Governments look to heavier taxes in battle of the bulge

Food and drink are the new battlegrounds for health levies
Against the grain: there is a trend toward higher taxes on unhealthy food © Getty

Listen to this article

00:00
00:00

Taxation is a new weapon in the battle of the bulge. Faced with fast-rising rates of obesity and diabetes, governments worldwide are turning to fiscal measures to stop citizens piling on weight.

The latest trend began six years ago when Hungary put a levy on products containing lots of sugar, salt or caffeine. Similar moves — largely focused on sugary drinks — are under way across the world, from Spain to South Africa and from Philadelphia to the Philippines.

The new enthusiasm for taxing unhealthy food and drink is causing alarm in the sector. Some cite the precedent of the tobacco industry, where many governments have imposed ever-higher taxes, bans on advertising and strict rules on packaging to squeeze consumption.

“Sugar is the new tobacco,” says one executive, who adds that the hardening of governments’ attitudes “is one of the things that keeps me up at night”.

However, there is for now no serious proposal to crack down on sugary drinks to the same extent as tobacco. The taxes being introduced are far lower than those levied on smoking. In the UK, for example, tax accounts for about three quarters of the cost of a £9.40 pack of cigarettes. But when the UK introduces a sugar tax in 2018, it is expected to add about 8p to a 70p can of cola.

That level of taxation is unlikely to make a large difference to the nation’s health. Even assuming people do not switch to another product to get their sugar fix, a 15 per cent tax on sugary soft drinks would only lead to a 3 per cent decline in total sugar purchases, according to analysis by the Institute for Fiscal Studies, an independent think-tank.

The IFS points out potential drawbacks to focusing on a single ingredient. Consumers might switch to untaxed substitutes such as chocolate, which is “also high in sugar and contains saturated fat to boot”. The Institute of Economic Affairs, another think-tank, agrees. “There is no guarantee that the substitute products will have fewer calories or be better for health.”

There is no reason why “sin taxes” should not target a broader range of unhealthy food and potentially give a bigger boost to health. In January 2014, Mexico passed an 8 per cent tax on high calorie, non-essential foods including salty snacks, chips, cakes, pastries and frozen desserts. Early signs suggested it had an impact: researchers reported a 5 per cent fall in sales of the taxed foods over the course of the year.

Hungary’s fat tax — covering a range of similar items — is another success story, at least in the eyes of the World Health Organization (WHO). A 2012 impact assessment showed that about 40 per cent of manufacturers changed their product formulas to reduce or eliminate unhealthy ingredients.

Hungary’s experience illustrates a broader point. Taxes can encourage manufacturers to reformulate products to make them healthier. The UK government argues that its sugar tax will not necessarily be passed on to consumers: “If companies take the right steps to make their drinks healthier they will pay less tax, or even nothing at all.”

The British sugar tax will fall harder on the most sugar-laden drinks, giving the industry an incentive to cut sugar content. In November, Tesco, the UK supermarket group, announced it had halved the sugar content in some drinks such as cola. It said all its own-brand drinks were now below 5g per 100ml — the level at which the sugar tax kicks in.

Much of the industry is lobbying against sugar taxes, arguing that they hit the poor and cost jobs. In Britain a business coalition launched a “Face the Facts, Can the Tax” campaign. It claimed that the proposed levy threatens 4,000 jobs, basing this on analysis by Oxford Economics, which said the hospitality trade and small retailers would be hardest hit.

Industry lobbying has been successful in some countries. Denmark, for instance, repealed its 80-year-old tax on soft drinks in 2014 in response to lost revenues and jobs after shoppers crossed to Germany or Sweden to shop.

Advocates of higher taxes are not about to back down. According to the WHO, “the beverage industry will do everything it can to avoid taxes, using the same well financed — and well recognised — scare tactics used by the tobacco industry.”

It believes the scale of health risks associated with obesity — the prevalence of which doubled worldwide between 1980 and 2014 — requires action. Last October, it called for the price of sugary drinks to be raised by 20 per cent or more. Douglas Bettcher, a director of the WHO said: “If governments tax products like sugary drinks, they can reduce suffering and save lives.”

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.