Sainsbury’s boss envisages tax change as Government tries to balance the books

Sainsbury’s chief executive Justin King has cautioned that a ‘fat VAT’ could be applied to some food products by the new coalition government as it seeks ways to cut the country’s mounting deficit.

In a meeting with analysts last week, King - who is opposed to VAT on food - said he thinks the Government might alight on the idea of levying the tax on products perceived as less healthy, such as those high in fat or highly processed, as being more socially acceptable than a blanket imposition.

King said that VAT on fresh food would be “regressive” and “bizarre” because it would hit poorer families the hardest, but saw no evidence that option was being considered.

At present, VAT is already levied on alcohol and some crisps, snacks and confectionery. Some observers believe extra taxes on such products would have a beneficial impact on health problems such as obesity.

Collins Stewart analyst Greg Lawless said: “Extending VAT to further unhealthy foods could be seen as a sensible halfway house that is more socially responsible than other ideas that have been floated, such as VAT on fresh foods, which is seen as regressive.”

The speculation followed the decision of the Food Standards Agency earlier this month to consult on whether taxing certain foods would encourage people to make healthier eating choices.

King’s comments came as concern about a VAT increase mounted ahead of the emergency Budget next month, and retailers adopted divergent stances.

Kingfisher chief executive Ian Cheshire this week called on the Government to consider extending VAT to food and other exempt items. He said there is a case for assessing a broader application of VAT rather than simply putting the standard rate up.

Marks & Spencer chairman Sir Stuart Rose said that any VAT rise would be “unpalatable”, but if the tax rate is changed retailers need to be given plenty of notice.

Some general retailers are already preparing for a VAT increase from 17.5% to 20%. Fashion chiefs - also hit by rising cotton prices - are poised to up prices for autumn.

Yesterday the British Retail Consortium published a study claiming that raising the VAT rate to 20% would cost 163,000 jobs over four years and reduce consumer spending by £3.6bn over the same period. BRC director-general Stephen Robertson said: “The Government must deliver a route to stability by avoiding damaging tax rises.”