IEA releases report on the harmful effects of sin taxes
A new report from the Institute of Economic Affairs shows that poorer households pay up to ten times more in sin taxes than richer households as a share of their income. With the exception of air passenger duty, all sin taxes take a greater share of income from the poor than from the rich.
This year, the Lancet journal asserted that taxes on food, alcohol, tobacco and soft drinks are not regressive. Individuals such as Michael Bloomberg advocate sin taxes on the basis that they produce progressive health benefits. Neither claim stands up to scrutiny. The overwhelming evidence shows that they take a greater share of income from the poor and do not reduce health inequalities.
The IEA report sets out the evidence from across the world, looking at the effects taxes on alcohol, tobacco and sugar have on health and comes to the following conclusions:
• Despite higher rates of abstinence and lower rates of consumption, low-income groups suffer higher rates of alcohol-related harm.
• Taxes on alcohol have not led to people on low incomes having better alcohol-related health outcomes, even though they drink less alcohol.
• In the 1960s, smoking rates were similar across all socio-economic groups in Britain.
• Today, after years of heavy taxation, smoking is much more common among the poor and smoking-related health inequalities have widened.
• Available research does not support the theory that the health benefits of increased tobacco prices outweigh the risk of harm from financial hardship for those on lower incomes who do not give up smoking.
• Taxes on sugary drinks have never been shown to reduce overall calorie intake or obesity in any of the places they have been tried.
• The impact on overall calorie consumption is usually trivial and tends to be weaker among low-income groups.
• Sugar taxes cost low-income households up to ten times as much as they cost high-income groups (as a share of income). One study concluded that a tax on sugary drinks would take 0.21 per cent of household income from the poor, but only 0.025 per cent from the rich.
Commenting on the report, author Chris Snowdon, Head of Lifestyle Economics at the Institute of Economic Affairs said:
“Taxes on everyday products such as fast food and fizzy drinks don’t help anyone and can cost poor families ten times more than they cost the wealthy. That’s real money for working families, even if it’s just a drop in the bucket for multi-millionaires like Jamie Oliver and Michael Bloomberg.
“The evidence that ‘sin taxes’ on food, alcohol, tobacco and soft drinks are regressive is indisputable. Not every part of the tax system can be progressive and governments need to get money from somewhere, but those who campaign for these taxes should not deny that they hit the poor much harder than they hit the rich.”
Notes to editors:
To download ‘Of Course Sin Taxes are Regressive’, click here.
For more research from the IEA on sin taxes, please click here.
For more IEA research on sugar taxes, please click here.
For media enquiries please contact Nerissa Chesterfield, Communications Officer: [email protected] 020 7799 8920 or 07791 390 268
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems and seeks to provide analysis in order to improve the public understanding of economics.
The IEA is a registered educational charity and independent of all political parties.