Controversial Tax Plans Dropped 
The government have announced that they are to drop plans to introduce a controversial VAT tax rate on pasties and caravans, in a move which is set to cost the Treasury a reported £70million.

Following a post-Budget consultation on closing VAT loopholes, on Monday night (May 28th 2012) the Treasury announced, in a letter to the Treasury Select Committee Chairman Andrew Tyrie, that it would be modifying its plans to charge VAT on hot food and static caravans.

The U-Turn which has been signalled by the government means that food left to cool naturally will not now be subject to VAT, while static caravans which were set to be charged VAT at twenty-percent, will now be charged VAT at five percent – and the combined changes are expected to mean about £70 million less in revenue for the Treasury.

Treasury sources have said that the £70 million figure is small in comparison to a budget which included a £3.5 billion giveaway to people on low incomes and £2 billion cuts in spending.

Amid criticism from the opposition that the U-Turn showed the government was a shambles, Treasury minister David Gauke defended the changes, saying: We've listened to the case that was put to us. On VAT our aim has always been to remove anomalies.

“One of the anomalies we have sought to remove is the fact you pay VAT on your hot chicken or pie in a fish and chip shop, but you don't in a supermarket.

“What we've managed to do is improve the test so those bakers who produce a Cornish pasty or hot sausage roll and let it cool over the course of the day, they are not going to face VAT.”

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