The government’s U-turn on the so-called “ pasty tax” has been presented in some quarters as a triumph for popular democracy to rival John Hampden’s revolt against the ship money. But this belies its real significance: George Osborne’s humiliating defeat has saved for the nation one of the tax system’s endearing idiosyncrasies.

One can argue whether this is a good thing or not. Some favour a rational tax system that contains no amusing anomalies. But who can deny that one of the few joys of value added tax is its propensity for generating “angel on a pinhead” disputes about where to draw the boundary between items to which it applies and those that are zero-rated.

Perhaps the best known of these is the 1991 legal dispute between the taxman and McVitie’s about the status of the humble Jaffa Cake: was it a Vat-able biscuit or a zero-rated cake? It is somehow comforting to live in a country where a judge has troubled to define the distinction between cake and biscuit. Since you ask, the former is soft when fresh and hard when stale, while the latter is the reverse.

True, Mr Osborne’s proposed reform– which would have applied Vat to hot food – would not have eliminated all the boundaries that exist between different types of grub. To do so would require the government to lift the zero-rating on food entirely, something no administration with an instinct for self-preservation is likely to attempt. But the purpose was to create a dull, predictable and level playing field for takeaway retailers.

A media campaign laden with class overtones has put paid to those plans. Its masterstroke lay in comparing zero-rated caviar (presumably served takeaway and consumed off the premises) with those newly-Vat-able pies. To avoid the charge of exhibiting a Marie Antoinette-like contempt for the working man, Mr Osborne obediently recanted.

What the government now intends seems pregnant with satisfying ambiguities. It still intends to levy Vat on hot food wherever it is sold. But how to define “hot” or “cold”? Vat will not be charged on items such as takeaway pasties and sausage rolls so long as they are not sold as hot food, or kept hot after baking by the shop that sells them. But if they have just come out of the oven and are hot when sold, they will still be treated as if they are cold food – even if they are piping hot. Clear?

There seems plenty of scope for dispute. Imagine the situation where a baker knows that his customers like their pies warm, so bakes them just before the lunchtime rush. So long as they are left cooling, even for just a few seconds, presumably they are 16.7 per cent cheaper. Or consider the sandwich shop selling a toasted panino. If the retailer hands the item directly to the customer, it is clearly Vat-able. But what if he places it first on a rack to cool? The rotisserie chicken enjoys an exemption because it is deemed to be heated for health and safety reasons. Where does Mr Osborne’s reform leave it? Who knows.

So the chancellor, far from making things simpler, may actually have managed to add another layer of complexity to a Byzantine system. What is clear is that he has not banished the absurd spectre of the taxman prowling the nation’s pie-shops armed with a thermometer.

Mr Osborne’s pasty tax may not have come off, but he need not give up on reform entirely. After all, Vat presents a target-rich environment for the tax simplifier. There’s the boundary between children’s and adult clothes, which has become disputatious since children grew bigger and adults started dressing like children. Or the vexed question of the yoghurt based smoothie, which enjoys Vat-exempt status unlike its fruit-based equivalent. Notebook could go on, but somehow it doesn’t think the chancellor will be trying.

Caravanners’ clout

Executing a U-turn on the Vat levied on food is one thing. As any motorist knows, attempting such a manoeuvre with a caravan is much more perilous. But Mr Osborne has not only backed off from confronting the nation’s pie-lovers, he has also diluted his so-called caravan tax to the point of near-invisibility. To understand why, it is necessary to know a single statistic. Britain’s Caravan Club boasts 1m members. All the political parties in the country put together barely boast half that. Game, set and match to the caravanners.

This article has been amended since publication to correct a percentage figure

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