The Fat Tax - The Saviour From Obesity?
'Could the fat tax be the saviour from modern day obesity?'
Jennie Roberts | 3 April 2017

Could the fat tax be the saviour from modern day obesity? Controversial, I know! But I hope to look at the potential options available for us to try to reduce obesity - and the fat tax is one of them. The fight is on to increase nutritional education, remove soft drinks from schools, change how companies advertise, ban trans (or artificial) fats and subsidise health foods, all in the cause to save thousands of lives and reduce healthcare costs. I am going to focus on the fat tax and then leave it up to you to formulate your own opinion on it.

One benefit of a tax on high-fat foods is that people will have to pay the social cost for consuming unhealthy food. This is due to high-fat foods being de-merit goods, which is when the good or service is over-consumed and over-valued in the free market. Furthermore, unhealthy foods have negative externalities and internalising the externality would create a plethora of positive impacts. An externality is a spillover effect which is experienced by a third party due to the consumption or production of goods and services, and to internalise the externality is to make a producer or consumer pay for the issues created by them but suffered by others. The NHS costs of treating disease related to obesity, such as heart disease, angina, diabetes and strokes, would be reduced. Less time would be lost at work due to obesity, creating a more efficient working community. With a tax on unhealthy foods, demand for these foods would be lowered and, consequently, consumers would find substitutes that could encourage a healthier diet. A fat tax would also encourage producers to supply foods lower in fat and sugar; fast food outlets may be incentivised to provide a wider range of foods that are less detrimental to health.

A fat tax would also raise revenue through higher costs on fatty foods and the government could use the revenue to offset other taxes, allowing it perhaps to reduce the basic rate of VAT. A fat tax would also be fair to everyone. Some may say a fat tax is regressive (taking a higher percentage of income from low income families), but if other regressive taxes are reduced, the overall impact on families should be unchanged. Overall, obesity and fat related issues cost the UK economy between  £6.6 and £7.4 billion a year on social services and health care, (Blackwell-Synergy) and this is an extortionate amount that could potentially have higher opportunity costs, which is the value of the next best alternative that the government has chosen not to spend money on, but a fat tax would help raise revenue to cover these costs.

But it is difficult to know which foods deserve a fat tax. Cheese has a high fat content, for example, and many foods, if consumed in high enough quantities, contribute to obesity. So the issue becomes more complex due to obesity being dependent on lots of factors. Factors excluding overconsumption of high fat and sugar foods include size portions, levels of exercise and genetic factors. Also, the cost of administering and collecting the tax would be high. What’s more, the cost of obesity may be over-estimated due to obese people having a lower life expectancy, so the government may be saving pension costs and health care costs in old age by allowing people to become obese. The fat tax is arguably regressive, as low-income earners will spend a higher proportion of their income on unhealthy foods. Overall, the fat tax could lead to increased anxiety for obese people and create a blame-worthy economy, whilst the tax is not actually making much of a difference in the long run.

Dr. Brownell, a professor of psychology at Yale University, sheds some light on how to reduce obesity. Firstly, she supports government intervention to correct the market failure (or the misallocation of resources) in order to put a 7% to 10% tax on unhealthy foods. This is a market method of intervention that would use the tax revenue to subsidise the sale of healthy foods. (A subsidy is a form of financial aid made by the government, either to consumers or producers, in order to reduce the price of goods or services.) Secondly, Brownell suggests that a lesser tax could be used to fund public programs promoting healthy and responsible eating. With asymmetric information (or information which only some people know), people become ignorant and unaware of the sugars and fats we are eating. So a program promoting good nutrition could be very beneficial.

In conclusion, the fat tax ignites passionate debate on both sides, demonstrating that the power of economics can impact the foundations of our society. Food is regarded as a necessity and should not be overlooked, but is that enough to justify a proposal as radical as the fat tax? Well, in the spirit of exercising those (mental) muscles, I’ll let you come up with your own answer...

 

Original image by Jennie Roberts.

 

James Routledge 2016