Greggs celebrates "pasty tax" U-turn

LONDON (Reuters) - The head of Greggs said the government's decision not to extend VAT sales tax to freshly-baked savouries was a victory for consumers as well as the UK's largest bakery chain, whose profits would have been hit by the plan.

"We have been fighting on behalf of the customer and I'm just delighted with the way the government have conducted themselves, and at the outcome," Chief Executive Ken McMeikan told Reuters on Tuesday.

"It's fantastic news for customers in what are already difficult times," he said.

McMeikan, a former Tesco and Sainsbury's executive and Royal Navy veteran of the Falklands War, had vowed to fight Britain's Conservative-led government "to the bitter end" after finance minister George Osborne proposed the so-called "pasty tax" in his March budget speech.

The Treasury U-turn, announced late Monday, means retailers like Greggs will not have to charge VAT of 20 percent on freshly baked sausage rolls and Cornish pasties, provided they are not kept warm in a heated environment, are not sold in heat retaining packaging and are not marketed as hot.

Shares in Greggs, which trades from about 1,600 stores in the UK and sells over 140 million sausage rolls a year, were up 6 percent at 494 pence at 0939 GMT, having fallen 14.5 percent in the last three months.

The firm had warned that with savoury sales representing over a third of its turnover implementation of the tax could have had a material impact on its sales and profit.

The proposed levy was derided by the public and media as showing how out of touch David Cameron's government is, especially after an attempt to portray himself as a pasty-eating man of the people backfired.

With consumers enduring higher prices, meagre wage growth, government austerity measures and growing job insecurity, opposition to the "pasty tax" had galvanised, even prompting media tycoon Rupert Murdoch to tweet on the matter ahead of his appearance at the Leveson media inquiry last month.

McMeikan said the government, which also watered down a proposal on taxing static caravans, should be praised for listening.

"The government and particularly David Gauke (Exchequer Secretary to the Treasury) have been great and they have listened and we applaud them for that," said McMeikan.

"They have very sensibly clarified some of the anomalies that did exist within the industry and made it much clearer."

Industry analysts were less forgiving.

"That Greggs' senior management has endured such distraction does not reflect well on the governance of the UK in our opinion," said Shore Capital analyst Clive Black.

"It most certainly cannot be considered a fit for purpose process for a supposedly business focused government nor is it consistent with de-regulation in our view.

Analysts also noted that one of the bi-products of the "pasty tax" debate has been to raise the national profile of McMeikan, whose resonance with his customer base could put him in the frame for bigger jobs.

For the time being, though, he is staying put. "I love what I'm doing," he said.

(Reporting by James Davey; Editing by Elaine Hardcastle)