Page last updated at 22:36 GMT, Tuesday, 3 July 2012 23:36 UK

Finance Bill part one

The government's solution to the "pasty tax" row might be challenged in the courts, Treasury Minister David Gauke has conceded.

As MPs debated the Budget-enacting Finance Bill on 3 July 2012, Mr Gauke insisted that the plan was "sustainable and fair", but he added: "One can never rule out the fact that some people will be litigious."

Ministers planned to impose VAT at 20% on all hot takeaway food; their subsequent U-turn means that VAT will not be imposed on takeaway food that is hot but cooling naturally, so long as it is not marketed as hot.

MPs raised concerns about what this would mean in practice: one asked whether "freshly baked" goods might be subject to VAT; another wondered if tax inspectors would deem hot food sold in paper bags to be artificially kept warm.

Shadow Treasury minister Catherine McKinnell called for assurances that the government did not anticipate "years of litigation in order to get these finer details clarified".

This prompted the Mr Gauke's acceptance that "some people will try to take a creative view" of forthcoming HMRC guidance on the new tax regime.

Ms McKinnell said the government's handling of the matter had been "deeply worrying" and "shambolic".

"Don't the people of this country deserve a government that can get it right first time?" she said.

In a separate Budget U-turn, proposals to impose VAT at the standard 20% on static caravans were replaced with a plan to apply a special 5% rate. The sale of static caravans is currently zero-rated for VAT purposes.

Labour's Diana Johnson warned that the increase to 5% could still hit jobs in the industry's East Yorkshire manufacturing heartlands.

She said: "The idea that somehow this 5% will be fine, with an industry that is struggling, in a double dip recession where people are not spending, I really do think the Treasury do need to look again at their figures and make sure this actually all adds up."

The government won a vote to add its revised tax proposals to the Budget by 311 to 230, a majority of 81.


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