John O'Neill

Labour’s VAT attack misses the mark – you don’t pay it on food

Labour's VAT attack misses the mark – you don't pay it on food
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Labour has a long, hard slog to win arrest the public's loss of faith in its economic competence. The party's latest advert hasn't helped. It shows David Cameron and Nick Clegg as two peas-in-a-pod whose VAT hike has put £450 on your shopping bill. There’s one big problem with the advert: it makes its claim in front of a whole bunch of foods on which you don't pay VAT at 20 per cent. You pay it at zero per cent. Even on the chocolate-chip biscuits. There are some 24 products in the picture and 18 of them are exempt:

  • Fresh fruit and vegetables (peas, sweetcorn, mushrooms, tomatoes, peppers, broccoli, red onions, beans, red cabbage, carrots, grapes, apples): all zero-rated. 
  • Chocolate chip biscuits: zero-rated. HMRC's bizarre rules specifically exclude ‘chocolate chip biscuits where the chips are either included in the dough or pressed into the surface before baking’ from the standard rate – only ‘wholly or partly coated biscuits including biscuits decorated in a pattern with chocolate or some similar product’ are charged that.
  • Take a look at the jar on the left, peeking out from behind the strangely unlabelled tin. The one next to the jar of peppers. Infront of the ketchup. It's hard to tell, but could it be hardworking people's favourite white asparagus? Well, that would be exempt too, as would the peppers – canned and preserved vegetables have the same VAT liability as their unprocessed equivalents. 
  • An egg.
  • Two mystery tins – given the nature of the shop, they're likely to be zero-rated food too. 
  • So for which of the goods in the picture are you paying George Osborne his extra 20 per cent?

    • Three cleaning products.
    • Cola.
    • Lemonade.
    • Beer – but the Chancellor has cut the rate of duty on beer. Twice.
    • It doesn't end there. Labour might be complaining about the VAT rise, but it's not something they'll reverse if they win power in 2015. Last year Ed Miliband shelved his plan to do so. And to pay an extra £450 as a result of the VAT increase, you'd need to be spending £21,000 on goods attracting VAT at the full rate – something that would mean you were in the top fifth of income earners – and likely to be spending £40,000 a year on goods and services.