Friday, 16 July 2021

Denmark’s fat tax was a failure — but revisionists are trying to rewrite the story

First published by Spectator Health in August 2015

The short tale of Denmark’s ‘fat tax’ can be easily told. After being voted for by an overwhelming majority of MPs, the tax on saturated fat led to inflation, cross-border shopping, job losses and huge administrative costs. It had very little effect on the consumption of saturated fat because Danish shoppers downgraded to cheaper brands from budget supermarkets, often in cheaper countries. It did, however, clobber the poor — as indirect taxes usually do. Since it had a negligible impact on consumption, it is unlikely to have had any impact on health. Once it became clear that the fat tax was creating lots of costs and no benefits, an overwhelming majority of MPs voted to repeal it. In January 2013, 15 months after it was introduced, it was abolished.

A couple of years ago I wrote a brief history of the Danish fat tax for the Institute of Economic Affairs, so it is with interest that I have watched history starting to be rewritten in recent months. An article in the European Journal of Clinical Nutrition earlier this year claimed that the tax was more effective than was previously thought. The authors claimed that the sale of fatty products fell by 10 to 15 per cent as a result of the tax and that the ‘intended effect on fat consumption appeared to have been achieved’. They concluded that the tax was introduced primarily for economic reasons and that if the Danes had stuck with it as a serious health policy, they would have reaped the rewards. This view was echoed in an opinion piece in last week’s British Medical Journal, which repeated the claim that consumption fell by 10 to 15 per cent and asserted that the tax was repealed as a result of ‘worries about border trade and lobbying by industry’, rather than the serious and widespread concerns that were reflected in Danish newspapers at the time.

The only part of this revisionist history that stands up to scrutiny is the role of economic concerns in bringing about repeal. There is no doubt that the tax was abandoned, in large part, because it was inefficient, ineffective and unfair. And why not? Yes, the food industry lobbied against the tax when it was in place, but they had been lobbying against it for several years before it was introduced — with no success. The tax was not abolished because the food industry suddenly became more powerful, but because ordinary Danes could see it failing before their very eyes.

It is simply wrong to assume that the fat tax was introduced for financial reasons. The Danish fat tax was unusual in being explicitly revenue-neutral from the outset. It was carefully calibrated to bring in just enough money to make up for a lowering of income tax that took place at the same time. In the event, it brought in more revenue than was expected because it didn’t reduce saturated fat consumption as much as the computer models had predicted, but it was never intended to increase the overall tax burden. It really was a health policy, first and foremost, but even if it had been a money-making scheme, this wouldn’t explain why it was ditched. It was very successful in bringing in money.

The key claim of the revisionists is that sales of fatty products fell by 10 to 15 per cent figure as a result of the tax. This figure comes from a study that looked at sales of butter, margarine and cooking oils in the first three months of the tax’s existence. The study did indeed show a fall of 10 to 15 per cent in those early days but there is a simple explanation for this. Knowing that the tax was to be introduced on 1 October 2011, thrifty Danes stockpiled fatty products in advance. The extent of the hoarding is shown in the graph below. Note the massive spike in sales just before the tax was introduced.