The ‘fat Tax’: Economic Incentives To Reduce Obesity

Generated Summary

This briefing note, published by the Institute for Fiscal Studies (IFS), examines the potential for introducing a ‘fat tax’ in the UK to reduce obesity. The study reviews trends in UK obesity, explores the economic rationale for government intervention, and discusses various ways a ‘fat tax’ could be implemented. The methodology includes analyzing trends in obesity, examining evidence on eating habits and exercise, reviewing current taxation of food, and presenting a simulation of a hypothetical ‘fat tax’ to assess its impact on different income groups. The analysis aims to understand whether such a tax could be effective in addressing the growing prevalence of obesity in Britain. The scope encompasses an examination of how food is currently taxed, the different ways a ‘fat tax’ might be introduced, and the potential issues the government might need to consider. The note also provides a simple analysis of a hypothetical ‘fat tax’ in terms of how it might impact differently on the rich and the poor.

Key Findings & Statistics

• In 1986–87, 45% of men had a BMI of 25 or more, increasing to 64% by 2002. For women, the increase was from 36% to 58% over the same period.
• The percentage of men classified as obese rose from 13% in 1993 to 21% in 2002. For women, the increase was from 16% to 26% during the same period.
• In 1975, total energy purchases per person per day were 2,290 kcal, decreasing to 1,750 kcal by 2000, a fall of 23.6%.
• In 1975, 42% of total calorie purchases came from fat, decreasing to 38% in 2000.
• In 1942, the total purchase of fats was 245g/week per person, rising to 339g/week in 1970, then declining to 186g/week in 2000.
• Purchases of salt decreased from 28g/week per person in 1970 to 7g/week in 2000.
• Sugar purchases peaked at 503g/week per person in 1960, decreasing to 105g/week in 2000.
• Fresh fruit purchases rose from 197g/week per person in 1942 to 745g/week in 2000.
• Fresh vegetable purchases rose from 717g/week per person in 1975 to 732g/week in 2000.
• In 1975, 24.6% of total household spending was on food prepared in the home, and 4.1% on catering. By 1999, these figures had become 14.8% and 6.5% respectively.
• In 1986–87, the average daily energy intake was around 2,460 kcal for men and 1,685 kcal for women. By the 2000–01 survey, these figures had fallen to 2,325 kcal for men and 1,640 kcal for women.
• The percentage of total energy from fat fell from 40.4% to 35.8% for men between the surveys; for women, the decline was from 40.3% to 35.9%.
• In the UK, 9,000 people died prematurely before retirement age as a result of obesity in 1998, resulting in 40,000 lost working years.
• More than 18,000,000 working days were lost in 1998 either due directly to obesity or due to secondary illnesses.
• The estimated costs of premature death and sickness were £2.1 billion in 1998 and £3.6 billion for 2010.
• The estimated costs of treating obesity and its consequent illnesses in England in 1998 were £479.4 million, or 1.5% of NHS spending.
• The estimated number of deaths in England in 1998 directly attributable to obesity was 30,000 (6% of deaths). The total number of lost years of life from premature death was 275,000.
• In the USA, the percentage of adults overweight or obese rose from around 45% in the early 1960s to more than 60% in 1999.
• The very poorest 2% (people with incomes of less than £36 a week) would see about 0.7% of their total income spent on the ‘fat tax’, whilst the very richest (with incomes above £519 a week) would pay less than 0.1% of their income.

Other Important Findings

• The document suggests that a tax on calorie consumption could be appropriate, given that weight gain is linked to an excess of energy intake.
• The National Audit Office (2001) points out that the NFS is limited in what it includes in its measure of total energy, which could explain why it seems not to fit the obesity pattern. It does not provide full coverage of food prepared outside the home, and it excludes alcohol, soft drinks and confectionery eaten at home.
• The document notes that the practice of taxing certain foods more highly than others is well-established, and often it is foods and drinks considered to be particularly unhealthy that are taxed more heavily.
• It is mentioned that the UK government is due to publish a White Paper looking at obesity, amongst other issues, in Summer 2004.
• It is noted that legislative bodies find it more practical to tax well-recognised categories of food that play little useful role in nutrition. Soft drinks and snack foods typically add unneeded calories to the diet or replace nutritious foods, such as low-fat milk or fruit, without providing significant levels of nutrients.
• The study suggests that the regressive nature of a ‘fat tax’ is likely to hold no matter how the tax is implemented – whether on fat content, on calories or just attached at a particular rate to certain foods.

Limitations Noted in the Document

• The National Food Survey (NFS) data used in the simulation do not record food prepared outside the home, confectionery, alcohol, or soft drinks, which could affect the results.
• The simulation does not include any behavioral responses, so the results should be taken as indicating upper bounds on the likely tax burdens.
• The study acknowledges that there are limitations in the NFS data, as discussed in Section 3.
• The analysis does not account for various factors such as the fact that the fat content of the food is not the only factor that affects weight gain, and that the government’s recommendations on diet, such as the advice given to mothers about full fat milk, have to be taken into consideration.

Conclusion

The study on the potential for a ‘fat tax’ in the UK concludes that while such a tax could raise revenue and potentially influence dietary habits, several challenges and considerations are critical. The core argument is that a ‘fat tax’ would likely be regressive, disproportionately affecting lower-income individuals due to their spending patterns on food. The analysis of the distributional effects of a ‘fat tax’ suggests that the poorest households would bear a significantly higher financial burden relative to their income compared to the wealthiest. This is because the consumption of fats and other ‘bad’ nutrients does not vary greatly across income levels, as revealed by the data from the National Food Survey. The study emphasizes that weight gain is not solely triggered by fat consumption but by excess energy intake, implying that a tax on calorie consumption might be more appropriate, but would be exceptionally difficult to implement. The study stresses the importance of taking into account the responses of manufacturers, retailers, and consumers to the tax. Furthermore, it discusses the potential need for frequent re-evaluation of tax rates and the importance of monitoring actual effects, and the potential effects of any ‘fat tax’. The paper acknowledges that although obesity poses economic costs, the success of the ‘fat tax’ in reducing obesity will depend on its ability to influence dietary choices and the consumption of fatty foods, but notes that any policy is likely to be regressive. The study implies that for a successful and fair implementation of a ‘fat tax,’ a comprehensive approach that considers various factors and potential outcomes is necessary, including the need for monitoring and re-evaluation of tax rates, as well as public support. The paper suggests that the success of any ‘fat tax’ would be dependent on whether the funds generated are seen to be used to improve outcomes.