Friday 15 February 2019

The cost of banning BOGOFs

The UK's banny state government is currently consulting on how it should raise the cost of living and dictate to shopkeepers where they display their stock. Specifically, it wants to hear from 'stakeholders' about the following:

  • restricting volume-based price promotions of HFSS [high fat, sugar and salt, but not actually that high if you look at the definition - CJS] food and drink that encourage people to buy more than they need, for example, ‘buy one, get one free’ and free refills of sugary soft drinks
  • restricting the placement of HFSS food and drink at main selling locations in stores, such as checkouts, aisle ends and store entrances

Let's leave the unspeakably meddlesome proposal for state control of shop layouts to one side and look at the proposed ban on discounts. This is going to hit consumers in the pocket and will have the worst impact on people on low incomes looking for bargains. A Public Health England document let slip back in 2015 that...

There is also evidence that during the high inflationary period of 2008-2010, promotions were a useful coping strategy for shoppers to manage the worst effects of food and drink inflation.

Naturally, the government is keen to close that little loophole! How much will it cost? Public Health England commissioned some modelling from Kantar and found...

Promotions at this level do of course play a role in helping shoppers reduce the cost of the items that they choose to buy. Based on the breadth and depth of promotions we can calculate a “giveaway” figure which equates to a 16% or approximately £634 reduction on a typical household’s annual, take home food and drink bill. 

£634 a year! And the government is seriously considering this?!

To be fair, this is an estimate of how much extra people would need to spend if they carried on buying the same quantities of the same products. Presumably, the price effect would make the real figure somewhat lower. Kantar didn't estimate what the real figure would be, but their report suggests that discounting leads to a 22 per cent increase in sales. If we take off 22 per cent, we are still looking at household spending an extra £500 a year.

We can also expect shops to lower regular prices and offer temporary multi-buy deals (which won't be banned). This will cushion the effect further but the net cost to the average consumer is unlikely to be zero and for hard-pressed consumers who rely on discounts, it is likely to be substantial.

Moreover, the Kantar estimate is based only on a ban on discounting sugary products. Back in 2015, Public Health England were still pretending that the war on food would start and end with the battle against sugar. Things have moved pretty swiftly since then and the current proposal is for a ban on all multi-buys for all HFSS food (or all HFSS food in the reformulation scheme, which is most of it) in all shops, restaurants, cafés, pubs, petrol stations etc.

As defined by the puritanical Nutrient Profiling Model, HFSS includes pretty much everything that isn't a raw ingredient or a health food and Public Health England is in the process of raising the bar even higher. HFSS food already includes such 'junk food' as dried fruit, hummus, pesto, ham, olive bread, cheese and margarine. It will soon include freshly squeezed orange juice and most high-fibre breakfast cereals.

If a ban on the promotion of sugary products is going to clobber consumers, a ban on all HFSS promotion is going to cost them a lot more.

So what is the putative health benefit of this grand financial imposition? The answer is tucked away in the Impact Assessment. The expected reduction in calorie intake for children from the government's preferred option ranges from er, seven to nine calories a day.

If this sounds utterly negligible to you, you are right. The Impact Assessment notes that 'overweight and obese children consume between 140 and 500 excess calories per day for boys and between 160 and 290 for girls'.

How can any government think it's fair or reasonable to force ordinary households to spend hundreds of pounds a year to reduce their children's calorie intake by this pitiful amount, especially when the vast majority of children are not overweight or obese?

But don't worry because the Impact Assessment has run the numbers and concludes, contrary to Kantar, that the policy will not cost consumers a penny. Its authors happen to use exactly the right assumptions and price elasticities for it to leave consumers no worth off and no better off than they were before. Meanwhile, the tiny reduction in predicted calorie intake will save billions of fictitious pounds over a 25 year period. Seems legit!

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