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Sugar Tax

On April 6th 2018 the Sugar Tax was introduced in the UK to decrease the amount of sugar consumption. The tax was mainly introduced to curb rising levels of obesity and tooth decay, and is in line with policies seen in other countries. But to what extent is sugar being taxed? And do we think this will work in the long run?

Limited Scope Before we salute the government for caring about our health, at last, we need to look at this with our rose-tinted goggles off. This tax does not hit all products comprising of sugar. It merely hits soft drinks.

Companies are now taxed according to the sugar content of the drinks they produce. Two different taxes have been instated: one for drinks with a total sugar content of more than 5 grams per 100ml. The second, much higher, tax capturing drinks with 8 or more grams of sugar per 100ml.

As a result of the two new tax levels you can expect the following price increases: a can of regular coke has seen a price increase of about 8 pence, assuming it was priced at 70 pence. Where a 1.75 litre bottle of coke has increased from roughly £1.25 to £1.49, being taxed about 24 pence.

The brands estimated to feel the sugar tax the most are Coke, Red Bull, Dr Pepper, Old Jamaica Ginger Beer, Fever Tree Tonic Water and the Scottish Irn Bru. As a result some of these companies have stated to move into plant-based sweeteners to avoid the tax.

Plant-based sweeteners are not affected by the tax. Pure fruit juice based drinks are also left alone. Drinks with a high milk content, which tends to have high sugar values, are exempt due to their calcium content. And lastly, sugar-free soft drinks such as Diet Coke and Coca-Cola Zero are not subject to the tax either, although most people will agree that these drinks are also far from healthy.

Looking Outside As mentioned before, the UK is not the only country to have introduced a policy trying to curb unhealthy consumption. Other countries have introduced similar policies and these have been met with success in reducing the drinking of sugary soft drinks.

Mexico introduced a 10 per cent tax on sugary drinks in 2014 and saw a 12 per cent reduction over the first year. Hungary brought in a tax on the drinks companies and saw a 40 per cent decrease in the amount of sugar in the products themselves to avoid the tax.

Drinks are not the only sugary wares being taxed. Norway has also instated chocolate tax to curb its unfortunately not so healthy consumption. Something other countries have looked into as well.

Expectations and Elasticity Maybe I should quickly dive into explaining how tax, price increase and general price elasticity drive demand for a product.

In very basic economic theory, there is a certain demand for a product, and there is a certain supply of a product. You can graph this using two lines, S and D. Where these two lines cross we find the amount being sold/bought and at which price this is being done, P0 and Q0. Now we instate the tax, which affects the supply function. The price goes up due to the tax (P1), production and supply is altered (S+Tax), but the demand function in itself is not (D). However, due to the increased price (P1), the equilibrium, the point where the two lines meet, is changed and moved upwards. As a result, the quantity demanded now (Q1), has decreased.

There are some assumptions here that need to be checked. The main one being price elasticity. Price elasticity is a measure indicating how much a change in price can possibly affect the demand for a product. If we take toilet paper for example: you are going to need it. There are limited ways around the use of toilet paper. As a result, it is an inelastic product: even if the prices were to double, demand for it would remain relatively stable. There are products for which the opposite is true: if the price were to increase with only 10%, demand would fall massively. These tend to be products you can easily live without, or have easily available replacements.

Soft drinks in themselves are elastic products. They are easy to replace and easily lived without. Similar to the effects seen in other countries, I expect the tax to be succesful to the extent that it has been implemented. However, that is exactly its crux. It does seem that the scope of this tax is incredibly limited, whilst it name suggest a strong fist made against all sugars. Although soft drinks are a big issue, they are hardly the main culprit. The main issue the UK has, which is similarly present in the US, is that there is sugar everywhere. It is absurd.

The issue then becomes properly taxing all levels of sugar in products. But let me present to you the ultimate issue: Sugar as an ingredient is not elastic.

A friend and I have tried to eat sugar-free for a month. She was in the Netherlands, I was in the UK. She managed a lot better than I did, go Netherlands(!!), but it was a struggle even then. Sugar is not an easily avoided product, if you don’t want to end up making all your food from scratch. And as we are both students, we don’t exactly have the time nor the money to do this. And you explain to me why there is sugar in whole grain pasta…

Another worrisome finding I stumbled upon before I even start my sugar-free month. I looked at people who had done this before and had documented their journey, either blogging, vlogging or having written entire books about it. The finding is that quitting sugar comes with some serious withdrawal symptoms. Excuse me?!

When studying the effects of sugar on the brain, and in general the body, it looks like an addictive substance. When abstaining from a product you use multiple times on a daily basis, and trust me you do use it that often, your body experiences cravings. When these cravings aren’t met, you experience withdrawal. These effects for sugar specifically are: fatigue, headaches, changed sleepcycle, insomnia, issues concentrating, shortness of breath, low mood, irritation and so forth. These effects are a slightly less insane version of quitting speed. But we’re not talking drugs here, we are talking sugar: world’s number one ingredient!

Knowing how addictive sugar is, does taxing it make sense? Addicts will do whatever to obtain their drug of choice, price elasticity is effectively zero for them. As a result, I personally don’t think taxing everything bad is ideal. Not when it comes to addictive substances. What is needed is education for the users and much heavier and restrictive legislation on our dealers. There is no need for sugar to be in many of the products that it is in. It is time to cut it out at a governmental level. I’d like to state that I am clean before I turn 50.


Behavioural Science

Personal Finance



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