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Dawn Primarolo: I shall answer first the questions from the hon. Member for West Suffolk. He is correct to say that a recent case involving a high street supplier was before the tribunal. Originally, the case had two legs—there were two sets of propositions. The first set was ''the time of supply'' argument about whether the supply of the supplier's product was in the takeaway category. The tribunal was not persuaded by the arguments in that part of the case. That led the company to withdraw that element of its case, possibly allowing it or anybody else to reflect on whether the matter might be approached differently. On that basis, I decided to save a lot of time for Customs and Excise officers, and money for the taxpayer in preparing the cases, and make it absolutely clear, as this order does, that those arguments cannot work. It is on the basis of the withdrawn part of the case that this order has been brought forward.
Mr. Burnett: Presumably, on or before 1 January 2005, an announcement was made by the Paymaster General that the changes would take place.
Dawn Primarolo: Yes, indeed. There has been only one challenge—or query, because although it was listed for the tribunal, that part of the case was withdrawn. Nowhere else in the takeaway industry have there been such challenges or confusion over whether a product is takeaway food and therefore within the VAT rates. I could have left the law as it was, but I did not want any unnecessary work to be done and therefore thought it best to clarify the matter immediately. That is the purpose of the order. As it is a confirmation of the position, it will come as no surprise to the industry.
Customs was successful in the other part of the case. So, the matter is settled. The tribunal has ruled that the law as Customs interpreted it is correct; the tribunal ruled in our favour. The second leg was withdrawn, but I am tidying that matter up. Wherever possible I will not leave the taxpayer open to legal challenge and the costs of fighting such legal cases. In that sense, this is a precautionary measure.
The hon. Member for West Suffolk made a general point on zero rates. Zero rates are protected. Whatever speculation or discussion that the European Commission might put forward in any area where the rates currently apply would have to be agreed. The Chancellor has repeatedly made it clear that we will not agree to any move on our zero rates. Other
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member states have various arrangements as a result of the changes that were introduced at the same time that our zero rates were protected.
As members of the Committee will know, once a zero rate has been given up and removed—for instance, when the Conservatives removed the zero rate on heating—we cannot return to it.
Mr. Burnett: Except by unanimity.
Dawn Primarolo: Not even on that basis. It would require a revisiting of all VAT legislation, for which I do not think we would not receive support from our European colleagues. We can operate a reduced rate, which is what we have done, and the reasons for it have to be clearly laid out to the Commission.
The question of freshly baked bread and the borderlines is fascinating; there are borderlines in a whole range of areas. The point is that although the bread may be hot when it is sold, because it has only just been prepared, it is not meant to be consumed when it is hot. Other items clearly are meant to be eaten hot. As we are on the question of pizzas, I might add that I cannot imagine that many members of this Committee—perhaps I am wrong—who would eat a frozen pizza. When an item is supplied as takeaway food, sold at the point when it is cooked for the purpose of being eaten in that state, it comes into the VAT rate.
All the vagaries of this matter were well discussed by the House of Commons in 1984. The reasons for the rates, as set by the previous Government, are there to be seen. I am not aware of any problem, and apart from the recent challenge, with which we have now dealt, all the rules operate perfectly well.
Mr. Kilfoyle: Just so that I am absolutely clear about what the Paymaster General is saying, I shall cite an example. There is a string of bakeries on Merseyside called Sayers in which one can buy a whole range of things—chilli slices, bacon baps, you name it—until 10.30 pm or 11 pm. One can also, of course, buy a slice of bread that is then buttered, and taken away as toast. Is my right hon. Friend saying that the slice of bread is zero-rated but becomes takeaway food once the butter is applied?
Dawn Primarolo: It is the difference between a grocery in a supermarket and supply through a takeaway outlet that is specifically for the preparation and delivery of that food. That is how the provision operates.
Mr. Burnett: This is an interesting question. As usual, the hon. Member for Liverpool, Walton (Mr. Kilfoyle) has come back with a rejoinder to the point that I made. One can go into the new Sainsbury around the corner in Pimlico and buy a cooked doughnut and a cold doughnut. Both are on the premises and both are prepared for instant consumption. What is the actual difference in the test?
Dawn Primarolo: Were the supermarket to sell hot food that clearly competes with the takeaway sector, it would be categorised as a takeaway. Interesting as that may be, I assure my hon. Friends that the test works
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perfectly well. However, the subject of the order is whether a supplier can construe to separate the time of payment from the purpose of the food in order to say that it was not supplying takeaway foods, when quite clearly it was. It is not the purpose of the order to redefine or revisit legislation that, despite the fascination of hon. Members, has worked perfectly well. This is a little like previous debates on VAT on the difference between a cake and a biscuit—the famous Jaffa cake case.
Mr. Paul Truswell (Pudsey) (Lab): May I pose two examples for the sake of clarification? First, I can go into several bakeries in my constituency and find before me a whole host of delicacies, such as pies and sausage rolls. If I purchase one, I am invariably asked, ''Do you want that warming, love?'' If I say yes, could the VAT requirements that we are talking about today be triggered? Secondly, there are lots of items such as pasties, pies and sausage rolls in petrol stations. There may also be a microwave oven in which I am invited to heat up that food, or in which someone working at the petrol station might warm the food for me. I am worried that the order might have opened up a big can of worms, and I seek reassurance that neither of those scenarios will be problematic for my constituents.
Dawn Primarolo: I assure my hon. Friend that the order does not open up those possibilities. The question is whether the supplier's original intention is that the foodstuff should be eaten hot. That is not simply the law under the 1984 legislation; it is reinforced by the independent VAT and duties tribunal, which has ruled in several cases.
I am not sure whether I want to give the following example, but I might as well, by way of explanation. It has to be decided whether the sale of hot chickens and similar items in a supermarket is designed specifically to compete with a takeaway outlet. The tribunal has ruled on such borderline cases, and Customs has to take note of those decisions. To return to the freshly baked bread, the test we have to use is whether a supermarket selling hot food is clearly in competition with the takeaway food sector. Both scenarios identified by my hon. Friend are standard-rated when sold if the intention is to eat the food when it is hot. I assure all hon. Members that nothing currently sold in any of the categories suggested will be subject to VAT after today that was not subject to VAT or zero-rated prior to this order.
Mr. Kilfoyle rose—
Dawn Primarolo: I will give way one more time, but I should say to my hon. Friend that the order simply ensures that aggressive litigation in order to exploit the tax rules in a way for which they were never intended—and would not work—is closed off beyond doubt. That is all the order does.
Mr. Kilfoyle: I hope that my right hon. Friend and you, Mr. Beard, will indulge me for one moment. I understand perfectly what she is saying about the effect of the order, but I am now more confused than ever. The hon. Member for Torridge and West Devon (Mr. Burnett) made the point that some foodstuffs are sold to be either eaten as prepared or heated. I am just picking up on what she said about heating the thing. Is
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that the criterion by whether one judges that something has VAT on it? That may not be directly relevant.
Dawn Primarolo: It depends on whether the supplier intends that the food be eaten hot. That rule may sound odd to hon. Members, but I assure them that for the past 20 years it has worked perfectly well. The tax should apply only under those circumstances—apart from those who want to stretch the point and think that their products should be zero-rated when they should not be. If there is no definite intention that the food be eaten hot, it is zero-rated. We are seeking to protect the zero rate—we inherited this situation—and not weaken it by allowing takeaway food, which is a business supply, an additional provision and standard-rated, to be zero-rated.
Mr. Burnett rose—
Dawn Primarolo: I will give way once more to the hon. Gentleman. All I can say is that, given that the provision has been in place since 1984 and the hon. Gentleman is so fascinated by it, I cannot understand why it has not been the subject of any of his parliamentary debates.
Mr. Burnett: I am grateful to the Paymaster General; she is always immensely courteous. The law is confusing. We should be passing law that is clear and unambiguous. We should be taxed according to
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what Parliament says, not according to what is ruled—or invented, perhaps—by tribunals. Owing to the confusion about this part of the law, tribunals can effectively make the law. That is unsatisfactory and we should consider these matters again.
Dawn Primarolo: I am stunned to hear the hon. Gentleman say that, particularly given the fact that he is a lawyer. He well knows that case law plays a crucial part in the development not only of tax law, but of all laws. There is no confusion about how the rules operate in the sector to which they apply, although there might be in the hon. Gentleman's mind today. To defend taxpayers and their interests, I am preventing those who seek to circumvent the law from doing so. Had a past Government not given up all zero rates on food, we might be in a different position—but we are not.
3.1 pm
Mr. Spring: I applaud the Paymaster General for her considerable patience while being led into these blind alleys, from which I hope we can now retreat.
Question put and agreed to.
Resolved,
That the Committee has considered the Value Added Tax (Food) Order 2004 (S.I. 2004, No. 3343).
Committee rose at one minute past Three o'clock.
The Committee consisted of the following Members:
Chairman: †Mr. Nigel Beard
Best, Mr. Harold (Leeds, North-West) (Lab)
†Burnett, Mr. John (Torridge and West Devon) (LD)
†Dobson, Mr. Frank (Holborn and St. Pancras) (Lab)
†Fitzpatrick, Jim (Poplar and Canning Town) (Lab)
Gibb, Mr. Nick (Bognor Regis and Littlehampton) (Con)
†Henderson, Mr. Ivan (Harwich) (Lab)
Jackson, Glenda (Hampstead and Highgate) (Lab)
†Kilfoyle, Mr. Peter (Liverpool, Walton) (Lab)
Laws, Mr. David (Yeovil) (LD)
†Primarolo, Dawn (Paymaster General) (Lab)
Quin, Joyce (Gateshead, East and Washington, West) (Lab)
†Ruffley, Mr. David (Bury St. Edmunds) (Con)
†Sedgemore, Mr. Brian (Hackney, South and Shoreditch) (Lab)
Spink, Bob (Castle Point) (Con)
†Spring, Mr. Richard (West Suffolk) (Con)
†Truswell, Mr. Paul (Pudsey) (Lab)
Alan Sandall, Committee Clerk
†attended the Committee
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