Unexpectedly Intriguing!
16 July 2007

In news from the British Isles, researchers at Oxford University have proposed a Pigovian tax to reduce the number of unhealthy diet related deaths each year in the United Kingdom:

Researchers at Oxford University say that charging Value Added Tax (VAT) at 17.5 percent on foods deemed to be unhealthy would cut consumer demand and reduce the number of heart attacks and strokes.

The purchase tax is already levied on a small number of products such as potato crisps, ice cream, confectionery and chocolate biscuits, but most food is exempt.

The move could save an estimated 3,200 lives in Britain each year, according to the study in the Journal of Epidemiology and Community Health.

But, there are things that cloud this otherwise sunny outcome:

However, they said their research only gave a rough guide to the number of lives that could be saved and said more work was needed to get an exact picture of how taxes could improve public health.

Any "fat tax" might be seen as an attack on personal freedom and would weigh more heavily on poorer families, the study warned.

A food tax would raise average weekly household bills by 4.6 percent or 67 pence per person.

Ooo - numbers! Let's do some math!

First, according to the CIA's World Factbook, the population of Britain as of July 2007 is 60,776,238.

At 67 pence per person, that means the U.K. government could expect to take in 40,720,070 GBP (at the currency exchange rates of July 12, 2007, that's 82,703,247 in U.S. dollars) through the increased value added tax on "unhealthy" food items.

And that's just every week! Over the course of a year, the UK government could expect to rake in over 2,123,260,817 GBP (or rather, 2.1 billion pounds, or 4.3 billion U.S. dollars or roughly 2% of next year's 104 billion GBP budget of the UK's National Health System.)

Now, let's divide those figures by the 3,200 deaths the tax is predicted to delay from occurring each year. We find that the cost to British taxpayers of delaying just one death per year through higher taxes on "unhealthy" food to be 663,519 GBP (or 1,347,620 USD) for each death delayed.

Whether this really makes sense or not depends upon this figure being less than what it would cost the UK's National Health Service to achieve the same feat through the health care methods it now has at its disposal.

This also assumes that the patients who would benefit ever get to the point of treatment in Britain's nationalized system of health insurance, where everyone has government-funded health care.

Any ideas on which approach might actually be cheaper?

Maybe a better question would be, where can the money raised by the tax be expected to go? We would argue that should any portion of the tax revenue generated through the "Fat VAT" find its way back to Oxford to fund further research, we very likely don't have to go very far to understand who the true beneficiaries of the policy are really intended to be.


Tim Haab wonders if the proposed tax is correcting a market failure or is simply blatant paternalism.


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