Greggs warns George Osborne’s ‘pasty tax’ could hit profits and jobs

Shares in the company closed 4 per cent lower after the warning, which came ahead of a key meeting today with the Treasury, at which Greggs is due to present an alternative approach to the so-called “pasty tax”.

Chairman Derek Netherton said: “We believe the solution is to see VAT charged on all food kept hot for sale in a heated environment after cooking, all food re-heated to order and all food supplied in heat-retaining packaging.”

Greggs, which sells bread, cakes, sandwiches and savouries to six million customers a week, has been a vocal opponent of Chancellor George Osborne’s proposal, unveiled in the Budget, to extend 20 per cent VAT to hot food served by bakeries and supermarkets.

Chief executive Ken McMeikan helped deliver nearly half a million signatures to Downing Street last month, claiming the tax would hit the poor hardest.

The Treasury has said it will create a level playing field with the likes of burger bars and fish and chip shops, which already have to charge VAT on takeaway sales.

However, Netherton described the plan as “unworkable” and warned it would have a disproportionate impact on the specialist bakery sector, leading to further unemployment, high street closures and reduced investment. A consultation on the proposed tax change, which was approved by the UK parliament last month despite a sizeable rebellion from coalition backbenchers, ends tomorrow.

The bakery chain, which has 1,600 shops in the UK, said it had endured six “disappointing” weeks of trading as a result of recent heavy rainfall.

Like-for-like sales fell 1.8 per cent in the 19 weeks to 12 May, but its aggressive store-opening programme helped lift total sales by 4.3 per cent in the period.

McMeikan said: “Given how awful the weather has been over such a sustained period, the fact our like-for-like sales have not worsened since we last reported is a comparatively strong performance.”

However, Wayne Brown, an analyst at Canaccord Genuity, said: “We view current trading as disappointing and do not see a positive catalyst until we get clarity on the VAT issue.”

The group opened 25 shops in the period and is on track to open a net 90 shops by the end of the year. The baker said it also completed 42 shop refurbishments in the period, in line with its plan to refit up to 120 shops this year.

It has also expanded the range of products it supplies to supermarket chain Iceland and plans to open three more coffee shops by September, following the launch of a trial cafe in Newcastle this month.

The group said the performance of its first motorway services shop in Cheshire remains “encouraging”. Its second shop, in partnership with Moto Hospitality, is due to open at Birch services on the M62 next month.

Shares in Greggs, which have fallen about 10 per cent since the Budget in March, closed down 19.6p at 476.4p, valuing the company at £482 million.