Why The Sugar Tax Will Not Work

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With rising child and adult obesity levels, the UK government has finally taken a stance against the products contributing to obesity. The sugar tax will affect soft drinks, with pure fruit and milk based drinks being exempt from the taxation. There will be two bands; one for drinks that have more than 5g of sugar per 100ml and one for drinks that have 8g of sugar per 100ml. The tax will be enforced in two years to allow manufacturers to adjust to the new policies.

Initially, the tax seems a sensible measure to combat the growing rates of obesity, especially amongst children. Countries such as Mexico and France – as well as many states in the US – have enforced similar policies with varying results. Whilst the tax applies to producers, judging by past examples it will be levied onto the consumer. These countries have also seen the prices of the taxed products increase more than just the expected tax amount, effectively leaving consumers worse off and allowing companies to justify a substantial price increase.

The ultimate aim of the tax is to decrease consumption of these goods and therefore make the population healthier. A European Competitiveness and Sustainable Industrial Policy Consortium survey indicated that in Finland soft drink prices increased by 7.3% for two years running, yet consumption dropped by one percent in the first year and 3.1% in the second, effectively making the tax useless. The reason for this could be that food and drinks are essential items and studies have shown that they are inelastic; in other words, that demand is not affected significantly by changes in price. The sugar tax will do nothing but increase taxation and do very little to cause a decrease in consumption and, due to the nature of the tax, it will hit the poorest families the worst.

It’s high time this policy is put to bed. It would hit the poorest the hardest, and the evidence shows it would have little effect on consumption or obesity.

Chris Snowdon, Head of Lifestyle Economics at the Institute of Economic Affairs

The Chancellor intends to raise over £500 million from the tax in the first year and over £1 billion in the first three years. According to the IEA, sugary drinks only amount to 3% of our energy intake and the revenue in taxation generated from this will be very little. Furthermore, this is an industry that has already introduced products that contain reduced or even zero sugar. In Denmark, the increase of prices led people to shop at discount stores or switching to cheaper brands. Ultimately, it didn’t cause any change in sugar intake, showing that consumers did react to the tax but not in the intended way.

Even if the sugar tax works, it will merely be a drop in the ocean of the larger problem of obesity. The Chancellor has only enforced the taxation on soft drinks, leaving many sugary foods and drinks unaffected. Consumers still have access to these untaxed foods and can use them as substitutes, so there might be a decrease in soft drinks but an increase in chocolate, which can contain more sugar, creating the same problem. Because the Chancellor’s main target is sugar, increasing the price of sugary drinks will not significantly lower sugar intake as substitutes can easily be found.

The sugar tax is another form of taxation that will not resolve the problem it set out to prevent. If anything, the tax could be the start of a new wave of fiscal policies trying to combat obesity. Other foods that are deemed unhealthy could suffer similar consequences. Paternalism is not the answer; people know that sugar is bad. That does not mean it should be taxed.

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