It’s early morning over here in New South Wales, so I’m quite late getting around to reading up on the interstices of the UK budget. As I blogged on the issue some time ago, it seems appropriate to comment on the Chancellor’s announcement in the budget that he intends to introduce a sugar tax. The details were announced as follows:
“I am not prepared to look back at my time here in this parliament, doing this job and say to my children’s generation:
I’m sorry. We knew there was a problem with sugary drinks. We knew it caused disease. But we ducked the difficult decisions and we did nothing. So today I can announce that we will introduce a new sugar levy on the soft drinks industry.
Let me explain how it will work. It will be levied on the companies. It will be introduced in two years’ time to give companies plenty of space to change their product mix. It will be assessed on the volume of the sugar-sweetened drinks they produce or import. There will be two bands — one for total sugar content above 5 grams per 100 millilitres; a second, higher band for the most sugary drinks with more than 8 grams per 100 millilitres.
Pure fruit juices and milk-based drinks will be excluded, and we’ll ensure the smallest producers are kept out of scope. We will of course consult on implementation. We’re introducing the levy on the industry which means they can reduce the sugar content of their products — as many already do. It means they can promote low-sugar or no sugar brands — as many already are. They can take these perfectly reasonable steps to help with children’s health.
Of course, some may choose to pass the price on to consumers and that will be their decision, and this would have an impact on consumption too. We understand that tax affects behaviour. So let’s tax the things we want to reduce, not the things we want to encourage. The OBR estimate that this levy will raise £520 million.”
In my earlier blog, I had assessed the possibility of introducing a sugar tax and gave it a qualified backing provided it could be first demonstrated that an increase in price would reduce consumption in the target problem group. I had also stressed that a sugar tax should not be introduced as a standalone measure, but should come hand in hand with working with industry and education. The reason for qualified support was that the measure seems to have had some effect in other countries where similar measures have been introduced, but of course, there have likewise been myriad problems.
The Chancellor in his announcement acknowledged the multitude of practical issues. To this end, he plans to grant exemptions for fruit juices, milk-based drinks and small producers; he pointed out that the cost might not necessarily be passed on to consumers and (h/t Professor Freedman) quite paradoxically, the Chancellor champions the measure as both changing behaviour whilst simultaneously bringing in £500mil (of course, that is an OBR estimate, which has about as much credibility these days as the Catholic Church). Additionally, the Chancellor acknowledged the role that industry should play in reducing sugar intake. However, it was not actually explained (and perhaps Treasury has had its own impact assessment performed which has yet to see the light of day) why the Chancellor has faith that this measure will actually reduce sugar consumption in the target problem group. The IFS is similarly minded that evidence of effect is needed (page 31):
“While this policy may seem an attractive solution to the growing problem of obesity- and diet-related illness, it should be carefully evaluated in order to avoid generating unintended consequences such as worsening other aspects of dietary health. Diet is multifaceted, which makes designing policy to improve nutrition relatively difficult: while smoking each cigarette, for example, is associated with harm and little obvious good (beyond the immediate gratification of the smoker), consumption of some products that contain sugar also involves the intake of nutrients that can contribute to a healthy diet. This makes the consequences of a broad based tax on sugar uncertain; further evidence of the possible effects is needed”
Taking these together, I am willing nevertheless to support the Chancellor’s punt on the sugar tax. Yes, it is a headline-grabbing measure that masks the grimmer details of the budget. Yes, it is very unfortunate that the Chancellor did not disclose in greater detail the reasons underpinning his faith in the ability of the measure to actually work. Yes, there will likely be many problems with the implementation and producers are likely to get up to all kinds of shenanigans to avoid the imposition. Yes, history is generally not on his side in terms of changing consumer behaviour through the indirect tax system. But the studies from overseas provide reason for, in the least, guarded optimism on the utility of the measure. Far from being the first time that the exchequer is willing to take a punt on a measure, the additional 24p levy on soft-drinks is dwarfed by the various expensive, ill-thought through measures introduced generally during the biannual (even triennial) tinkering with the tax system.
So if it turns out not to work, it can just be scrapped.