Dr Kate Smith

How might Brexit affect food prices?

Presentation given at Wellcome Trust seminar.

The government has recently consulted on the structure of alcohol taxes. This consultation focuses on two issues: (i) the introduction of a new still cider and perry band that would increase the tax on products below 7.5% ABV, and (ii) the introduction of a new still wine band that would reduce the tax on products between 5.5% and 8.5% ABV. In this Observation we summarise our main points from our response to the consultation.

Heavy drinkers have a higher social cost than other drinkers and are more responsive to changes in alcohol prices, say the Institute for Fiscal Studies. So why not raise taxes on the high-strength drinks they most often consume?

Alcohol consumption is associated with costs to society due to its impact on crime and health. Tax can lead consumers to internalise these externalities.

This presentation was given by Kate Smith at the Public Economics Lecture Day on 6 January 2017.

In Budget 2016 the Chancellor announced a ‘soft drinks industry levy’ that aims to reduce consumption of sugar sweetened soft drinks. The levy is due to take effect from April 2018 with two rates, one applying to mid-sugar drinks (with 5-8 grams of sugar per 100 millilitres) and a higher rate applying to high-sugar drinks (with more than 8 grams of sugar per 100 millilitres). A recent article in The Lancet: Public Health considers the possible consequences of the levy for a series of health outcomes, such as obesity, type 2 diabetes and dental care. In this Observation we propose a simple change to the soft drinks levy which would increase the likelihood of it having a beneficial effect on these outcomes.

Presentation given at CREST, Paris.

In their Correspondence (March 19, p 1162),1 Peter Scarborough and colleagues correctly quote us as saying that “the efficacy of [a sugary drinks tax] will depend on what products [consumers] switch to and how firms change their prices”, stating that we “based [our] conclusions on economic theory without reference to the evidence”. We agree that the magnitude of consumer response is an empirical question. Our Green Budget chapter2 neither supported nor opposed the proposed sugary drinks tax, but rather aimed to highlight some of the complexities surrounding such a tax and where the evidence base should be improved. We also do not dispute the unsurprising finding that consumption of sugary drinks fell in countries in which a sugary soft drinks tax had been introduced. We disagree, however, that concerns about substitution responses can be lightly dismissed.

In Budget 2016 the Chancellor announced a “soft drinks industry levy” due to take effect from April 2018. The charge will be levied on soft drinks that contain added sugar and is aimed at “help[ing] tackle childhood obesity.” It has followed calls from various bodies for intervention to reduce people’s sugar consumption. In a new IFS briefing note we examine the main sources of dietary sugar purchased by households and lay out some of the economic issues related to the introduction of a tax on sugar. We also consider the rationale behind government intervention of this sort.