Fighting obesity through the sugar tax: an effective measure?
Authors: Chiara Mauro, Alessandro Bruzzese, Alessia Caputo
Obesity is one of today’s most urgent public health problems. The WHO declared that “an escalating global epidemic of overweight and obesity is taking over many parts of the world. If immediate action is not taken, millions will suffer from an array of serious health disorders”.
Once considered as a disease that was afflicting only the US and other HICs of the Western World, obesity turned out to be a major risk factor for global health. The epithet “obesity epidemic” proves the extent of this phenomenon. As of 2016, 39% of the global adult population was overweight, while 13% of it was obese , that is to say roughly 1 out of 8 people is obese. From then on, it spread all over the globe, to the point that in many low- and middle-income countries the portion of the population that is overweight has outpaced the percentage that is underweight.
The WHO in 2020 claims that “the fundamental cause of obesity and overweight is an energy imbalance between calories consumed and calories expended”. Among the unintended consequences of globalization, trade liberalization led to a growth in the consumption of sugar-sweetened beverages and high energy, low-nutritional value foods. For example, consumption of processed food and prepared meals became increasingly common over the decades, and fast-food chains have become commonplace in the everyday life of a large majority of the population. Also, diets today are much sweeter than they used to be. Studies have shown that 75% of foods and beverages bought in the United States contain added caloric sweeteners.
One could question that globalization has nothing to do with dietary intake and energy expenditure. Well, that is not true. Trade liberalization influenced food availability by enabling the trade of numerous amounts of food varieties, removing barriers to foreign investment in the food industry, and the expansion of multinational companies such as fast-food chains. Globalization and poorly regulated food markets influenced also food prices, determining a shift toward mass preparation.
Urbanization played a key role in the obesity epidemic, since living in a city is associated with a more sedentary lifestyle. In addition, urbanization contributed to the migration of many farmers to the city, resulting in a reduction of cultivated land and therefore fresh and healthy products.
Consequences of overweight and obesity are to be found in every aspect of everyday life. Firstly, it increases the risk for many serious diseases, including hypertension, type 2 diabetes, coronary heart disease, and many more. Furthermore, it has major impacts on national health care budgets. Obesity-related medical care costs in the United States, were an estimated $147 billion. More in general, according to the World Economic Forum treating obesity-related issues accounts on average for 8.4% of total healthcare spending in OECD countries.
Ultimately, the losses are even more if we consider the wider economic impact of poor health. Public health professionals, who have advocated for an SSBs levy, have pointed to the UK NHS’ high obesity-related spending, and the economic costs of ill-health borne out of “lost productivity, unemployment, early retirement, and associated welfare benefits”. In the USA, annual nationwide productivity costs of obesity-related absenteeism range between $3.38 billion ($79 per obese individual) and $6.38 billion ($132 per individual with obesity).
Policy actions: the use of sugar tax
Today in Europe policymakers recognize the urgency of promoting healthy diets and reducing over-consumption of sugars. Policymakers working in this field face a continuous tension between two opposites: is it preferable to eradicate the underlying cause of a problem at its root or take measures to contain its effects? In other words, is the “prevention better than cure” approach feasible? The debate is still open.
In the meanwhile, based on the Action plan on childhood obesity 2014–2020, many European countries started to adopt comprehensive plans that combine education, restriction of marketing of sugary products, economic measure and price incentives. Among the options that policymakers have at their disposal, there are agento-structural interventions, such as adopting a fiscal policy to tax unhealthy food and beverage consumption. In particular, the WHO promotes taxation of drinks with added sugar as one of the most efficient and effective measures to tackle the issue. In fact, sugary drinks are a major source of sugar in the diet, and its consumption is increasing in most countries, especially amongst children. Just consider that on average, a single 330 ml can of a sugary drink contains around 40 grams of free sugars, while WHO recommendation suggests not to exceed 25 grams per day. Evidence shows that a tax on sugary drinks that raises prices by 20% can lead to a reduction in consumption of around 20%. Concerning savings of healthcare expenditure, estimates suggest that over 10 years, a tax on sugary drinks of 1 cent per ounce in the USA would result in savings of more than $17 billion, which should be used to fund other programs.
Indeed, no single approach will work alone and policy-actions to reduce obesity should be comprehensive, including both fiscal policies and policies supporting an active lifestyle.
In many cases, as for instance was the case for many US cities the tax was conceived to alter consumer’s behaviour, discouraging the consumption of energy-dense drinks that lack wholesome nutritional values. However, many scholars underlined that it can be difficult to have a significant impact on obesity by just trying to modify the consumption behaviour of people. In fact, consumers have strong preferences and habits, and their price responsiveness is likely to be low. In the UK case, however, the aim of the policy was to change the general environment of the sugar drink industry, by inducing producers and importers to reformulate their products. Such model results in consumers only being indirectly hit by the tax, but with a direct impact on their daily sugar consumption.
The Sugar tax in the U.S.A.
The sugar-tax debate gained momentum few years ago in the U.S., but now the topic seems to have been put aside. Currently, in the U.S. no state has an excise tax on sugar-sweetened beverages. Instead, soda taxes are levied locally in Boulder, Colorado; the District of Columbia; Philadelphia, Pennsylvania; Seattle, Washington; and four California cities: Albany, Berkeley, Oakland, and San Francisco.
The main reason behind unsuccessful results in implementing sugar tax is the American culture of free choice. The liberal view of the United States about the state intrusion in the lives of its citizens makes it difficult to enact taxes that target people’s behaviour. The respect for principles such as individual freedom, free enterprise, and self-reliance implies that “dependence on government welfare programs or handouts is discouraged”. And if U.S. citizens are willing to give up some social welfare to safeguard their autonomy, they will be even more willing to fight against a tax in the name of individual freedom of choice.
Moreover, evidence of this type of measure is controversial. Fox and Horowitz (2013) claim that they are unlikely to positively affect consumption due to the modest tax rate nations have set insofar. On the other hand, the Childhood Obesity Intervention Cost-Effectiveness Study showed that soda taxes tend to be the most cost-effective solution to fight childhood obesity. The 1-cent per-ounce tax enacted in Berkeley, and a 1.5-cent per-ounce tax enacted in Philadelphia demonstrate a positive correlation between the introduction of the taxation and the reduction of sugary drinks. Furthermore, retailers opted for stocking more water bottles at the expense of soda ones.
However, the main issue persists. Is a policy levied at the local level capable of altering consumer behaviour? The answer is far to be found. Further researches will be needed to identify the long-term impact of such a policy. Moreover, this local legislation allows consumers to turn to sugar-sweetened drink providers operating in other cities where the soda tax is not levied. In this way, the administration could evaluate positively the law due to the local reduction in consumption, without considering people relying on external retailers and their sugar intake.
The Sugar Tax in the U.K.
The Soft Drinks Industry Levy represents a successful case of sugar tax, offering important insights for other countries.
The tax was adopted in 2016 as part of a wider plan called “Childhood Obesity Strategy”. In the UK the issue is particularly sensitive as a third of children are obese or overweight when they leave primary school. Evidence shows that 80% of kids who are obese in their early teens will go on to be obese adults, and the NHS spent £6 billion a year on overweight and obesity-related ill-health.
The critical success factor is how the British government structured the tax: the goal was not just to move consumers towards healthier alternatives, but it was primarily to generate an incentive for producers of added-sugar soft-drinks to reduce the amount of sugar in their products, in order to avoid the levy. Differential rates of tax are applied according to how much sugar the drink contains: the levy puts a charge of 24p on drinks containing 8g of sugar per 100ml, and 18p a litre on those with 5–8g of sugar. The threshold to be exempt from the levy is under 5 grams per 100ml of sugar.
The UK government also gave producers two years to adapt, with the clear intention to support them in lowering sugar in drinks. This financial incentive has been successful and more than 50% of manufacturers have reformulated their recipes in order to fall out of scope, even before the entry into force of the tax. These include Fanta, Ribena, Irn-Bru and Lucozade, but do not include Coca-Cola Classic, which did not change their original recipe.
Despite many producers avoiding the payment thanks to the sugar reduction, the government also raised about £240 million from the levy. Such proceeds must be reinvested in programmes to reduce obesity and encourage physical activity and balanced diets for children.
As far as health impact is concerned, the results of an ex-post evaluation study by the University of Cambridge, et al., are expected in December 2021. Nevertheless, an ex-ante evaluation published in the Lancet Public Health in 2017 concludes that substantial health gains will be achieved.
Finally, another success factor of the levy has been the strong effort of many organisations, academics and the scientific community to bolster the support of the tax, lobbying the government for the introduction of the measure, i.e. The Obesity Health Alliance. The unity among the supporters of SDIL was able to shift public opinion resulting in 70% of the interviewees judging positively the levy. Indeed, the fact that it directly hit producers rather than consumers had an impact also on the public acceptability.
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