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Greggs warns pasty tax could hit sales and profits

Category : Business

UK’s biggest bakery chain warns government plan to charge VAT on freshly baked goods will lead to ‘further unemployment, high street closures and reduced investment’

Greggs has warned the government’s proposed “pasty tax” could have a “material impact” on its profits and force it to close some stores.

Derek Netherton, chairman of the UK’s biggest bakery chain, said George Osborne’s plan to charge VAT on freshly baked goods will lead to “further unemployment, high street closures and reduced investment”.

“Savoury sales are more than a third of our turnover, and the outcome of the consultation process could have a material impact on our sales and profits,” he said in a trading update.

The profit warning sent Greggs shares, which have already lost 13% of their value since the changes were announced in the budget, down 19.5p to 476.5p in early trading.

Netherton said the extension of the 20% VAT rate to freshly baked food would have a “disproportionate impact” on the “speciality bakery sector”. He said Greggs will formally submit its objections to the proposed changes, which he said were “unworkable”.

“We support the government’s aim of tax simplification, including clarification of the definition of ‘hot takeaway food’. Greggs has always charged VAT on products in this category, such as hot sandwiches, soup and hot drinks,” he said. “What we cannot support is the government’s current proposal to extend the standard rate of VAT to freshly baked food where there is no attempt to keep it hot and which is not designed to be kept hot.”

Greggs reckons it would be better if VAT were charged on all food kept hot for sale, reheated to order or sold in heat-retaining packaging. This would mean freshly baked pasties served while they were cooling would be exempt from VAT.

The Newcastle-based baker has already delivered a petition with almost 500,000 signatures to Downing Street.

Greggs executives are likely to come under further pressure from shareholders to put a figure on the expected cost of the proposed changes at its AGM in Newcastle on Wednesday afternoon.

Despite the publicity created by the “pasty tax” Greggs’s like-for-like sales dropped 1.8% over the three months to 12 May. The company blamed the “exceptionally wet weather in April and early May” for the decline. Total sales were up 4.3% due to the opening of 25 shops.

The company is also pushing ahead with its ambitious move into the coffee shop market with opening of its second “Greggs moment” coffee shop in Middlesbrough and plans for three more before September.

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