Britain has an obesity problem – and it’s getting worse. According to a report from the King’s Fund think tank, the proportion of obesity in deprived areas is 37 per cent, up from 32 per cent three years ago.
Theresa May’s government tried to curb obesity with the “soft drinks industry levy” in 2018 – the “sugar tax” as it was rapidly named. Soft drinks containing more than a certain amount of sugar had to pay a tax which rose with the sugar content. Putting the price up would reduce consumption.
A Cambridge University study published last year suggested the former prime minister’s tax had some degree of success. In 2019, a year after the tax came in, consumers had switched choices of soft drink and the sugar content consumed fell by 10 per cent.
But the jury is still out on the final verdict. With many taxes on consumer products, the increased price does alter behaviour initially, but over time the effect fades.
Policies such as the sugar tax are introduced with the best of intentions. By increasing the price of products deemed to be undesirable, policy makers want to help people to help themselves.
The price goes up so the amount consumed goes down. What could be more simple and effective? Unfortunately, in real life as opposed to basic economics textbooks, people often respond in very creative ways to changes in incentives.
The experience of the SNP with their minimum alcohol pricing law offers a salutary caution. Nicola Sturgeon introduced it with great fanfare in 2018. “Minimum unit pricing is the most effective and efficient way to tackle cheap, high-strength alcohol”, she proclaimed, “the eyes of the world will be on Scotland”.
An academic study commissioned by the Scottish government and released in June might make Sturgeon hope that everyone has been looking elsewhere instead.
The hard-core older drinkers who were the real targets of the policy seem to have continued to drink, instead paying for it by cutting back on how much they spent on food and heating.
Last week, the Scottish Drugs Forum struck a further blow to the policy: young people in particular do seem to have cut back on high alcohol drinks. But they are spending the money on cheap street drugs instead. These are often unreliable and dangerous products, and the drug related death rate in Scotland is now four times higher than in England. Taxes to promote individual health often have these unanticipated, adverse consequences.
Jerome Adda and Francesca Cornaglia of UCL examined how smokers responded to different tax rates across the US states in a 2006 paper in the American Economic Review.
The topline was: the higher the rate of tax, the fewer cigarettes smoked. But higher rates meant smokers switched to brands with higher tar and nicotine yields. They also increased their intensity of smoking by smoking right down to the butt which led to even further tar and nicotine consumption.
Boris Johnson was under a huge amount of criticism for not bringing in yet more “sugar and salt taxes”, following Henry Dimbleby’s review into health standards in the UK. Liz Truss is now facing a similar backlash after promising to ditch the “buy one, get one free” ban.
In this instance, at least, their judgement is sound. People often respond to well-intentioned taxes in ways health experts fail to anticipate, and often, they wind up doing more harm.
As published in City AM Wednesday 3rd August 2022