Osborne's pasty goes cold as he drops VAT plan

George Osborne has abandoned his plan to impose VAT on the Cornish pasty (Getty Images)

George Osborne abandoned his plan to impose VAT on the Cornish pasty yesterday. All familiar high street foods, including pasties, sausage rolls, and meat and potato pies, are to be free from the taxman's grasp after a campaign of protest orchestrated by Greggs, the nation's largest chain of high street bakers.

There will be VAT charged on some hot foods that are currently zero rated, such as hot chickens wrapped in heat-retaining packaging sold in supermarkets – but by narrowing the scope of his proposals, Mr Osborne has taken the heat out of an issue that was doing seriously damaging the Government's popularity.

In his Budget speech in March, Mr Osborne claimed to be closing down a "loophole" which meant that VAT was charged on some hot takeaway food, such as fish and chips, while most was zero rated. He announced that VAT would be charged at 20 per cent on any food sold at above "ambient" temperature, except for freshly-baked bread.

Objectors claimed the proposal would force high street bakers out of business and create a new anomaly, because some freshly-baked food would be above "ambient" temperature on cold days, but not warm ones.

The controversy over the so-called "pasty tax" quickly became a defining moment in the fallout over an unpopular Budget, as politicians from all sides of the argument rushed to be photographed tucking into a pie or quoted on the joys of eating a pasty.

Prime Minister David Cameron was even dragged into recalling a pasty he bought at a shop in Leeds train station, only for it to emerge that the stall had long since closed down. Opponents to the tax included all six MPs with Cornish seats – three Tories, and three Lib Dems. George Eustice, Tory MP for Camborne and Redruth, said the climbdown would answer the protesters' objections: "They have accepted the argument – provided there is no attempt to keep pasties artificially hot."

A Treasury spokesman said: "At the Budget we announced proposals to address anomalies that have built up in the VAT system and have led to similar products being taxed differently.

"We have now finished the consultation on these proposals and are taking on board the points made, while still making sure we meet the objective of clearer and more consistent system that we set out at the time."