Greggs attacks the pasty tax

2012 sales to date up 4.3 per cent as baker lambasts government.

New Statesman
Greggs CEO Ken McMeikan (C) joins bakers demonstrating against the government's proposed decision to impose VAT on hot takeaway snacks in London. Credit: Getty Images.
Greggs the baker has hit back at the government's proposed "pasty tax" in its interim management report today, calling the proposed changes "unworkable" and warning it would "give rise to many new anomalies and further uncertainties."

The statement reads:

We have always charged VAT on products in this category, such as hot sandwiches, soup and hot drinks. What we cannot support is the government’s current proposal to extend the standard rate of VAT to freshly baked food where there is no attempt to keep it hot and which is not designed to be kept hot. The proposed changes are in our opinion unworkable and would give rise to many new anomalies and further uncertainties.

While we understand the government’s need to increase revenue, we fear the current proposal will have a disproportionate impact on the specialist bakery sector, resulting in further unemployment, high street closures and reduced investment. In our submission we will also highlight our concern that the estimate of the extra VAT revenue generated makes insufficient allowance for the income tax, NI contributions and corporate tax that would be lost, as well as the cost of extra unemployment pay.

We believe there is an alternative to the government’s proposal which will remove any anomalies and make the tax much simpler for both the government and the consumer. We believe the solution is to see VAT charged on all food kept hot for sale in a heated environment after cooking, all food re-heated to order and all food supplied in heat-retaining packaging. This will very clearly differentiate between fresh bakery food and food that is being sold intentionally hot.

Savoury sales are more than a third of our turnover, and the outcome of the consultation process could have a material impact on our sales and profits. This week, we will be responding formally to the consultation on the proposed changes and hope that the government will listen to the logic of our alternative approach.  In addition, we are looking as a matter of urgency at how best we would respond to a number of possible outcomes on behalf of our shareholders, customers and staff.

The company believes that consumer sentiment could benefit in the months ahead from major national events including the Diamond Jubilee celebrations, the Olympics and the Euro 2012 football championship.

Driven by its new shop opening programme and the development of new channels to market, Greggs has improved its total sales by 4.3 per cent for the 19-week period ended 12 May 2012.

During the period, like-for-like sales were down by 1.8 per cent. The company had six disappointing weeks of trading as a result of the exceptionally wet weather in April and early May.

The company, which is planning to add a net 90 new shops by the end of 2012, has opened 25 new shops during the period, making a net addition of 20 after five closures. In line with its plan to refit a total of 100-120 shops during 2012, Greggs completed 42 shop refurbishments during the period.