Random Variable

Studentmedic writes about a proposal for taxing high-fat/sugar containing foods due to the overwhelming costs to the NHS to treat obesity. The original proposal also suggested taxing labour-saving devices, so that people got more exercise. My knee-jerk reaction was quite libertarian in nature. But after some more time and some very crude mathematics, here are my latest thoughts:

A simple solution – tax processed foods at a level to pay for the cost of treating obesity

To offset the cost of treating obesity, I would figure roughly an 11% VAT on all processed foods. This is lower than the BMA’s recommendation of full VAT, but would raise sufficient funds to treat obesity.

• Total food sales in the UK per annum: £85.8billion (Agriculture and Agri-Food Canada 2006)
• 75% estimated spent on processed foods, using global figures (Box 2005) = £65 billion
• Annual cost of treating obesity (Grice 2006) = £7 billion
• Estimated taxation rate = 7/65 = 11%
  

Complications

(Roberts 2005) writes:

In the United States and other rich countries…it is poverty, not wealth, that is associated with greater weight (Darmon, Ferguson & Briend, 2003; Drewnowski & Specter, 2004). This can be reconciled with the explanation given above if it is assumed that the relationship between cost per calorie and strength of flavor-calorie associations follows the function shown in Figure [1] – that it reaches a maximum and then declines. In the American marketplace, the foods that produce the strongest flavor-calorie associations (and are therefore the most fattening) are not the most expensive but are fast foods and junk foods. In the United States, the poor are relatively well-off, compared to other countries, and consumption varies between foods that are as cheap as fast foods and more expensive foods. In Berkeley, California, for example, a large container of Coke costs about $2.00/1000 kcal; a McDonald’s double cheeseburger, about $2.20/1000 kcal; an apple, at least $6.00/1000 kcal (in February 2004). Drewnowski and Specter (2004) make a detailed connection between poverty in the United States and consumption of more fattening foods.

Figure 1

There are two conclusions to be drawn from this. It is unlikely that taxation will provide a negative signal to consumers. If it does, it will affect the poorest the most, so it is not obvious that the taxation regime would equitably distribute ills.

Conclusion

I would be in favour of a milder taxation regime. This should be accompanied with either a comprehensive ban on the advertising of high fat foods and/or publicity campaigns. Advertising bans would likely be challenged in the WTO, and a comprehensive ban would be required for positive effects (Saffer and Chaloupka 2000). Publicity campaigns have been shown to have a beneficial effect in anti-smoking campaigns (Hu, Sung and Keeler 1995). As food is the main factor in obesity (Roberts 2005), by an order of magnitude, in rich nations, there should be no recommendation for other directly related taxes or other policies.

Further Reading

Agriculture and Agri-Food Canada. “Agri-Food Consumer Profile: United Kingdom.” Agri-Food Trade Service. November, 2006. http://ats.agr.ca/europe/3859_e.pdf (accessed January 5, 2007).

Box, Dan. “How much oil is there in a bottle of tomato ketchup?” Ecologist Online. 10 1, 2005. http://www.theecologist.org/archive_detail.asp?content_id=506 (accessed January 5, 2007).

Grice, Andrew. “Obese may be denied priority NHS care.” The Independent. December 26, 2006. http://news.independent.co.uk/uk/health_medical/article2103722.ece (accessed January 5, 2007).

Hu, T W, H Y Sung, and T E Keeler. “Reducing cigarette consumption in California: tobacco taxes vs an anti-smoking media campaign.” American Journal of Public Health, 1995: 1218-1222.

Roberts, Seth. “What Makes Food Fattening? A Pavlovian Theory of Weight Control.” Freakonomics. February, 2005. http://www.freakonomics.com/pdf/whatmakesfoodfattening.pdf (accessed January 5, 2007).

Saffer, Henry, and Frank Chaloupka. “The effect of tobacco advertising bans on tobacco consumption.” Journal of Health Economics, 2000: 1117-1137.