Bad Habits, Hard Choices

Using the Tax System to Make Us Healthier

David Fell

• Publisher: London Publishing Partnership
• Year: 2016
• Print ISBN: 9781907994500
• eBook ISBN: 9781907994517
• Edition: 1
• Topic: Business
• Subtopic: Taxation
• Index: Business

Consumers in Britain face a curious mix of taxes and duties that are messy, opaque and out of date. They are also unfair: the poorer you are, the more of your income goes on paying these taxes. At the same time, we are ceaselessly bombarded by marketing information that is very one-sided. The foods that make us fat, for example, are promoted a great deal more than the foods that could keep us healthy – and again it is mainly the poor who bear the brunt. This book draws on insights from behavioural economics, participative decision-making and the author's twenty-five-year research career to take a fresh look at these issues. It concludes that there is a fair, inclusive, adaptable, affordable and resilient way of enabling us to eat healthily and to tackle the obesity crisis. The author proposes that negative VAT should be charged on healthy foods and high VAT should be charged on unhealthy foods. The book sets out a four-step process to actually implement this new regime, each step of which depends on mechanisms that have already been used by government. It is a bold yet practical proposition for tackling one of the most costly and damaging challenges we face.

Chapter 1

Let’s go shopping

I’m all lost in the supermarket

— The Clash

Just like millions of other people, last week I went shopping. Nothing special: a trip to the supermarket. I bought my usual groceries, enough for the week’s meals. I bought a couple of bottles of wine, too. I’m lucky: I earn just enough not to pay too much attention to the prices. I put the things I wanted in the trolley, picking up a few things I hadn’t intended to buy, but comfortable that I was avoiding anything exorbitantly expensive.

Generally I try to buy organic or Fairtrade or locally produced food if I can, but I don’t try all that hard. If there’s an attractive bargain, or the price of the ethical alternative seems too high, I’ll edit my choices ­accordingly. Most of the time – and this was certainly the case last week – I rely on my usual brands. I always buy Lavazza coffee, for example. I’m not sure why: there are dozens of types of coffee on the shelf, and I’ve tried just a handful.

At the till, just like millions of other people, I did my part of the deal – unloading and then reloading my trolley – before handing over my plastic. I typed my four memorable digits into the little black rectangle, glanced at the bill and headed out of the shop.

I’d arranged to meet a good friend for a drink that same day, so once I’d dumped all the shopping into the cupboards and the fridge at home I set off in my car. I stopped at the petrol station, stocked up on fuel, chocolate and – ahem – cigarettes, and drove the thirty-odd miles to Hertfordshire. It wasn’t a particularly long evening: we ate a light meal, had a couple of drinks, two coffees, and then I headed home.

My bill in the supermarket was £78.24. At the petrol station I spent £64.97 on fuel, £3 on chocolate and £9.69 on cigarettes. In the evening I spent £12.50 on my meal, £8.40 on two pints of beer and £4.60 on two cups of coffee. All told, £181.40.

In my book, that’s quite a steep day. I know that the groceries and the petrol will last me a few days, but even so – nearly two hundred pounds!

The real shocker, though, is that without knowing I was doing so I had paid out £43.20 in tax.

My monthly salary slip tells me exactly how much tax I’ve paid; why not the slip at the checkout? This seems odd. It can’t be that hard, surely, to display how much of the price of each item on the shelf is tax? Then, if I wanted, I could make different choices and avoid paying that tax.

And why am I paying taxes on some of the items and not others? Is it an untrustworthy government fleecing me yet again? Or are they trying to discourage me from driving and smoking and drinking (and if it is that, why not make it ­clearer)? Or perhaps it’s just a ridiculous mess: a porridge of out-of-date ideas and priorities, as uncomfortable and daunting for the officials, politicians and statisticians as it is opaque, confusing and unfair for the rest of us. Maybe it’s all of the above?

This book is about how to sort this mess out – not for the sake of it, but to show how we could use something boring like tax to do really exciting things like help people lose weight and live well, and perhaps even help to save the planet.

Our VAT system – in fact, our entire edifice of ‘consumer-facing taxes’ – is both damaging and stupid. It arrived in the UK when we joined the European Community in 1973, a time so unimaginably distant it is difficult even to begin describing how different it was. It is not simply that there were no mobile phones or computers or barcodes; the entire universe of ‘choices’ available to the consumer – what to buy, where to buy, when to buy – had barely evolved since World War II. Yet the basic structure and rules of the VAT system in 2015 are unchanged since that era of rotary dial phones, typewriters, flares and platform boots.

It’s time for SmartVAT. It’s time to haul it into the twenty-first century and make use of the barcodes and the IT, as well as all the insights we now have about shopping and consumption and human behaviour. And if we’re going to go to the trouble of making it smart, we might just as well make it really smart. Let’s see if we can actually reduce the price of the things we know are good – things that keep us healthy, for example, or things that help the environment, or things that help the weakest and most vulnerable people live a decent life – and increase the price, by quite a lot, of the things that cause harm.

•

Tax, it has to be said, can seem pretty dull. But so are seat belts, washing your hands before eating and lots of other everyday things. Almost everyone managed to agree that it was just plain sensible to wear a seat belt; and we all know that basic hygiene is common sense. And, every day, just like millions of other people, we navigate our way among dozens or hundreds or even thousands of complete strangers as we go about our daily lives; and generally we are cooperative and nice to one another. Imagine if we insert into that everyday miracle of cooperation a smart tax system that makes us smart consumers.

The rest of this book explains why it is such good sense for the government to change the way it taxes the products we buy every day, not least because we are human beings rather than the mythical ‘rational agents’ of economic theory. We do not have time to calculate the pros and cons of every choice, but instead use rules of thumb, or are persuaded by the stories told about ‘brands’ – or we just give in to temptation. We are manipulated by businesses that make big profits from selling us unhealthy and damaging products.

This book also explains how to bring about the transition to SmartVAT. It is a very practical proposal whose four elements are already used in other contexts. The biggest step will be the first: believing that there is a way of committing ourselves to healthier choices, in a fairer system, that will raise at least as much money for the Treasury as is now raised.

Dull? Sounds terrific to me.

Chapter 2

The taxes we pay

If you drive a car, I’ll tax the street

If you try to sit, I’ll tax your seat

If you get too cold I’ll tax the heat

If you take a walk, I’ll tax your feet

— George Harrison

Consumers in Britain pay a curious mix of taxes when they spend their money. Most obviously, they pay value added tax, or VAT, on all the things they buy. Except that VAT isn’t charged on everything: it isn’t charged on books or children’s clothes, for example. It isn’t charged on food, either. Except when it is. Somewhere, hidden on a transparent government website,1 there is a mighty list of all the exceptions – you pay VAT on ice cream, for example, but not on frozen yoghurt; you don’t pay VAT on a flapjack, but you do if you buy a cereal bar.

VAT came into being back in the early 1970s as a condition of joining the European Community (as it was then). It replaced taxes such as purchase tax and luxury goods tax and considerable effort went into designing the new tax in a way that the government of the time thought was fair. A key tenet of fairness was that certain basic items – such as food, books and children’s clothes – should not be taxed. However, it was also considered fair that certain not-so-basic items should not be tax free; after all, only wealthy people bought these not-so-basic items, and at the time that VAT was introduced the top income tax rate being paid by the country’s ­wealthiest people was – take a deep breath – 83%.

So wise and caring officials and statisticians carefully looked through the catalogue of all the various food products available on the nation’s shelves and allocated them to one of two lists: one list for food items that anyone might buy and another for foods bought only by the rich.

And they did it again the next year, too, because quite a number of new products became available, all of which needed to be classified.

And then again the next year, and the next year, and the year after that.

As you can imagine, the lists became quite long. Dauntingly long, in fact. So long that the thought of, say, having a bit of a rethink about which items were on which list, or how many lists there were, or whether the original basis for the lists even made sense anymore… Well, such thoughts were simply unthinkable: it would take too much time, too much effort and – let’s face it – it would cause too much political trouble.

In any case, as successive governments discovered, the great British public seemed not to notice VAT most of the time, and this invisible tax consistently delivered a very useful chunk of money to the Treasury.2 There was little incentive to make any big changes and some very good reasons for leaving well alone.

But of course VAT is not the only tax surreptitiously confronting the British consumer. Much more high profile, for example, are the taxes on alcohol and tobacco. These taxes get their own special name – ‘duty’ – and they are usually part of an annual political ritual in which they are either dramatically increased or kept the same by a Chancellor of the Exchequer w...

Table of contents

• Preface
• Chapter 1
• Chapter 2
• Chapter 3
• Chapter 4
• Chapter 5
• Chapter 6
• Chapter 7
• Chapter 8
• Chapter 9
• Chapter 10
• Chapter 11
• Endnotes