Read more: Duel: should we have a sugar tax?
In common, I suspect, with most Prospect readers, I don’t think about tax when I shop for groceries. At no point in the supermarket do I say to myself: oh, yes, these potato crisps are subject to VAT, but those beetroot crisps are not. At the checkout, I don’t ponder the tax distinction between flapjacks and cereal bars, or smoothies and juice, or ice cream and frozen yoghurt, although these distinctions affect the amount of money they cost. And, when I leave the shop with a couple of bottles of wine, I don't reflect that the liquid inside is subject both to VAT and excise duty and that most of the price I paid was tax.
If I did pause to think, would I choose differently? Research by behavioural economists such as Daniel Kahneman shows that we struggle when faced with too many choices and are easily fooled into paying attention to one thing rather than another. Those responsible for selling me groceries have been managing my attention with increasing sophistication for many years. Since Edward Bernays, a nephew of Freud, invented modern marketing we have been guided towards some choices rather than others. And the food industry has been guiding us towards choices with two common features: they tend to have the highest profit margin; and they tend to make us fat.
There are other reasons why westerners are getting fatter, of course, such as our sedentary lifestyles. But the obesity crisis and its associated costs are inextricably linked to our intake of calories, and especially to the refined and processed additions to our food that make it so convenient, cheap and enticing. It is easy to get from here to the case for a sugar tax: if food and drink containing excessive amounts of sugar is made more expensive then we will buy less of it, and then we won’t eat it and get so fat.
I believe that there are two main problems with the sugar tax. One reason is that it will be invisible to the consumer, as VAT is now, and have only a marginal effect on the total cost of a shopping basket. The second reason is that sugar is by no means the only problem: what about trans fats? Or refined wheat? Or acrylamide? I don’t disagree with the idea of using taxes to address the problem—quite the reverse. A sugar tax does not go far enough.
In my new book Bad Habits, Hard Choices I propose a wholesale revision of VAT, in which negative VAT is applied to healthy foods and high VAT to unhealthy foods. Crucially, the amount of VAT charged on each product should be displayed to the consumer.
Obviously deciding on what counts as “healthy” or “unhealthy” has the potential to be contentious. This is not something that could be simply left to government, nutritionists, or food manufacturers and retailers. It could, however, be done through a large-scale deliberative process, similar, for example, to the process used by the Joseph Rowntree Foundation to establish a “minimum Income standard.” A representative sample of the population could work with nutritionists over a few months to classify food and drink products. An exercise of this kind, on a small scale, was recently conducted by the Vincentian Foundation in Northern Ireland.
Such a process would in effect be what the economist Thomas Schelling calls a “commitment device,” a mechanism by which we collectively impose a new rule upon ourselves. We don’t want to be obese; so we’re going help ourselves to achieve that by making good food cheaper and bad food more expensive. An organisation modelled on NICE—the National Institute for Health and Care Excellence, which decides which treatments are available through the NHS—could then administer the new VAT. It would decide the rates, and adjust the system as consumers, manufacturers and retailers respond to the new price structure.
Further work to calculate the new VAT rates would be necessary, but I suggest something in the order of -20 per cent on healthy foods, +25 per cent on unhealthy foods, and +5 per cent on everything else. Correctly calibrated, such a distribution could be neutral for the Treasury (that is, government revenues from VAT would remain the same) and progressive for the consumer (that is, lower income consumers would benefit more than better off households).
Consumers would, each time they went shopping, have a new kind of choice, and a visible one. Here, a healthy food item, which is not just cheaper, but is clearly labelled as a bargain. There, an unhealthy item, which you can still buy, but it costs more than it used to.
I cannot claim that this change would solve the obesity crisis. But it has the potential to jolt us from our corpulent lumbering onto a far healthier trajectory. Given the scale and urgency of the obesity crisis, such a jolt seems warranted.
Now read: Why the sugar tax is a good idea
In common, I suspect, with most Prospect readers, I don’t think about tax when I shop for groceries. At no point in the supermarket do I say to myself: oh, yes, these potato crisps are subject to VAT, but those beetroot crisps are not. At the checkout, I don’t ponder the tax distinction between flapjacks and cereal bars, or smoothies and juice, or ice cream and frozen yoghurt, although these distinctions affect the amount of money they cost. And, when I leave the shop with a couple of bottles of wine, I don't reflect that the liquid inside is subject both to VAT and excise duty and that most of the price I paid was tax.
If I did pause to think, would I choose differently? Research by behavioural economists such as Daniel Kahneman shows that we struggle when faced with too many choices and are easily fooled into paying attention to one thing rather than another. Those responsible for selling me groceries have been managing my attention with increasing sophistication for many years. Since Edward Bernays, a nephew of Freud, invented modern marketing we have been guided towards some choices rather than others. And the food industry has been guiding us towards choices with two common features: they tend to have the highest profit margin; and they tend to make us fat.
There are other reasons why westerners are getting fatter, of course, such as our sedentary lifestyles. But the obesity crisis and its associated costs are inextricably linked to our intake of calories, and especially to the refined and processed additions to our food that make it so convenient, cheap and enticing. It is easy to get from here to the case for a sugar tax: if food and drink containing excessive amounts of sugar is made more expensive then we will buy less of it, and then we won’t eat it and get so fat.
I believe that there are two main problems with the sugar tax. One reason is that it will be invisible to the consumer, as VAT is now, and have only a marginal effect on the total cost of a shopping basket. The second reason is that sugar is by no means the only problem: what about trans fats? Or refined wheat? Or acrylamide? I don’t disagree with the idea of using taxes to address the problem—quite the reverse. A sugar tax does not go far enough.
In my new book Bad Habits, Hard Choices I propose a wholesale revision of VAT, in which negative VAT is applied to healthy foods and high VAT to unhealthy foods. Crucially, the amount of VAT charged on each product should be displayed to the consumer.
Obviously deciding on what counts as “healthy” or “unhealthy” has the potential to be contentious. This is not something that could be simply left to government, nutritionists, or food manufacturers and retailers. It could, however, be done through a large-scale deliberative process, similar, for example, to the process used by the Joseph Rowntree Foundation to establish a “minimum Income standard.” A representative sample of the population could work with nutritionists over a few months to classify food and drink products. An exercise of this kind, on a small scale, was recently conducted by the Vincentian Foundation in Northern Ireland.
Such a process would in effect be what the economist Thomas Schelling calls a “commitment device,” a mechanism by which we collectively impose a new rule upon ourselves. We don’t want to be obese; so we’re going help ourselves to achieve that by making good food cheaper and bad food more expensive. An organisation modelled on NICE—the National Institute for Health and Care Excellence, which decides which treatments are available through the NHS—could then administer the new VAT. It would decide the rates, and adjust the system as consumers, manufacturers and retailers respond to the new price structure.
Further work to calculate the new VAT rates would be necessary, but I suggest something in the order of -20 per cent on healthy foods, +25 per cent on unhealthy foods, and +5 per cent on everything else. Correctly calibrated, such a distribution could be neutral for the Treasury (that is, government revenues from VAT would remain the same) and progressive for the consumer (that is, lower income consumers would benefit more than better off households).
Consumers would, each time they went shopping, have a new kind of choice, and a visible one. Here, a healthy food item, which is not just cheaper, but is clearly labelled as a bargain. There, an unhealthy item, which you can still buy, but it costs more than it used to.
I cannot claim that this change would solve the obesity crisis. But it has the potential to jolt us from our corpulent lumbering onto a far healthier trajectory. Given the scale and urgency of the obesity crisis, such a jolt seems warranted.
Now read: Why the sugar tax is a good idea
