The Government is wrong to U-turn on the pasty tax

By Paul Goodman
^{Follow Paul on Twitter}

"He continued with hot takeaway food. You’re joking, I thought, not that old chestnut. I personally blocked that one back in 2005."

This was Damian McBride's take on George Osborne's decision to charge VAT on hot baked food designed to cool down, such as pasties, pies and sausage rolls.  He set it out in a masterly account of how the Chancellor has followed in Gordon Brown's budget preparation footsteps, using an elaborate scorecard system to plan which taxes to raise and cut: it doubtless has an ancient Treasury pedigree.

I would usually dismiss any pronouncement from Mr McBride as spin, but there was no reason for him not to tell this particular tale straightforwardly.  The essence of his argument about a pasty tax is that it was an old tidying-up-plus-revenue-raising civil service gambit (to bring pasties and pies into line with fish and chips) which would provoke ridicule over when pasties are or aren't hot, not to mention antagonise lots of colourful local food producers in marginal seats and one or two colourful red top papers in Fleet Street.

Mr McBride concluded that while Mr Osborne's first two budgets had been extremely disciplined, the good order of his third had broken down: "for me, it felt as though they were so focused yesterday on the big ticket tax cuts...and what they thought were the most high-profile tax rises...that they took their eye off a number of other balls".  This may be right but I offer a more simple explanation: the Chancellor desperately needed the revenue these taxes would raise.

Mr Osborne should be curbing the growth in public spending further in order to stop taxes rising still higher (a timely point to make on Tax Freedom Day, which Dr Eamonn Butler hymns on this site this morning) - and I have set out a plan which would give him the all-party cover he needs to do so effectively.  None the less, it is no more possible for the Chancellor to eliminate the structural deficit without some tax rises than it was for Geoffrey Howe to reform Britain's economy in the early 1980s without their equivalent.

The Telegraph claims this morning that the pasty tax would raise roughly £100 million.  Mr Osborne has executed his U-turn with the required combination of low cunning (the Commons isn't sitting) and gritted teeth (“I’ve listened to Sun readers and others and I’m glad we’ve got a solution that’s fair"). None the less, tens of millions not taken from a pasty tax are tens of millions that must be taken elsewhere - unless the Chancellor gives up on deficit reduction or scales spending back further.

And £100 million is a lot of money.  (Other estimates come in at £50 million: still a lot of money).  Where will Mr Osborne find it now?  I am not, repeat not, against all U-turns: everything depends what the turn is about. For example, there is a very good case for reviewing the cap on charities announced in the budget - which, to be fair to Ministers, they were committed to doing in any event. But there should be a strong presumption against them in politics.  They can make Ministers look weak - and sometimes expose the fact that they are weak.

And they invariably make backbenchers look ridiculous: why, many Conservative MPs will ask themselves this morning, did I trust to Ministers' resolve and send out the Government line - the PRU letter, as it's known in the trade - to constituents in defence of the tax?  Why didn't I join the rebels who voted against the pasty tax in the Commons? (And the caravan tax, over which there is also to be a climbdown.)

Why did I stick my neck out in the local press?  (Consider this example from Bridport News citing Oliver Letwin, who "made a spirited defence of the government’s position, pointing out that the new rules would simply bring pasties into line with other similar foods").  Similar questions were asked in the wake of the foresty sell-off and other U-turns - which Ken Clarke is claiming to add to today over court secrecy.  I don't grudge Conservative MPs from Cornwall the relief they will feel this morning, but it is hard to see why the Chancellor has backed down in this case.

Was the Posh Boys Factor at work?  Both the Chancellor and the Prime Minister were pursued over their pasty-eating record, with Mr Osborne confessing that he couldn't remember when he last ate one and confusion reigning over when Mr Cameron last did.  Readers may not take this seriously but Downing Street clearly does: hence its nerves about the Prime Minister wearing tails to weddings - or riding a horse with Rebekah Brooks or telling a Labour MP to "calm down, dear".

Did the Chancellor simply want to get the Sun's heat off the Government's back? Or has the Curse of Clegg struck again, given the number of Liberal Democrat MPs in the south-west?  But whatever the explanation may be, the timing of the decision is strange: after all, the measure has already been voted through the Commons.  The one certainty in all this is that Mr Osborne has lost tens of millions of pounds in revenue without it being apparent where that sum will now be found.