Wednesday 3 July 2019

Boris says no to a milkshake tax and calls for a review of other sin taxes

Britain has had a nanny statist as prime minister for the last thirteen years (I'll give Blair a pass for his early years). Could it be that we are finally going to get a PM who stands up to the killjoys?

There are signs from the bookies' favourite, Boris Johnson, that we might...

Boris Johnson today declares war on ‘sin taxes’ on sugary and fatty foods – as he warns they hit the poorest with higher bills.

The Tory leadership frontrunner will promise to review Theresa May’s flagship sugar tax on fizzy drinks if he reaches No10, and insists it will not be extended to milkshakes.

He will also vow to freeze new taxes on foods which are high in salt, fat or sugar – and argue those who want to lose weight should just exercise more.

The policy would amount to a major reversal of government efforts to combat obesity. Last night news of the announcement sparked a backlash from health campaigners who accused Mr Johnson of ‘turning back the clock’.

Cue squealing from the nanny state lobby. Excellent.

Boris says:

‘The recent proposal for a tax on milkshakes seems to me to clobber those who can least afford it. If we want people to lose weight and live healthier lifestyles, we should encourage people to walk, cycle and generally do more exercise. Rather than just taxing people more, we should look at how effective the so-called ‘sin taxes’ really are, and if they actually change behaviour.’

‘Once we leave the EU on 31 October, we will have a historic opportunity to change the way politics is done in this country. A good way to start would be basing tax policy on clear evidence.’ 

This is in contrast to some depressing comments made by Jeremy Hunt recently, who seems to think it is his job to threaten businesses into forcing artificial sweeteners on consumers:

“The quickest way to deal with this [obesity] crisis, is for the people who manufacture milkshakes and other products to reduce the levels of sugar in those products so that the taste doesn’t change very much but they are much healthier.

“So, you threaten them, you say ‘we have been prepared to legislate if you won’t play ball’. But in my experience, if you make that threat, you don’t need to follow through with the dreaded milkshake tax.”

It is time for an independent review of sin taxes to be carried out without the involvement of true believers and their worthless computer models. Encouragingly, Boris's team seems to have looked at some of the empirical literature. Today's press release contains some unusually detailed notes to the editor:

In the last ten years there have been a series of academic papers that have both argued for and against the proposition that ‘sin taxes’ change people’s behaviour. While there have been some studies, and overviews of academic literature, that have concluded that ‘sin taxes’ are effective (for example, Wright et al., BMC Public Health, 2017, link), there have also been a number of studies that have raised questions over their overall effectiveness. For example, for sugar, some research has suggested that the tax could increase alcohol consumption (Quirmbach et al., Journal of Epidemiology & Community Health, link).


In the last ten years there have been a series of academic papers that have both argued for and against the proposition that ‘sin taxes’ are regressive and hit the poorest the most. While there have been some studies that have concluded that this is not the case (BMJ, link), other studies have concluded that these taxes are regressive. For example, some studies have claimed that a 20 percent tax on sugar-sweetened beverages would take three times as much from lower-income households than from higher income households, as a percentage of disposable income (Sharma et al., the effects of taxing sugar-sweetened beverages across different income groups, Health Economics, link). In addition, recent studies have suggested that sugar taxes do not reduce socioeconomic inequalities in diet-related health (University of York, July 2018, link).

It is very difficult to argue that sin taxes are not regressive. Indirect taxes on widely consumed items invariably hit the poor harder than the rich. The BMJ editorial (cited above) claimed otherwise by resorting to logical contortions and bald assertions.

As I said at the time, the BMJ article sought to redefine the word regressive, taking it away from economics and framing it in terms of health. Its basic argument is that although the poor pay more as a proportion of their income, they also benefit the most because they respond more to the tax.

Even if this were true, it would not stop sin taxes being regressive. But it is not true. There is no evidence that taxing soft drinks improves anybody's health, and rich people are more responsive to cigarette price hikes than poor people.

If Boris wants chapter and verse on the economic literature, he should read my short discussion paper Of Course Sin Taxes Are Regressive:

Many studies have shown the regressive impact of taxes on food, alcohol, tobacco and soft drinks; the very taxes that the Lancet wants to see increased. Often the studies are written by proponents of such taxes who acknowledge the added financial burden on the poor even while advocating for them. Lorenzi (2004: 61), for example, accepts that ‘[s]in taxes are regressive in practice if not in their design’ and Sharma et al. (2014: 17) accept that a 20 percent tax on sugar-sweetened beverages would take three times as much from lower-income households than from higher-income households, as a percentage of disposable income.

A systematic review of the literature on sugary drink taxes found that ‘[a]ll of these studies reported the tax to be financially regressive whereby lower-income households would pay a greater proportion of their income in additional tax’ (Backholer et al. 2016: 11). The findings of Chudá and Jansky (2016: 445), who use empirical evidence from the Czech Republic, ‘confirm the overwhelming evidence from other countries, that fat taxes are regressive in income.’ Chouinard et al. (2015) found that taxes on high-fat foods (in the USA) are ‘extremely regressive, and the elderly and poor suffer much greater welfare losses from the taxes than do younger and richer consumers.’ Interestingly, they also found ‘almost no behavioural effect’, with even a 50 per cent tax only lowering fat consumption by three per cent (ibid.: 20). Badenas-Pla and Jones (2003: 130) note that ‘excise taxes on alcohol and tobacco are regressive with respect to income (the usual measure of ability to pay), if poorer and more affluent consumers smoke and drink at the same rate. The regressivity is exacerbated if the prevalence is inversely related to income.’

The regressive impact is plain to see if we look at expenditure of whole income groups (quintiles, deciles etc.), but since not everybody in the group consumes the taxed product, we also need to look at the expenditure of individual consumers. When we do this, the impact is even more pronounced. Farrelly et al. (2012) found that expenditure on tobacco among low-income smokers in New York City increased from a sizeable 11.6 per cent to a staggering 23.6 per cent of disposable income following large rises in the excise tax on cigarettes. Across the USA in general, low-income smokers spent 14.2 per cent of their income on cigarettes in 2010/11 whereas high-income smokers spent just 2.2 per cent (ibid.).

Such taxes are not just regressive in the short-term. They also tend to be regressive over the course of a lifetime. Lyon and Schwab (1995: 405) found that the regressivity of cigarette taxes in the life-cycle is ‘virtually identical’ to the regressivity over one year (i.e. highly regressive). Alcohol taxes become ‘slightly less regressive’ if they are studied over the lifecycle but they remain ‘firmly regressive’ compared to general sales taxes (ibid.).

The regressive nature of such taxes was even apparent in the issue of the Lancet which implied otherwise. It included a study by Sassi et al. which focused on middle- and low-income countries where wealthier people tend to consume more tobacco, alcohol, snacks and soft drinks than the poor. Despite this, the authors were forced to conclude that ‘[l]ow income households bear the largest tobacco tax burden consistently across all countries’. When it came to ‘price policies targeting soft drinks and snacks ... again, the low-income households consuming these products tend to bear the largest financial burden’ (Sassi et al. 2018: 2067). Alcohol taxes were the only partial exception. They took a larger share of income from the richest quintile, but only because there were more teetotallers in the poorest quintile. When rich drinkers were compared to poor drinkers, ‘the burden borne by just the low-income households that consume alcohol is proportionately larger than the burden borne by high-income households consuming alcohol’ (ibid.).

This is so well established that most 'public health' campaigners don't bother trying to deny it (many of the studies mentioned above were written by dyed-in-the-wool nanny statists).

As for behavioural change, this is usually small to nonexistent because the products being taxed are price inelastic. Soft drink taxes have remarkably little impact on soft drink consumption, let alone calorie consumption, and have never reduced obesity anywhere, ever. Alcohol taxes have little impact on the heavy drinkers and alcoholics whose health is realistically at risk. And tobacco taxes have to be sky high before they have the kind of effect campaigners expect - at a huge cost to those of us who choose to smoke.

A lot of tax cuts have been promised during the Conservative leadership campaign, not all of them sensible or affordable. This is more like it from Johnson. The priority should be slashing the taxes which hit the poor hardest and punish people for their lifestyles.

Britain has extortionate taxes on alcohol and tobacco, and the sugar levy will soon spread to other products unless we get a prime minister who is prepared to stand up to the killjoys. 

1 comment:

Lucretius1 said...

It is time all these nanny state killjoys were stamped on firmly.