Budget 2016: sugar tax surprise

One of the surprise measures in today’s budget was a sugar tax through a levy on soft drink manufacturers. The levy, which will come into force in two years, is expected to raise £520 million once implemented that will be spent on school sports — the equivalent of 18 – 24p per litre, according to the government.

We have written before about the overwhelming evidence in support of a sugar tax and welcome this move. Let’s address some objections that are frequently made:

1. The claim that there is no link between diets and health

Last month, when the government’s obesity strategy was delayed once more (amid speculation that the government was postponing making a decision on a sugar tax), we assessed the claim that there is no link between diets and health, as calories and sugar consumption have actually been falling while obesity has increased.

This claim is of course a simplification of the influences on public health. But it also ignores that sugar consumption could be falling from much too-high, to still too-high, and the fact that the increase in obesity has slowed to a halt over this same time period.

2. Sugar tax is regressive and would hit the poor hardest

Another objection (that has already been levelled against the Chancellor’s levy) is that a sugar tax is regressive and would hit the poor hardest. As with most forms of consumption this is undoubtedly true, but we should think more deeply about the actual distributional consequences of policy. After all, a sugar tax is designed and supported precisely for the reason – that it helps those on low-incomes through improved health. Dismissing a sugar tax because of the costs it incurs to an individual is missing the other half of the picture. A proper policy assessment should consider benefits as well as costs.

The Institute for Fiscal Studies, which has done a series of excellent studies on sugar taxes makes this point clear in setting out their framework:

“To assess the overall effect of the tax and whether low or high income consumers would be affected more, we would need to set the costs imposed by the tax on consumers through higher prices against the potential health benefits arising through their changed behaviour.”

Sure enough, studies have shown that the poor are more price sensitive and at greater risk of obesity they also gain the greatest health benefit from a sugar tax. As improved health can benefit individuals in a whole host of ways — including financially through improved productivity at work — this point should not be lost.

Going further, some economists question whether it makes sense to look at the distributional costs (and benefits) at the level of one specific policy. People are interested in the impact on their pocket-book, but that impact is felt from the whole host of policies mentioned in the budget and beyond. Isn’t it better to analyse the distributional effects of the government’s policies taken as a whole?

Writing in the Financial Times last week Tim Harford addresses this point in his proposal for higher ​“sin taxes” on petrol and sugar:

“There are better ways to deal with inequality than by cutting sin taxes. People on low incomes need support but that help is better provided through tax credits, child benefit or good public services rather than cheap booze, sweets and tobacco. We are all free to buy vodka and cigarettes. Yet trying to make them cheaper would be a strange way to address social justice.”

Certainly there is much more to do to tackle obesity than this drinks levy alone. Even the levy itself is overly specific to the soft-drinks industry for a problem that is about sugar from all sources. Another improvement would be to promote sugar labelling on products to further the desired effect on behavioural change.

Perhaps most important of all is for the government to release their long-delayed obesity strategy. If announcing a sugar tax was the hard step then there should be no reason for further delay.