The Paymaster General (Dawn Primarolo): I beg to move,
That the Committee has considered the Value Added Tax (Food) Order 2004 (S.I. 2004, No. 3343).
Good afternoon and welcome to the Committee, Mr. Beard. I am sure that you will keep us in order in our deliberations. I also welcome the hon. Member for West Suffolk (Mr. Spring). I think that this is the first time that he and I have been in Committee together, and I look forward to the debates that we shall have over the coming months, years and perhaps even decades.
As the Committee may be aware, most food is zero-rated for VAT purposes. The Government have made a strong commitment to retain that zero rate, which ensures that the major element of families' expenditure—the weekly food bill—remains free from VAT. However, VAT has always been chargeable on supplies of catering, such as food consumed in restaurants and cafés, and in 1984 the then Government extended the definition of catering to include hot takeaway meals, in part because takeaway meals were felt to be in competition with meals served in restaurants and cafés. The order is designed to clarify the VAT treatment of hot takeaway meals.
Before briefly outlining the detail of the order, I should like to make it clear that it does not involve any change to the scope of VAT relief for food. I assure the Committee that no food that is zero-rated will become liable to VAT as a result of the order. That is because the order does no more than put beyond legal doubt the VAT treatment of hot takeaway food, as it has been commonly understood by the takeaway sector for the past 20 years. The order is designed to protect the legislation on hot takeaway meals from exploitation by litigants who might seek to undermine the spirit of the law in order to obtain an unfair VAT advantage over their competitors.
The effect of the present law on hot food is that a supply of food is excluded from the zero rate if, first, it has been heated for the purpose of enabling it to be consumed at a temperature above the ambient air temperature and, secondly, it is above that temperature at the time of supply. That means that VAT is not charged on the sale of all hot food but only on that food that has been heated or kept warm before sale in the expectation that it will be consumed before it has cooled to air temperature. Food such as freshly baked bread may be hot when sold, but is clearly not takeaway food, and will remain VAT-free.
The present law therefore provides a VAT borderline between, on the one hand, most groceries,
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which are VAT-free, and, on the other hand, supplies of catering, including hot takeaway meals, on which VAT is chargeable. The present VAT position also ensures fair VAT treatment for the takeaway sector, by ensuring that all supplies of hot takeaway meals are taxed in the same way. The purpose of the order is to clarify and protect that position.
We have become aware of the view, which we do not believe is widely held in the takeaway sector, that a certain construction might be put on the wording of existing VAT legislation. According to that interpretation, the reference to ''time of supply'' in the legislation means that the VAT treatment of food might depend on the point in the cooking process at which payment from the consumer is made and, in particular, whether the food is hot when payment is received by the supplier.
Clearly, that interpretation would lead to an absurd outcome in which the method of payment for the food received and the point at which that payment was made would determine whether VAT was chargeable, rather than what was being supplied. Not only would such an outcome pose a risk to tax revenues, it would undermine the fair and equal VAT treatment of all takeaway outlets and penalise those, including many small takeaways, that are not in a position to arrange their affairs so as to take payment in advance of cooking the food that they sell.
The Government do not accept that that construction of the law has any merit. However, to provide the takeaway sector with the benefit of legal certainty and an assurance of fair and equal VAT treatment, we believe that it is right to act so as to put the existing position beyond legal doubt. Therefore, the order makes clear that it is the temperature of the food when the customer receives it, rather than the temperature of the food when payment is received by the supplier, that determines whether VAT is chargeable.
The order does no more than reflect the way in which the law has generally been understood and applied by Customs and Excise and takeaway businesses since 1984. It will provide certainty and discourage attempts to undermine the VAT borderline between zero-rated groceries and standard-rated catering supplies. It will also protect VAT revenues and ensure the continuing equal VAT treatment of all takeaway outlets, while maintaining the present zero rate for food in its entirety.
I commend the order to the Committee. I will be happy to respond to questions.
2.36 pm
Mr. Richard Spring (West Suffolk) (Con): It is a pleasure to have you presiding over our proceedings, Mr. Beard.
I thank the Paymaster General for her explanation and statement and for her kind and generous words. It is perfectly possible that we will be engaged in similar proceedings for some time to come, but given the way that history acts out its role for politicians, it is unlikely that we will be so engaged for decades.
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However, it is a nice thought and I am grateful to her for the underlying sentiment.
I do not wish to detain the Committee for long because the order is uncontroversial.
Mr. Peter Kilfoyle (Liverpool, Walton) (Lab): Hear, hear.
Mr. Spring: I ask the hon. Gentleman not to tempt me.
It was a Conservative Government who standard-rated hot takeaway food in 1984. I am not aware of any groundswell of opinion that that move should be reversed. In effect, the order simply confirms the standard rating and removes any possible loophole that might distort the takeaway food market and result in tax evasion. Therefore, I do not wish to object to it.
I was not entirely certain that I understood something that the Paymaster General tried to explain: the issue of the VAT and duties tribunal recently finding in favour of Customs and Excise on an appeal by Domino's Pizza Group Ltd., which argued that their supplies of hot takeaway and delivered pizzas should be zero-rated because the purpose of heating the food is to supply a freshly baked product. The Paymaster General made some allusion to the matter. I was not sure whether her remarks arose directly out of that case. Would she be kind enough to clarify my understanding that Customs and Exercise is reviewing the decision and considering whether to update the policy on takeaway food? Will she enlighten us about whether that is the same thing as that to which she was referring?
I also want to make one minor procedural point. I note that the order came into effect on 1 January, but we are discussing it only now. That is symptomatic of the sloppy way that the Government handle such matters. That is the one point that I am irritated about, but we have got used to such problems in the past seven or eight years.
I will make one more general point. The Paymaster General talked about the fact that food is zero-rated in this country. On this point, Mr. Beard, I beg your indulgence, because it is important. I hope that you will give the Paymaster General an opportunity to comment on it. The European Commission has ultimate control of VAT, although there are derogations. The right hon. Lady referred to the issue in the past. I wonder whether discussions between the Government and the European Commission have stalled. Will she add some clarity to the issue of British reduced rates? Although she has today explicitly ruled out any VAT on food, it is a matter of lively discussion. I wonder whether she would be kind enough to elaborate on that point.
2.40 pm
Mr. John Burnett (Torridge and West Devon) (LD): I welcome you as well, Mr. Beard.
Zero-rating is a privilege, and it is accorded to food sold in this country. I understand the thrust of what the Paymaster General is trying to achieve, and I hope that the deletion of ''supply for'' and the substitution of ''provided to'' will overcome the problem. There are, however, borderline cases. The Paymaster General
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talked about freshly baked bread, and there are also matters about croissants and freshly baked cakes that can be bought in supermarkets. I should be grateful if she elaborated on the tests and the legal reasons why freshly baked bread, for example, is zero-rated, whereas if one puts a well cooked piece of bacon in it and supplies it, it is presumably a fully taxable supply. The borderline can cause great difficulties for practitioners and businesses. The simpler the tests the better. I hope that the amendments to the current law will overcome the perceived difficulties that Customs has in enforcing the payment of a tax that is properly payable by the hot food and takeaway industry, and I look forward to the right hon. Lady's response.
