The weighty problem of road and fat taxes

19th May, 2012

‘The UK needs to impose a “fat tax” of at least 20 per cent on unhealthy foods to have any significant impact on rising levels of obesity.’

Financial Times, May 15

I thought it was supposed to  be  a  10  per  cent  fat  tax?

That was the British Journal of Nutrition in December. This is the British Medical Journal, this week. Do try to keep up.

Either way, would it work?

It all depends on what you mean by “work”. Inasmuch as anything can be said to be certain in social science, a tax on some foods would certainly reduce the consumption of those foods, just as surely as cigarette taxes have reduced the consumption of cigarettes. Whether that reduction is desirable is another question.

You’re saying obesity is a good thing?

No, but ice cream is a good thing and obesity is a potential unwanted side-effect of ice cream. If you tax ice cream, people will be less obese, which is good, but they will also be enjoying less ice cream, which is bad.

Which is sophistry.

Not at all. Ice cream versus obesity is the key imponderable about the whole policy. I find there’s a striking contrast with the idea of a congestion-based road tax, as advanced by the Institute for Fiscal Studies this week. The case for the congestion tax is pretty unanswerable: every driver who joins rush-hour traffic is making it worse for every other driver. If we could all get together and agree to drive a bit less, we’d all be better off because when we did drive, our journeys would be quicker and less uncertain. But we can’t enforce that kind of agreement, hence the need for the tax.

It’s all the same: obesity is bad and traffic is bad. I’m not sure why you’re trying to make a distinction.

It’s not the same at all. Each driver causes a problem for others and she can’t be expected to take that into account. But an ice cream lover is causing a problem only for himself. It remains to be demonstrated that he would find an ice cream tax helpful.

What about the cost to the National Health Service?

That is certainly a consideration, although don’t be too quick to assume there is a net cost. It’s fairly clear that smoking should, on this logic, be subsidised because it tends to kill people, often quite quickly, just as they have finished paying their taxes but before they start to draw their pensions. Perhaps obese people are more costly, but this is a double-edged argument. The Department of Health has published medications estimates suggesting that obesity and related conditions cost the NHS an extra £2.2bn, a figure that is rising rapidly. What the impact on pension costs might be is not clear.

Why do we tax cigarettes, then?

Partly because they’re a good revenue source, partly because of passive smoking. But I think a key reason is that because nicotine is so addictive, many smokers ardently want to be non-smokers but find it hard to quit. And surely this is the basic idea behind a “fat tax” as well: it is to help weak-willed people do the right thing. The economists Sendhil Mullainathan and Jonathan Gruber put their finger on the key issue about 10 years ago with a clever research paper titled: “Do cigarette taxes make smokers happier?” Which seems to be an important question.

And the answer?

It seems that cigarette taxes do indeed make smokers happier. More specifically, it seems that the reported happiness of people with a propensity to smoke rises in parallel with increasing state cigarette taxes in the US, but not with increases in other taxes. You need to jump through a lot of statistical hoops to reach this conclusion but the research makes a pretty good case. Presumably this is because smokers often do have self-control problems and the fact that the tax helps some of them to quit outweighs the fact that the tax also makes the non-quitters poorer.

And that’s the case for the fat tax in a nutshell, isn’t it?

It might be, if the research paper had instead been called: “Do fat taxes make fat people happier?” I hope and trust that someone has examined that question but I am not aware of any attempts to do so.

George Osborne is taxing pasties – perhaps he’s ahead of the curve.

I am sure he eagerly awaits his plaudits from the BMJ.

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