My big fat tax

Some call economics the dismal science, I call it useful. When it comes to obesity one would argue that it offers the mechanisms to prevent a needless tide of early deaths, spiralling NHS costs and sore eyes on the beach. Obesity is an all too obvious condition and frequents the news on a regular basis e.g. http://www.bbc.co.uk/news/health-12566504 last week.

So how can economics inform the obesity epidemic?

At the end of the day weight gain arises as a result of a very basic equation: weight change = calories eaten – calories burned. Taking political motivations aside i.e. pandering to manufacturers, common sense tells us that obesity can be avoided by reducing calories eaten and increasing those burnt. Consuming less calories tends to be easier than burning more and this article shall focus on the first half of the equation accordingly. To lose one pound of fat you need to burn 3500 calories less than you consume, it’s as simple as that. A ‘nudge’ approach as previously discussed is frequently used in public health campaigns, obesity is so off course however that it has got to the point where a nudge is near pointless, one huge push would better suffice.

Using basic economic theory there are two clear ways to make a real impact on this equation and in turn obesity. Basic economic theory tells us that individuals seek to maximise their utility via consumption given a budget constraint. Thinking back to how a change in price of a good affects such an optimisation problem we can see that there are two affects. The first is the income effect, if a good i.e. junk food rises in price then relative income is reduced, the result is a decrease in junk food consumed. The second effect is the substitution effect, individuals will substitute away from junk food to other healthier food items.

So what does this mean for policy from an economics perspective? The two most obvious solutions are inherently interlinked, these are taxation and subsidisation. By taxing junk food you are increasing the relative price of junk food and reducing the relative cost of healthy alternatives. This leads to individuals switching to a reduced junk food diet whilst increasing tax revenues for the government. The tax revenues accrued could then be used to subsidise healthy low calorie alternatives and so increase the cost per calorie of food. This in principle is a simple task, so why doesn’t this happen? In part it does, there is some tax on junk food, however one would argue not nearly enough. Why isn’t there more tax on junk food and subsided healthier food I hear you ask? The answer is decades of weak governments which resort to short term political goals rather than long term and unpopular preventions with the potential to save countless lives. Such a policy would have been incredibly sensible a decade or two ago, now it is a last resort to try stem the tide before it’s too late. If current trends continue expect to see increased pressure on the government resources and spiralling NHS costs. Regardless of what happens now don’t expect to see too many bikinis at the British sea side resorts come 2030 but enjoy a long queue for bariatric surgery. A double pronged attack on obesity via substantial increases in junk food tax and subsidising healthy alternatives wont stop the wave but will certainly help to reduce the damage caused. Lets face it, at the end of the day money talks. Nudging wont lead to decreases in obesity, changes in cold hard cash however may make people think twice when they look at that chocolate bar.

5 thoughts on “My big fat tax

  1. Surely a tax on unhealthy food would hit society’s poorest? Cheap food tends to be less healthy. I would suggest that many people buy these foods, not because they gain more utility from them, but because they are cheaper and more convenient. Surely this is inequitable?

    Also, wouldn’t a tax on the shopping of the not-so-poor-but-not-so-rich have the opposite effect of pushing such families in to a worst state of nutritional intake by making them buy the absolute cheapest (and least healthy) foods?

    People will spend the same amount of money as pre-tax, and so get an even more unhealthy option post-tax. Don’t you think?

    I do.

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  2. Unhealthy food is often argued to be cheaper than healthy food, but how true is this? One would argue that it is merely the convenience and lack of knowledge that makes it more popular within those on a lower income. If educated and with a mild knowledge of cooking (i’m no jamie oliver!), you will find that you can actually eat healthily for less than eating unhealthy ‘convenience’ food. Lets take McDonald’s for example. To make it easy assume we’re having dinner for two. One big Mac meal costs £3.69, dinner for two therefore costs roughly £7.40. Now a healthy option cooking for 4 just to further my point. 1 bag of pasta (with some spare for next time!) £1.00, 1 large bottle of pasata (seived tomatoes) £1.00. 1 tin of tuna (99p) 2 medium pre-prepared bags of fresh mixed vegetables £2.00. Season to taste 50p. You see, a healthy meal for 4 costs approx £5.50, an unhealthy meal for 2 = £7.40. By increasing taxes on junk food it will force those who have yet been unwilling to try healthy options to take steps towards learning to use healthier alternatives. This would be enhanced by subsidising healthier foods in monetary terms or alternatively by signposting cheap healthy cooking programmes in deprived communities.

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    1. Sainsburys Beef Mince Basics (17.3% fat): £2.42/kg
      Sainsburys Extra Lean Beef Mince (4.5% fat): £6.58/kg

      … that’s how true it is. It would take a BIG tax to make them equal! Your Maccy D’s comparison above isn’t comparing like-with-like.

      You just raised the point of a lack of knowledge being the reason for people eating unhealthy food – a tax will not educate people. Education will educate people, but that’s a different argument!!

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    2. Should probably throw a wider net and include time costs for preparation, cooking costs (gas/elec), capital depreciation on cooking utensils (plus of course additional costs associated with the McDonald’s).

      Combine this with the utility differences of enjoying the two meals – and the future discounted health differential.

      By getting all the variables into the equation we can get a better idea of what we can change and how effective it will be.

      Just as an example of tackling each variable in the equation – perhaps public kitchens would be answer if we found the capital cost and lack of social interaction to be a factor in choosing takeaway instead of home cooking.

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  3. Thank you all for your comments, they’re very insightful. If truth be told I don’t actually agree with what I laid out in the article but I wrote the peice to promote discussion as it is an argument that is frequently being raised in obesity debates. Chris, I completely agree with your equity concerns, if there was to be such a tax I think it would have to be very carefully introduced and could only apply to certain goods e.g. unhealthy luxury goods i.e. the things that the poor don’t really need, I’d class mince as essential! I’m aware VAT already does this, but in the case of trying to reduce calories in food it could be worth introducing such a ‘fat tax’ and the money raised could be well spent subsidising healthy alternatives.

    Hirnic I think your comment is very interesting and carrying out a full CBA would be very interesting incorporating all relevant costs and outcomes. Personally I would guess that I would derive more utility from the home cooked meal for a less cost. Why less cost you ask?…..Because I have no idea where the nearest McDonalds is, at 40p per mile the cost of getting to a McDonalds and back would far outweigh popping to the little tesco’s 100m down the road and given it’s rented/furnished accomodation I don’t have capital cost worries, just food and bills! Also I don’t really like McDonalds. I think your last point is a very interesting one, I think however in regards to choosing takeaway’s over homecooking, from my own experience it’s generally “i’m too tired to cook” i.e. laziness, lack of social interaction is an interesting factor though and not one I’d previously thought of!

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