Comment by seabass-labrax

In a way it's not completely tax-free; the embodied costs of producing and selling the cake are still taxed with employee income tax, National Insurance, import duties and so on.

The UK's exemption from VAT covers lots of things, but not an entirely logical selection: cakes are considered staples and are exempt, but drinks (including soft drinks, beer and mineral water) are taxed at the full 20% rate.

In general, I would personally prefer that the UK not have VAT, as it's a regressive tax (people with lower incomes pay a greater percentage of their income on it than high earners do).