Evidence shows a fat tax would hit poorest the hardest

New IEA research finds fat taxes would increase cost of living for UK families

New research has found that fat taxes would increase the cost of living for UK families. Evidence from Denmark demonstrates that such a policy would not only have negative economic effects, but would also fail to achieve its intended public health objectives.

In this new study, The Proof of the Pudding: Denmark’s fat tax fiasco, Christopher Snowdon highlights important lessons for UK policymakers considering ‘health-related’ taxes on fatty and sugary foods.

Denmark introduced a tax on saturated fat in October 2011. Hailed as a world-leading public health policy, it was abandoned just 15 months later having been both an economic and political disaster.

Key findings:

·         Fat taxes disproportionately affect the poor. Indirect taxes of this sort are invariably regressive, disproportionately affecting the elderly and the poor. Taxes on food also drain the wallets of healthy, moderate consumers, as well as the heavy, obese overeaters they are intended to target.

·         Tax is not an efficient deterrent to obesity. The policy had a very limited impact on the consumption of ‘unhealthy’ foods. 80% of Danes did not change their shopping habits at all. Not only is demand for food relatively inelastic, prices often fluctuate.

·         Health-related taxes are economically inefficient. In Denmark the policy helped push up food prices in a year in which real wages fell by 0.8%. This sort of effect would be disastrous in the UK, where hard-pressed families are already struggling with a ballooning cost of living.

·         Lost tax revenues. The fat tax led to many Danes changing their behaviour, but not in the way health campaigners had hoped for. The behavioral change was economically damaging as consumers switched to cheaper brands and crossed the border to Sweden and Germany to do their shopping. It is likely the introduction of such a policy in the UK would have a similar result and be extremely damaging for British business in a time of economic uncertainty.

Public health campaigners in the UK have failed to accept that fat taxes are unfair, unpopular and economically unsound. Concerns about job losses and the cost of living seem to be of no interest.

The government must ensure it bases any response in evidence, rather than the spurious arguments of lobbying charities.

Commenting on the report, Mark Littlewood, Director General of the Institute of Economic Affairs, said:

“Introducing fat taxes would hit the poorest in Britain the hardest. At a time when many families in Britain are struggling to make ends meet the government should be doing everything it can to reduce people’s living costs, not ratchet them up.

“New taxes would be hugely unpopular. The UK should learn from evidence overseas and avoid going down this route.”

Commenting on the report, its author Christopher Snowdon, said: