Sweet and Sour: Sugar and Environmental Taxes

26/04/2016 14:27

George Osborne's recent decision to introduce a sugar tax was a surprising glimmer of good news in an otherwise rather bleak budget - the icing on a particularly grim cake. Just weeks before, the proposal had been written off as dead - buried by the anti-tax rhetoric of its opponents in the industry and press. After it was announced, this lobby grew louder, peaking with the fizzy drinks industry threatening to sue the government for damaging their corner of the market.

This is to be expected; just mentioning tax has a tendency to kill productive conversations. Almost everyone has something to say on the obesity crisis and the dire straits of the NHS, but even in these compelling circumstances, the mention of taxation as a solution quickly leads reasoned debate to devolve into name calling and knee jerking. This is regrettable, as tax is one of the best progressive tools we have as a society, whether it is for levelling out inequality, investing in technological progress or clawing our way back from the brink of environmental disaster. Where the market fails - as it so often does - to adapt in socially responsible ways, well placed taxes can direct it to the benefit of consumers and the environment.

You won't often hear this in the press. More likely, any tax designed to shift consumption in a sustainable direction will be painted as the tyrannical impulse of the nanny state - a 'sin tax', to keep us in line. Another member of this category is environmental taxes, which are aimed at, among other things, fossil fuels, landfill, aggregates and carbon emissions. According to the Treasury, the primary purpose of these taxes is to 'encourage environmentally positive behaviour change'. But that word 'behaviour change'.... Oh, nanny. That's all the Daily Mail needed to twist a story laying out positive facts - 'How amount raised by green tax DOUBLES in 20 years to £44bn' - into a tale of a sanctimonious state ripping off the ordinary Briton.

You won't hear the argument that, if we ditch 'sin taxes' we'll have to find the money from somewhere else - which means more cuts, or more taxes on things we actually want to encourage, like jobs. Nor will you hear much about how effective they are - how the landfill tax, for example, has been the main driver behind municipal recycling rates rising from less than 10% to over 44% in barely 20 years. The popular narrative is that environmental taxes, like sugar taxes, are everything we ought to despise; bureaucratic erosion of our individual liberties and our economic competitiveness.

This characterization may have been effective - certainly, it seems to have put George Osborne off any increase in fuel duty, even when prices at the pump are low. But the anti 'sin tax' tax argument falls apart when pressed. The mantra of the anti-tax lobby is that any tax on products is both ineffective and bad for business. That it cannot be both of these things at the same time seems to have passed them by. If a 'sin tax' tax is detrimental to a particular branch of business, that can only be because it is effective at turning customers away from their products. Whether the tax is aimed at sugar, fossil fuels, landfill or alcohol, this is the aim of the game.

But even where such taxes don't directly change the behaviour of consumers (and therefore don't damage business) they can still be successful. Take the climate change levy: the purpose of the tax is to spur a shift towards low emission, renewable energy production, both by encouraging changes in consumption and raising revenue which can be invested into renewables. The £1.4bn or so it raised in 2014 represented significant capital for investment into renewables at a time of austerity. The levy may not have changed consumer practice dramatically in the short term, but investment into more viable alternatives to fossil fuel will encourage this change further down the road.

As a last resort, the anti-tax lobby tends to develop a social conscience and argue that that sin taxes are regressive, hitting the poor disproportionally harder than the rich. After all, any tax on products - whether it is sugary drinks or fuel - will normally affect those struggling to pay the bills more than those with money to spare. There is indeed potential for danger here, but the argument is misdirected. People are poor because income is unevenly distributed; tax can exacerbate that problem but it is not the cause of it. The irony is that those who most vehemently oppose these taxes for being regressive are often equally against wealth-distributing measures such as the living wage or higher taxes on top earners.

That this will come as no surprise to anyone shows just how skewed our discussions about tax have become. Let's hope that the Chancellor's newfound enthusiasm for a sugar tax translates into a wider appreciation of the benefits he could be delivering through environmental taxation on the same model.