A ‘fat tax’ is a specific tax placed on foods which are considered to be unhealthy and contribute towards obesity. The tax could be placed on foods high in sugar/fat, such as crisps, chocolate and deep fried takeaways.
The argument is that a fat tax would encourage healthier eating and raise revenue to be spent on public health care. Critics argue the tax will be regressive – taking more from low-income groups.
It would be similar in principle to a cigarette or alcohol tax.
Pros of a Fat Tax
- Social cost. A Fat tax would make people pay the social cost of unhealthy food. Consumption of fatty foods have external costs on society. For example, eating unhealthy foods contributes to the problem of obesity. Obesity is estimated to cost the UK economy around £6.6–7.4 billion a year. (Blackwell-Synergy) . These costs are due to
- NHS costs of treating disease related to obesity, such as heart disease, angina, diabetes, strokes.
- Time lost at work due to obesity issues.
- Lost earnings from obesity-related disease and premature death.
- Those who are obese are 25% less likely to be in employment, leading to lower tax revenue and higher welfare spending on benefits.A tax on fatty foods would make people pay the social cost of these foods. Increasing the cost of unhealthy foods, would reduce demand and play a role in reducing obesity levels. Making people pay social cost would achieve a more efficient allocation of resources. (see theory of tax on negative externality)
- Encourage a healthier diet. A tax on unhealthy foods would encourage people to choose healthier foods which lead to improved health and would help reduce related disease. A fat tax would also encourage producers to supply foods lower in fat and sugar. Fast food outlets would have an incentive to provide a wider range of foods.
- Raise Revenue. Through increasing tax on fatty foods, the government could raise substantial sums of money. They could use this revenue to offset other taxes – such as decrease the basic rate of VAT. Therefore, a fat tax could be revenue neutral (no overall increase in tax revenue). Alternatively, the money raised from ‘fat tax’ could be used to spend treating health costs of obesity.
- Equity Neutral. Also, a fat tax could be equity neutral. Some may say a fat tax is regressive (takes a higher % of income from low-income families), but if other regressive taxes are reduced the overall impact on equality should be unchanged.
- Similar taxes such as cigarette taxes have been widely accepted and contributed to long-term fall in cigarette smoking rates.
Cons of Fat Tax
- Which foods? Difficult to know which foods deserve a fat tax. e.g. cheese has high-fat content. Many foods could contribute to obesity if consumed in sufficient quantities.
- Many factors behind obesity. Obesity is caused by more factors than just over-consumption of ‘high fat’ high sugar foods. It includes issues such as the size of portions, levels of exercise and genetic factors.
- Administration costs in collecting tax from unhealthy foods.
- Likely to be regressive. Often people on low-incomes spend a high % of their income on ‘unhealthy foods’.
- Costs of obesity may be over-estimated. Obese people have lower life expectancy and so save government pension costs and health care costs in old age.
- Political costs of introducing a new tax – people dislike the idea of ‘nanny-state’ discouraging certain behaviours.
- Sugar Tax – arguments for and against