Food Standards Scotland (FSS) noted in a recent paper there would be no “silver-bullet” to the issue of obesity, though conceded that radical changes could remedy a gathering crisis in Scotland and beyond. “Fifteen years from now we need to be able to look back and be able to say this was the point where we started to turn round the current trend”, said the organisation’s CEO Geoff Ogle. “[It is] a trend which could see Scotland with adult obesity levels at 40 percent by 2030. Unfortunately, it’s that stark.” Among the proposed measures was one that featured ahead of the rest in the morning’s headlines: a sugar tax. Supporters feel this could help keep a lid on spiralling health costs, though at what price is unclear.

Heavy costs
Despite efforts to educate consumers about the consequences, sales of sugar-sweetened beverages and foods are on the rise worldwide, particularly in low and middle-income countries. As a result, the prevalence of obesity has tripled since the 1980s and, aside from the obvious health implications, the issue is placing undue strain on Europe’s healthcare systems.

Although the idea of a sugar tax is relatively new in Britain, taxes on sugary foods and soft drinks have been running elsewhere in Europe for years. A tax on beverages with added sugar was enacted in France in 2012, and taxes on sugary foods in Finland and Hungary have existed since 2011

With over half the population obese or overweight, the EU’s health spend per capita rose on average 4.6 percent a year between 2000 and 2009, according to the Organisation for Economic Cooperation and Development. Even countries not typically associated with obesity can expect to see a spike in the next 15 years, and Sweden, for example, could see its obesity rates double before 2030.

The McKinsey Global Institute says obesity inflicts $2tn of additional costs on the world’s healthcare systems – two percent of global GDP – and the financial impact on Europe numbers in the hundreds of billions. According to the OECD: “[The rise] is a major public health concern…because obesity is associated with higher risks of chronic illnesses, it is linked to significant additional healthcare costs.” However, as high as the costs are, it seems the scale of the crisis has only recently raised the prospect of a sugar tax.

Candy charge
This tax, in principle, would encourage manufacturers to reformulate their products, dissuade consumers from purchasing certain items, and raise revenue to reinforce health messages and education. However, critics suggest the effects of the tax are not so clear-cut.
The issue made headlines in the UK recently, not least in January when NHS England’s CEO Simon Stevens told The Guardian about proposals to impose a 20 percent tax on sugary drinks and food in hospital cafes by 2020. Likening obesity to smoking, he said of the issue: “It represents a slow-motion car crash in terms of avoidable illness and rising healthcare costs. If as a nation we keep piling on the pounds around the waistline, we’ll be piling on the pounds in terms of future taxes needed just to keep the NHS afloat.”

Although the idea of a sugar tax is relatively new in Britain, taxes on sugary foods and soft drinks have been running elsewhere in Europe for years. A tax on beverages with added sugar was enacted in France in 2012, and taxes on sugary foods in Finland and Hungary have existed since 2011. A Public Health England (PHE) review suggests Norway, Finland, Hungary and France have all seen reductions in sales as a result, and these cases and others show a sugar tax is perhaps not as radical an idea as initial reactions suggest.

Shu Wen Ng, a health economist at the University of North Carolina, spoke to European CEO about the difficulties associated with a sugar tax, and why the solution is not to simply slap a catch-all rate on products. “In practice, coming up with a well-designed sugar tax will require careful thought. This includes having clear definitions. What kinds of sugars are being taxed? Total sugars? Added sugar? In which case, what is defined as an added sugar? Would whole foods be exempt? [One must also consider] the type of tax (excise or sales tax), the structure of the tax, and how to account for inflation. Who/what agency would collect the tax and from whom? How might the revenues from such a tax be allocated?”

What’s more, the usefulness of a sugar tax, according to a recent EU report, still needs to be fully assessed. Although food and drinks taxes “in general achieve a reduction in the consumption of the taxed products”, the difficulty lies in the detail.

Not simply a single product, sugar is a complex bundle of goods with many substitutes, and any tax on food and drinks operates in a highly dynamic legislative environment, with many variables to influence prices and demand.

Weighty opposition
Unilever’s CEO Paul Polman agrees that a sugar tax is “too simple a proposal” and cited a lack of evidence on whether it would impact obesity levels at all. Research by the Institute of Economic Affairs goes further in arguing that a sugar tax could actually increase the burden on the health system as healthier individuals live longer and require more care later in life.

While taxes have been shown to have a demonstrably positive effect on public health, the Food and Drink Federation (FDF) expressed concerns about the legislation’s impact on government spending later down the line and on the jobs market overall. Speaking in an interview with the BBC, the FDF’s CEO David Thomson said the measures could punish an industry that employs 34,000 people in Scotland – 19 percent of all
manufacturing jobs.

This being said, the opposition is unsurprising given that food and drinks companies have been successful in seeing off similar proposals in the past. Several examples across the Atlantic spring to mind, and drinks companies in Europe have persuaded the Slovenian government to turn tail on proposals for a 10-percent tax on drinks and Danish authorities to repeal a tax on soft drinks. The fear holds that retailers, rather than consumers, could take on the costs, although a paper authored jointly by the French central bank and the University of Paris-Est Créteil shows this not to be the case.

Retailers are fearful – and understandably so – that a tax on sugar-rich items could alter consumer demand for their products, as was the case in Mexico recently. Having introduced a tax of one peso per litre on sugary beverages and an eight-percent sales tax on junk foods, Ng and Mexico’s National Institute of Public Health showed purchases of sweetened beverages went down on average six percent in the first full year. PHE also noted a six-percent reduction in purchases of sugar-sweetened drinks in 2014, with higher reductions in purchasing of around nine percent in lower socioeconomic households.

“If the costs of the tax are passed through onto consumers (rather than absorbed), then it is likely to change the purchasing behaviour of consumers as well”, said Ng. “However, whether the tax will be passed through will depend on how competitive the market is, which may well vary depending on the countries or regions in question and what their primary sources of sugars are.”

To bring the issue of Europe’s obesity crisis back into focus, while there is general agreement a sugar tax could lower demand, what impact this might have on consumers and retailers is uncertain. The policy could relieve the pressures weighing on Europe’s healthcare systems, though whether or not these savings will trickle down further remains a matter for discussion and debate, and will continue to do so in the near future.