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Soft Drinks Taxes

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It is a fruitless exercise. (Edited: Wikimedia Commons)

The Health Select Committee released its report on child obesity, where the “scale and consequences of childhood obesity demand bold and urgent action from Government” [1].

In the name of this boldness and urgency, the report makes a rally of recommendations, from controls on the marketing and price promotions of “unhealthy food and drink”, to universal school food standards. It is noted that “no one single area offers a solution in itself”.

In line with Public Health England, the report recommends:

a tax on on full sugar soft drinks, and recommend that it be introduced at a rate of 20% to maximise its impact on purchasing and help to change behaviour.

All the way to Mexico

The report, along with Public Health England, is focused on the sugar-sweetened drinks tax in Mexico, and is cited multiple times:

92. A sugary drinks tax is an essential part of a wider package of measures to tackle childhood obesity. We were told that action should be taken on all fronts, and that we no longer have the luxury of ‘picking and choosing’ between different actions, as it is clear that none of them will be sufficient on their own: introducing a tax on sugar sweetened drinks in Mexico has reportedly reduced consumption of these products by around 6%.

Effective in January 2014, Mexico introduced a nationwide tax on sugar-sweetened drinks, sometimes mistakenly referred to as a ‘soda tax’: a levy of one peso per litre on regular sodas, fruit juice drinks and water drinks with added sugar [2]. This is an example of Pigovian taxation, seeking to change behaviour and correct negative externalities.

The research being cited by the Health Select Committee was an observational study, conducted by the Mexican National Institute of Public Health and the University of North Carolina [3]. The limitations of this study are recognised in the study itself: there is no formal control for this nationwide change, and so a counterfactual of beverage purchases in absence of the levy has to be estimated.

The study finds, relative to that counterfactual, the purchases of taxed beverages decreased by an average of 6% across 2014. These reductions were higher among households of “low socioeconomic status”, averaging a 9% decline during 2014.

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The consumption of drinks in the taxed category has also been falling prior to the tax. (Source: BMJ)

Relative to the estimated sales without the sugar-sweetened beverages levy, purchases of untaxed beverages were 4% higher. Given the sensitivity to the counterfactual period, the authors notes “the estimated 4% for all untaxed beverages may be an overestimate, but positive (relative increased) none the less”.

“It does make a difference”

Despite focus from the Health Select Committee on “full sugar soft drinks”, the paper finds the reduction in soda consumption is smaller than the headline for all taxed beverages in Mexico:

This was related to a decease in purchases of non-carbonated sugar sweetened beverages (-17% relative to the counterfactual) and taxed sodas (-1.2% relative to the counterfactual).

Furthermore, the chair of the Health Select Committee, Dr Sarah Wollaston MP (Totnes, Conservative) misrepresented the study’s findings on the BBC’s Daily Politics programme:

We know in Mexico it reduced consumption by 6% and in the heaviest consumers by 9% so it does make a difference.

This paper did not consider a segmentation by amount of consumption, and that 9% reduction refers to the relative drop in consumption in low socioeconomic households. It should be of no surprise that households with stronger financial constraints are more sensitive to a price change.

Moreover, such a result would be in complete contrast to robust findings across price elasticity studies: “heavy users of a brand are less responsive to price changes” [4]. This is one of the reasons that a tax on soft drinks may be far less effective than anticipated.

Substitutions

Another is the effect of substitutions. In the Mexican case, the tax is levied upon all sugar-sweetened drinks, but the relative drop in soda consumption was substantially lower than for other sweetened beverages, which were also taxed. In the British proposal, only “full sugar soft drinks” would be taxed. This means that lighter consumers of soft drinks may move to other drinks that would now be cheaper, relative to the taxed soft drinks. These include milkshakes and fruit juices, which may be more calorific than the soft drinks.

This is why a 2010 study from Yale University’s School of Public Health concluded: “this reduction in soda consumption is completely offset by increases in consumption of other high-calorie drinks” [5]. The same authors, in a 2010 paper entitled Can soft drink taxes reduce population weight? [6], found “a 20 percentage point will lead to a decrease in BMI of 0.06 and that the impact could be larger for some demographic groups”. Another 2009 study in the Journal of Adolescent Health [7] concluded there were “no statistically significant associations between state-level soda taxes and adolescent BMI”, in a consideration of US states. These results undermine the case for soft drink taxes as a means of benefitting the population’s health.

To govern is to choose

Such a levy would introduce a new complexity to the tax system. Despite the report claiming it should not ‘pick and choose’ between proposals, no survey of the current effects of government policy was undertaken. The effect of subsidies for sugar beet on the price of sugar is not mentioned in the report [8]. For increasing the price of soft drinks, a complication of taxation, and not a simplification of subvention, is proposed.

Whilst the Health Select Committee has thankfully proposed that this tax would be evaluated for efficacy, with a sunset clause, it would be better for its proposals to not rise in the first place. The need to be bold and urgent should not be an impetus for folly.

References

[1] Health Committee, 2015. Childhood obesity – brave and bold action. First Report of Session 2015-16. Available from: http://www.publications.parliament.uk/pa/cm201516/cmselect/cmhealth/465/465.pdf [Accessed: 13th January 2016]

[2] Boseley, S., 2014. Mexico enacts soda tax in effort to combat world’s highest obesity rate. The Guardian. Available from: http://www.theguardian.com/world/2014/jan/16/mexico-soda-tax-sugar-obesity-health [Accessed: 13th January 2016]

[3] Colchero, M. A., Popkin, B. M., Rivera, J. A., and Ng, S. W., 2015. Beverage purchases from stores in Mexico under the excise tax on sugar sweetened beverages: Observational study. BMJ. Available from: http://uncfoodresearchprogram.web.unc.edu/files/2015/06/Mex-SSBtax-yr-1plus-suppBMJ2016.pdf [Accessed: 13th January 2016]

[4] ICM Conference, 2013. An investigation into the effect of competitive context on price elasticity. Available from: http://www.icmconference.org.uk/index.php/icmc/ICMC2013/paper/viewFile/678/214 [Accessed: 13th January 2016]

[5] Fletcher, J. M., Frisvold, D. E., and Tefft, N., 2010. The effects of soft drink taxes on child and adolescent consumption and weight outcomes. Journal of Public Economics. Available from: https://www3.nd.edu/~wevans1/class_papers/fletcher_et_al_JPubEcon.pdf [Accessed: 13th January 2016]

[6] Fletcher, J. M., Frisvold, D. E., and Tefft, N., 2010. Can Soft Drinks Taxes Reduce Population Weight? Contemp Econ Policy. Available from: http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2908024/ [Accessed: 13th January 2016]

[7] Sturm, R., Powell, L. M., Chriqui, J. F., and Chaloupka, F. J., 2009. Associations between State-level Soda Taxes and Adolescent Body Mass Index. Journal of Adolescent Health. Available from: http://www.jahonline.org/article/S1054-139X(09)00106-2/pdf [Accessed: 13th January 2016]

[8] Adenauer, M., and Heckelei, T., 2005. Economic Incentives to Supply Sugar Beets in Europe. University of Bonn. Available from: http://ilr.uni-bonn.de/agpo/staff/adenaeuer/Incentives_To_Supply_Sugar_Beets.pdf [Accessed: 13th January 2016]

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This entry was posted on January 14, 2016 by in National Politics and tagged , , , .
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