Evaluate the case for the imposition of a saturated fat tax in the United Kingdom.

Business & Economics

Evaluate the case for the imposition of a saturated fat tax in the United Kingdom. (30 Marks)

The imposition of a fat tax in relation to saturated fats in the united kingdom has both positives and negatives. It would be a good idea in theory because it should cause an inward shift on the supply curve, this is because as price rises quantity demanded falls. Price elastic products place more of a burden on producers whereas price inelastic products have the adverse effect placing more of a tax burden on consumers.

Firstly, a possible benefit of a tax like this is that it would reduce the cost and burden placed upon the NHS. The NHS have to face obese related illnesses, that could be avoided if the public were to consume healthier foods. Illnesses such as type 2 diabetes and knee and hip operations are some of the many illnesses that are stimulated by over eating, these two alone contributing a large amount of the total 2.5 billion pounds lost to the economy in 2006 as well as the other contributing effects such as premature death, sick pay and incapacity benefits. This could also be good as the money raised through taxes could be used in helpful ways such as subsiding cheaper, more healthy foods, giving people who find it more difficult to afford the foods that are better for you a chance to buy them and get out of the vicious circle of only being able to afford foods that are high in salts, sugars and saturated fats. In order for this to work however the government needs to make sure they internalise the externality and increase the private costs to the individuals that consume these such products, therefore reducing the overall quantity demanded.

On the other hand, there are several possible drawbacks of a fat tax. Taxes such as these that are indirect are regressive and have the worst effect on those with lower incomes as those on higher incomes can absorb the cost. The other argument against this is however that it may not be the fact they cannot afford the healthy foods it could just be a lack of awareness to the unhealthy food. This argument was completely disproved by Giles Coren who in 2006 took 20 pounds and purchased 1lb of fresh veg, 2lbs of organic beef, two salmon steaks, 4lbs of whole-wheat pasta, 2lbs of porridge, 2 pints of semi-skimmed milk, bags of pulses, 4 tins of tomatoes, 2 sacks of oranges and a sack of apples. This is also backed up through saying that not all fats, sugars and salts are bad for you especially in moderation so why should everyone be persecuted for it even if they do not lead to them becoming obese as they are consumed in sensible quantities. It also has been considered by the University of Oxford and Nottingham University that this tax model would actually increase weekly food bills by between 3.2% and 4.6%, and they have questioned whether it would actually change the habits of consumers.
Furthermore, it could be seen as detrimental to job creation if they were to tax fast food outlets. This is because it would mean more people are unable to get jobs so they remain unemployed and then themselves cannot afford to pay for the healthy food. This would also hinder the smaller independent outlets and not the major chains because the chains such as McDonalds would be able to just absorb the cost.

It has been tried and tested by the Danish government, and soon after bringing in the legislation they soon removed it because it inflated food prices and domestic jobs were being put at risk. The tax added £1.50 per kilo of saturated fats. This led to food manufacturers complaining because it not only led customers away from their product but also meant that people were beginning to cross the border into Germany to do their shopping all so they could avoid the tax.

In conclusion, fat taxes do not work and are inefficient. They do help by slightly improving the health of a nation at a cheaper cost than other methods, and is good as an indirect mechanism for reducing obesity-related health costs toward the NHS. But all in all, instead of taxing the inputs and what makes the consumer fat, it would be more effective to tax the outcome of over eating, the fatty.