Bad Habits, Hard Choices: Using the Tax System to Make Us Healthier

by David Fell

Overview

Consumers in Britain face a curious mix of taxes and duties that are messy, opaque and out of date. They are also unfair: the poorer you are, the more of your income goes on paying these taxes. At the same time, we are ceaselessly bombarded by marketing information that is very one-sided. The foods that make us fat, for example, are promoted a great deal more than the foods that could keep us healthy - and again it is mainly the poor that bear the brunt.

This book draws on insights from behavioural economics, participative decision-making and the author's twenty-five-year research career to take a fresh look at these issues. It concludes that there is a fair, inclusive, adaptable, affordable and resilient way of enabling us to eat healthily and to tackle the obesity crisis.

The author proposes that negative VAT should be charged on healthy foods and high VAT should be charged on unhealthy foods. The book sets out a four-step process to actually implement this new regime, each step of which depends on mechanisms that have already been used by government. It is a bold yet practical proposition for tackling one of the most costly and damaging challenges we face.

"In this book David Fell locates taxation as a public good. Countries and wars have been started over taxes and there is, for most of us, an initial reluctance to accept more taxes. The case for taxes and negative taxes to improve public health is made in a clear and easily accessible style. He shows us how taxes can be introduced and met with public acceptance, and how to manage initial public perceptions of them as 'bad'. This book should be compulsory reading for all those thinking of introducing food taxes."

Martin Caraher, Professor of Food and Health Policy, Centre for Food Policy, City University London

"The fact that I read, at one sitting, a book on VAT is a tribute to Fell's ability as a writer. I liked the book very much - original, informative and well argued."

David Cadman, Visiting Professor at University College London and the University of Maryland, and Harmony Professor of Practice at the University of Wales Trinity Saint David

"Fell's book is really easy to read and accessible. I love the way the basic idea can so simply be extended to help create the socially, environmentally and financially fair society we seek."

Robin Stott, author of The Ecology of Health and co-chair of the Climate & Health Council

David Fell is a researcher, writer, presenter and activist in the field of sustainable economics. He is director and co-founder of the research and strategy consultancy Brook Lyndhurst. David has a degree in economics from Cambridge University; he has twenty-five years' research and strategy experience for clients in the government, private and not-for-profit sectors; and he was a founding commissioner on the London Sustainable Development Commission.

Product Details

ISBN-13:	9781907994500
Publisher:	London Publishing Partnership
Publication date:	02/12/2016
Pages:	128
Product dimensions:	5.24(w) x 7.81(h) x 0.49(d)

About the Author

David Fell is a researcher, writer, presenter and activist in the field of sustainable economics. He is director and co-founder of the research and strategy consultancy Brook Lyndhurst. David has a degree in economics from Cambridge University; he has twenty-five years’ research and strategy experience for clients in the government, private and not-for-profit sectors; and he was a founding commissioner on the London Sustainable Development Commission.

Read an Excerpt

Bad Habits, Hard Choices

Using the Tax System to Make Us Healthier

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By David Fell

London Publishing Partnership

Copyright © 2016 David Fell
All rights reserved.
ISBN: 978-1-907994-51-7

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CHAPTER 1

Let's go shopping

I'm all lost in the supermarket

— The Clash

Just like millions of other people, last week I went shopping. Nothing special: a trip to the supermarket. I bought my usual groceries, enough for the week's meals. I bought a couple of bottles of wine, too. I'm lucky: I earn just enough not to pay too much attention to the prices. I put the things I wanted in the trolley, picking up a few things I hadn't intended to buy, but comfortable that I was avoiding anything exorbitantly expensive.

Generally I try to buy organic or Fairtrade or locally produced food if I can, but I don't try all that hard. If there's an attractive bargain, or the price of the ethical alternative seems too high, I'll edit my choices accordingly. Most of the time – and this was certainly the case last week – I rely on my usual brands. I always buy Lavazza coffee, for example. I'm not sure why: there are dozens of types of coffee on the shelf, and I've tried just a handful.

At the till, just like millions of other people, I did my part of the deal – unloading and then reloading my trolley – before handing over my plastic. I typed my four memorable digits into the little black rectangle, glanced at the bill and headed out of the shop.

I'd arranged to meet a good friend for a drink that same day, so once I'd dumped all the shopping into the cupboards and the fridge at home I set off in my car. I stopped at the petrol station, stocked up on fuel, chocolate and – ahem – cigarettes, and drove the thirty-odd miles to Hertfordshire. It wasn't a particularly long evening: we ate a light meal, had a couple of drinks, two coffees, and then I headed home.

My bill in the supermarket was £78.24. At the petrol station I spent £64.97 on fuel, £3 on chocolate and £9.69 on cigarettes. In the evening I spent £12.50 on my meal, £8.40 on two pints of beer and £4.60 on two cups of coffee. All told, £181.40.

In my book, that's quite a steep day. I know that the groceries and the petrol will last me a few days, but even so – nearly two hundred pounds!

The real shocker, though, is that without knowing I was doing so I had paid out £43.20 in tax.

My monthly salary slip tells me exactly how much tax I've paid; why not the slip at the checkout? This seems odd. It can't be that hard, surely, to display how much of the price of each item on the shelf is tax? Then, if I wanted, I could make different choices and avoid paying that tax.

And why am I paying taxes on some of the items and not others? Is it an untrustworthy government fleecing me yet again? Or are they trying to discourage me from driving and smoking and drinking (and if it is that, why not make it clearer)? Or perhaps it's just a ridiculous mess: a porridge of out-of-date ideas and priorities, as uncomfortable and daunting for the officials, politicians and statisticians as it is opaque, confusing and unfair for the rest of us. Maybe it's all of the above?

This book is about how to sort this mess out – not for the sake of it, but to show how we could use something boring like tax to do really exciting things like help people lose weight and live well, and perhaps even help to save the planet.

Our VAT system – in fact, our entire edifice of 'consumer-facing taxes' – is both damaging and stupid. It arrived in the UK when we joined the European Community in 1973, a time so unimaginably distant it is difficult even to begin describing how different it was. It is not simply that there were no mobile phones or computers or barcodes; the entire universe of 'choices' available to the consumer – what to buy, where to buy, when to buy – had barely evolved since World War II. Yet the basic structure and rules of the VAT system in 2015 are unchanged since that era of rotary dial phones, typewriters, flares and platform boots.

It's time for SmartVAT. It's time to haul it into the twenty-first century and make use of the barcodes and the IT, as well as all the insights we now have about shopping and consumption and human behaviour. And if we're going to go to the trouble of making it smart, we might just as well make it really smart. Let's see if we can actually reduce the price of the things we know are good – things that keep us healthy, for example, or things that help the environment, or things that help the weakest and most vulnerable people live a decent life – and increase the price, by quite a lot, of the things that cause harm.

* * *

Tax, it has to be said, can seem pretty dull. But so are seat belts, washing your hands before eating and lots of other everyday things. Almost everyone managed to agree that it was just plain sensible to wear a seat belt; and we all know that basic hygiene is common sense. And, every day, just like millions of other people, we navigate our way among dozens or hundreds or even thousands of complete strangers as we go about our daily lives; and generally we are cooperative and nice to one another. Imagine if we insert into that everyday miracle of cooperation a smart tax system that makes us smart consumers.

The rest of this book explains why it is such good sense for the government to change the way it taxes the products we buy every day, not least because we are human beings rather than the mythical 'rational agents' of economic theory. We do not have time to calculate the pros and cons of every choice, but instead use rules of thumb, or are persuaded by the stories told about 'brands' – or we just give in to temptation. We are manipulated by businesses that make big profits from selling us unhealthy and damaging products.

This book also explains how to bring about the transition to SmartVAT. It is a very practical proposal whose four elements are already used in other contexts. The biggest step will be the first: believing that there is a way of committing ourselves to healthier choices, in a fairer system, that will raise at least as much money for the Treasury as is now raised.

Dull? Sounds terrific to me.

CHAPTER 2

The taxes we pay

If you drive a car, I'll tax the street
If you try to sit, I'll tax your seat
If you get too cold I'll tax the heat
If you take a walk, I'll tax your feet

— George Harrison

Consumers in Britain pay a curious mix of taxes when they spend their money. Most obviously, they pay value added tax, or VAT, on all the things they buy. Except that VAT isn't charged on everything: it isn't charged on books or children's clothes, for example. It isn't charged on food, either. Except when it is. Somewhere, hidden on a transparent government website, there is a mighty list of all the exceptions – you pay VAT on ice cream, for example, but not on frozen yoghurt; you don't pay VAT on a flapjack, but you do if you buy a cereal bar.

VAT came into being back in the early 1970s as a condition of joining the European Community (as it was then). It replaced taxes such as purchase tax and luxury goods tax and considerable effort went into designing the new tax in a way that the government of the time thought was fair. A key tenet of fairness was that certain basic items – such as food, books and children's clothes – should not be taxed. However, it was also considered fair that certain not-so-basic items should not be tax free; after all, only wealthy people bought these not-so-basic items, and at the time that VAT was introduced the top income tax rate being paid by the country's wealthiest people was – take a deep breath – 83%.

So wise and caring officials and statisticians carefully looked through the catalogue of all the various food products available on the nation's shelves and allocated them to one of two lists: one list for food items that anyone might buy and another for foods bought only by the rich.

And they did it again the next year, too, because quite a number of new products became available, all of which needed to be classified.

And then again the next year, and the next year, and the year after that.

As you can imagine, the lists became quite long. Dauntingly long, in fact. So long that the thought of, say, having a bit of a rethink about which items were on which list, or how many lists there were, or whether the original basis for the lists even made sense anymore ... Well, such thoughts were simply unthinkable: it would take too much time, too much effort and – let's face it – it would cause too much political trouble.

In any case, as successive governments discovered, the great British public seemed not to notice VAT most of the time, and this invisible tax consistently delivered a very useful chunk of money to the Treasury. There was little incentive to make any big changes and some very good reasons for leaving well alone.

But of course VAT is not the only tax surreptitiously confronting the British consumer. Much more high profile, for example, are the taxes on alcohol and tobacco. These taxes get their own special name – 'duty' – and they are usually part of an annual political ritual in which they are either dramatically increased or kept the same by a Chancellor of the Exchequer whenever he (so far it's always been a he) performs a Budget. These taxes, too, are opaque at the point of sale; and, like VAT, they have a rationale that becomes more and more curious the closer you look.

Tobacco tax, for starters, has been increasing relentlessly for decades and is currently well above 100%. (Actually, it varies, because part of the tax is a fixed sum of money – £3.79 – so the cheaper your cigarettes, the higher the rate of tax you pay.) This is almost universally seen as a 'good thing'. Smoking is bad for one's health, so it has become accepted that government discourages us from smoking by increasing the price of cigarettes. This is in turn some pretty basic economics: in general, the more costly a thing is, the less of it we buy.

The rate at which government has increased tobacco duty is perhaps more interesting. On the one hand, the money raised from taxing tobacco was and remains non-trivial, and no government would wish to see too much of that revenue disappear too suddenly. On the other hand, people are at liberty to smoke if they wish, and to punish or be seen to punish too large a group of people simply on the grounds of a choice they are making would run political risks. So a balancing act is perpetually called for.

And, of course, there's a third hand that we mustn't forget: the tobacco industry, which for decades was big and strong and intimidating and most certainly needed to be considered if you, the lowly Chancellor of the Exchequer, were thinking about annoying them by causing their sales (and revenue and profit) to decline. The balancing act is very precarious indeed.

A similar balancing act has applied in the case of alcohol taxes. The companies that manufacture alcohol are big and strong and intimidating; the British people have a right to drink as much alcohol as they like, even if it's bad for them; and government raises a lot of money by taxing alcohol. Alcohol is not as straightforward as tobacco, though, because there are lots of different types of alcoholic drink – all with differing strengths, all drunk by different groups of people in society and made by businesses of differing degrees of scariness.

Like VAT, alcohol duties are not made apparent when you buy your drink; and it may therefore be something of a shock to discover that the amount of tax you pay depends on a whole range of arbitrary boundaries. Hand the barman £3 or £4 for a pint of relatively weak ale and you pay a paltry 11 pence in tax. Hand the barman the same amount of money for the adjacent ale, just a little stronger, and you pay 47 pence in tax. Something similar applies if your tipple is cider or wine (and whether it fizzes or not makes a difference to how much tax you pay, too).

Awareness of the health and social costs associated with alcohol consumption has lagged awareness of tobacco's ill effects, and it is only within the past decade or so that the idea of using taxes to limit our consumption has been aired in public. Minimum unit pricing, for example, has been suggested as a way in which all alcohol could be taxed on a consistent (if not necessarily fair) basis – and resistance to this idea has come from predictable voices and with predictable outrage.

The same kind of outrage – a mix of menaces from scary businesses, loud newspapers and indignant citizens – will be familiar with regard to petrol, another area where opaque taxes are paid by the customer. Fuel prices vary like topsy because of the international oil price, as we know, but the average British consumer is currently paying in the region of 135% tax on their fuel.

Yes, you read that correctly. (Imagine if it was clearly advertised at the point of sale.)

Once upon a time, and not so long ago, the fuel duty escalator represented an intention to increase the tax on petrol and other fuels at a steady rate, specifically to encourage us (the great British car-borne consumer) to use less fuel, which would in turn help reduce our carbon dioxide emissions, in turn helping save the planet. Here we see something similar to the situation with alcohol and tobacco: microeconomics teaches us that, as the price of a good rises, demand falls. The more expensive a thing is, the less of it you buy.

Well, up to a point. And it is a point at which economics brings in two other ideas: 'other things being equal' and 'elasticity'. The idea of 'other things being equal' is simply the elimination of all other factors that could be influencing your choice: as the price of, say, honey goes up, the amount you buy goes down – but only if nothing else changes. You might, for example, occasionally buy jam instead of honey, so if honey becomes more expensive, you might simply switch to jam – unless, of course, the price of jam has also increased. Ditto peanut butter, Marmite and so on. To eliminate all these possible complications, economists deploy the phrase 'other things being equal'.

More important, however, is the notion of 'elasticity'. It concerns the responsiveness of the amount you buy to a price change. If the amount you buy changes relatively little in response to a price change (whether the price goes up or down), then your demand is deemed to be 'inelastic'; whereas if it changes a lot, it is 'elastic'.

By and large, if you (and everyone else) 'need' a product – that is, the more that it is a basic requirement of modern life as opposed to a frippery – the more inelastic is demand. This is reinforced still further if there are few alternatives available. So take something like bread, the price of which depends largely on the price of wheat, an everyday staple of British diets: if the price goes up, the scope for switching to something else is limited; and the scope for not having bread is also pretty limited. We could reasonably expect the demand for bread to be inelastic.

Honey, on the other hand, is much less of a staple, and it is a product for which a number of alternatives exist: demand is likely to be more elastic for honey than for bread.

What about petrol? Or alcohol? Or tobacco?

The answer matters very much to government, and most especially the Treasury. If demand is relatively inelastic, then the amount we buy isn't likely to fall too much if the price goes up, so an increase in tax could be expected to have relatively little impact on the total amount we buy. That would in turn mean that tax revenue would go up, manufacturers wouldn't suffer and go on to cause the government headaches, and, so long as we consumers can absorb the increase, we would tend not to complain. But if we can't absorb it – if it just hurts too much (as started to happen in response to the fuel duty escalator) – our complaints can become loud and, eventually, politically significant.

Intriguingly, no one really knows for sure what the various elasticities are since, in the real world, things are very much not equal; and things are always changing. So a degree of judgment rather than mathematics is always involved, and this in turn means that it's always at least as much about politics as it is about economics.

(Continues...)

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Excerpted from Bad Habits, Hard Choices by David Fell. Copyright © 2016 David Fell. Excerpted by permission of London Publishing Partnership.
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