Don't sugar-coat sin taxes

By Michael Ward, Volunteer

This July, the UK saw record breaking peaks in temperature all around the country. Britons eager to enjoy the tropical heat flocked to the beach, donning their umbrella hats, and of course tucking into a cone of cool ice cream. But there’s a bitter taste on the horizon, with public health experts pushing for a ‘pudding tax’ to be imposed on ice cream and other sweet foods.

The UK is no stranger to such taxes. In April 2018, the introduction of a sugar tax imposed a levy upon the production of sugary drinks of up to 24p per litre – a cost that manufacturers can decide to pass onto customers.

When the sugar tax was announced by George Osborne in 2016, it was expected to raise around £500 million per year. As ever, this was optimistic. This figure has fallen to £240 million, as over 50 per cent of soft drinks manufacturers made changes to their recipes to avoid the levy. While supporters would claim this as a sign of success, manufacturers have simply adapted their recipes, lowering the sugar contents and replacing it with artificial sweeteners.

These same supporters are convinced that sin taxes work in curving consumption, but in reality the effect on consumption is not significant. One study found that only 1 per cent of consumers actually stopped drinking soft drinks after the introduction of the UK sugar tax. This is indicative of the effects of sin taxes around the world. For example, in Mexico, a sugar tax was introduced in 2014. The annual sales of soft drinks averaged 160 litres between 2007-13, rising to 162 litres in 2014 and only slightly decreasing to 161 litres post-tax. In other words, although sin taxes do impact consumption, they aren’t the most effective measures. Daniel Pryor of the Adam Smith Institute explains this phenomenon, stating that ‘many of those hit by the sugar tax will simply substitute more expensive soft drinks for cheaper alternatives.’

The same also applies to other sin taxes. Research by the Institute of Economic Affairs found that, while on average less alcohol is consumed in low income households, possibly an effect of the alcohol duty, alcohol-related health concerns were much higher. This is a phenomenon known as The Alcohol Harm Paradox. Among other reasons, this can be partly contributed to consumption patterns, with expensive alcohol prices forcing people to drink at home rather than in the safety of numbers at a pub or bar, incentivising lonely binge drinking. This again brings the health benefits of sin taxes into question.

The fairness and regressive nature of sin taxes must also be questioned, as according to the Office for National Statistics, around 30 per cent of the poorest households’ disposable income goes on indirect taxes such as VAT and alcohol duty.

When asked about the regressive nature of sin taxes, Michael Bloomberg – multi-billionaire and champion of the soda tax in the US – agreed that they were regressive, but that it was a good thing ‘because the problem is in the people that don’t have a lot of money’. This is not only a patronising view, but it is also making a large assumption that people will abandon their vices when the price of the good increases. As we’ve seen, it’s often the case that people will simply switch to a cheaper substitute.

It seems that the new prime minister, Boris Johnson, agrees with this view. A green paper published under Theresa May looked to extend taxes further to sugary milk-based drinks, suggesting that the government ‘may’ extend the sugar tax to milkshakes. This however, is looking unlikely under Johnson, who has stated that he believed sin taxes ‘clobber those who can least afford it’, and promised to review the effectiveness of these taxes.

The new government needs to put an end to these regressive taxes. The uncomfortable truth is that public health campaigners will constantly be advocating for further taxes on ‘unhealthy’ products. This is seen with the proposed ‘milkshake tax’ and even suggestions for taxes on red meat which would see a 79% levy on processed meat, these taxes would further leave consumers out of pocket, and likely not have the effect on consumption that public health experts claim. That is why the TPA continues to campaign against them.   

Let’s not sugar coat it: sin taxes don’t work and punish the most hard-up in society. Boris Johnson is right to question the legitimacy of these taxes, and should put an end to any proposal to expand upon them. Everyone should be able to enjoy the warm weather, with an ice cream, without these unnecessary and patronising taxes.