there to remove anomalies and not to see off an EU challenge.
Peter Troy, a former UKIP candidate in the North East, raised the issue of standing up to the EU after a meeting with former MEP researcher Dr Richard North.
Mr Troy said: “My concern is that the Chancellor is avoiding the issue here, he has introduced a VAT increase, a European tax, in order to avoid the suggestion he is not complying with EU rules.”