One of the most newsworthy features of yesterday’s budget was the announcement that the UK will introduce a tax on sugary drinks.
There is reason to think this may have primarily been done as a dead cat move, to draw attention away from the fact the the Chancellor is missing all his deficit reduction targets and cutting disability benefits (though apparently he can still afford tax cuts for higher rate tax payers).
But what effect might a tax on sugary drinks have?
Obviously it will reduce consumption of sugary drinks: it’s economics 101 that when the price of something goes up, consumption falls. But that by itself is not interesting or useful. The question is what effect will that have on health and well-being?
The only honest answer to that is we don’t know, as few countries have tried such a tax, and we do not have good data on what the effects have been in countries that have.
For millionaires such as George Osborne and Jamie Oliver, the tax is unlikely to make much difference. Sugary drinks are such a tiny part of their expenditure, they will probably not notice.
But what about those at the other end of the income scale? While George Osborne may not realise this, there are some people for whom the weekly grocery shop is a significant proportion of their total expenditure. For such people, taxing sugary drinks may well have a noticeable effect.
For a family who currently spends money on sugary drinks, 3 outcomes are possible.
The first possibility is that they continue to buy the same quantity of sugary drinks as before (or sufficiently close to the same quantity that their total expenditure still rises). They will then be worse off, as they will have less money to spend on other things. This is bad in itself, but also one of the strongest determinants of ill health is poverty, so taking money away from people is unlikely to make them healthier.
The second possibility is that they reduce their consumption of sugary drinks by an amount roughly equivalent to the increased price. They will then be no better or worse off in terms of the money left in their pocket after the weekly grocery shopping, but they will be worse off in welfare terms, as they will have less of something that they value (sugary drinks). We know that they value sugary drinks, because if they didn’t, they wouldn’t buy them in the first place.
Proponents of the sugar tax will argue that they will be better off in health terms, as sugary drinks are bad for you, and they are now consuming less of them. Well, maybe. But that really needs a great big . This would be a relatively modest decrease in sugary drink consumption, and personally I would be surprised if it made much difference to health. There is certainly no good evidence that it would have benefits on health, and given that you are harming people by depriving them of something they value, I think it is up to proponents of the sugar tax to come up with evidence that the benefits outweigh those harms. It seems rather simplistic to suppose that obesity, diabetes, and the other things the the sugar tax is supposed to benefit are primarily a function of sugary drink consumption, when there are so many other aspects of diet, and of course exercise, which the sugar tax will not affect.
The third possibility is that they reduce their consumption by more than the amount of the price increase. They will now have more money in their pocket at the end of the weekly grocery shop. Perhaps they will spend that money on vegan tofu health drinks and gym membership, and be healthier as a result, as the supporters of the sugar tax seem to believe. Or maybe they’ll spend it on cigarettes and boiled sweets. We simply don’t know, as there are no data to show what happens here. The supposed health benefits of the sugar tax are at this stage entirely hypothetical.
But whatever they spend it on, they would have preferred to spend it on sugary drinks, so we are again making them worse off in terms of the things that they value.
All these considerations are trivial for people on high incomes. They may not be for people on low incomes. What seems certain is that the costs of the sugar tax will fall disproportionately on the poor.
You may think that’s a good idea. George Osborne obviously does. But personally, I’m not a fan of regressive taxation.