Pricing Sugar and Weighing Outcomes: Does Taxation Really Reduce Obesity?

Rising obesity levels are an issue growing in prevalence over the years. As NHS director for Diabetes and Obesity, Dr Clare Hambling states: “Obesity is one of the biggest threats to health in the UK – it affects every human organ system and can have a major impact on people’s lives”. Obesity has been linked to raising the risk of severe health problems like Type 2 diabetes, heart diseases, strokes, high blood pressure, etc. ultimately reducing life expectancy.

Should the government be targeting unhealthy foods to curb obesity? Why not instead encourage exercise or increase awareness about the un-healthiness of HFSS goods?

Despite the widely known effects of HFSS foods and a poor diet on health and wellbeing, for many – especially lower and middle income families – unhealthier foods are more accessible and thus make up a larger proportion of the majority of the population’s diets. According to Contreras-Manzano et al. unhealthy foods were perceived as more available than healthy foods in all situations and all countries observed.

The accessibility and availability of junk foods make it a more appealing option compared to healthy foods – which are more difficult to store, difficult to prepare and more expensive. Availability, easiness-to-prepare and price are all major factors in deciding what foods go into a person’s diet and can greatly affect the general health of a population. As seen in a study conducted by Aretz et al. limited accessibility to unhealthy foods are globally associated to lower obesity levels, whereas the higher accessibility to fresh foods and supermarkets were not. Thus, by making the option to opt for unhealthy foods to be harder or more expensive is more effective in lowering obesity than encouraging a healthier lifestyle.

The UK aims to tackle their rising obesity problem by imposing taxes on HFSS goods (food or beverages high in fat sugar and salt). As obesity rates in the UK rises, so does the number of people suffer from obesity related health issues. This further increases the burden on health services, increasing waiting times for others and making healthcare even more inaccessible, creating a negative externality in consumption. As third parties unrelated to the consumption of HFSS goods suffer the external costs of an inaccessible health care system.

But is taxation the right move? Does stopping Wetherspoons from serving free refills on sugary hot drinks like hot chocolate and mocha actually reduce the consumption of sugary foods and drinks or does it just redirect our sweet-tooths to something else – or something even more unhealthy?

Taxes can be used to reduce the consumption of unhealthy goods, serving as a deterrent to discourage HFSS goods and push consumers towards healthier and (hopefully) cheaper alternatives. The HFSS tax would raise the marginal cost of production for producers and retailers, this shifts the supply curve leftwards. Now at any given quantity the HFSS is sold at a higher price, thus shifting the equilibrium price upwards. A higher price creates a rationing effect in which consumers who can no longer afford the new price to be pushed out of the market. This reduces consumption of the taxed good, hopefully redirecting consumption to healthier options available.

According to Itria et al. taxing SSBs (sugar-sweetened beverages) showed that consumption sales and purchases decreased when the price of SSBs were increased in all countries studied. Specifically, obesity reductions were larger in middle-income settings, the increases in SSB taxation had led to a reduction in obesity from 2.54% to 5.9% whereas higher income settings had the levels of reduced obesity go from 0.99% to 2.7%. This indicates that taxation may be more effective in reducing obesity in middle income settings. Most likely due to higher price sensitivity as a larger proportion of income is now spent on food and drinks.

All in all, the act of taxation can effectively reduce the consumption of unhealthy goods and mitigate the welfare loss caused by the negative externality in consumption. However, to be truly effective HFSS goods have to be made more expensive and more inaccessible compared to healthy goods to make it the more appealing option that consumers naturally gravitate towards.