happens when taxes go up? Only bad things we're led to believe. Successive governments have presented this as a categorical truth. High taxes discourage enterprise, put up prices, penalise the industrious and hard working ordinary person who wants to enjoy their hard earned money how they choose. This is typically how the story goes.
Facts are selected to fit this narrative, and the story is relentlessly repeated by think tanks such as the Tax Payers Alliance, the Adam Smith Institute and the Institute for Economic Affairs. In newspaper columns, on respected radio programmes and on the television, the idea of bad taxes has become hegemonic.
Taxation, either on incomes and wealth or on consumption, serves several purposes. One is to raise revenue, another is to shape public policy and in the field of alcohol and other addictive substances, the use of taxation might be far more effective than the public are regularly led to believe.
Taxation is a method for encouraging socially positive behaviours and outcomes (allowing charitable organisations that provide benefits for others to be tax exempt for example), and discouraging negative or destructive ones (higher taxes on alcohol and cigarettes). Currently, the libertarian argument adopted by the addiction industries and opaquely funded think tanks is that taxing dangerous substances like alcohol is an assault on freedom.
High profile advocates of taxation on addictive substances such as alcohol and sugar, such as TV chef Jamie Oliver are criticised as being hypocritical and wealthy enough to afford tax increases. The addiction industry and its advocates insist that tax rises are regressive as they hurt the very people they are trying to protect. The Institute for Economic Affairs has claimed that '...the impact on overall calorie consumption is usually trivial and tends to be weaker among low-income groups.'
In a 2013 report, titled 'agressively regressive' the IEA stated that:
" The poorest twenty per cent of households in Britain spend an average of £1,286 per year on ‘sin taxes’, including betting taxes, vehicle excise duty, air passenger duty, ‘green taxes’ and duty on tobacco, alcohol and motor fuels. In addition, they also spend £1,165 on VAT.
The £1,286 spent on sin taxes represents 11.4 per cent of the disposable income of Britain’s poorest fifth of households. For every eight pounds spent by the poorest fifth of households, one pound is taken from them in sin taxes.
Despite significantly lower rates of alcohol consumption and car ownership, the poorest income group spends twice as much on sin taxes and VAT than the wealthiest income group as a proportion of their income. Tax is the single biggest source of expenditure for those who live in poverty and indirect taxes are a major cause of Britain’s cost of living crisis."
However the London School of Economics, on July 23rd this year published a report by policy analyst Aveek Battacharya who works at the Institute of Alcohol Studies which presents an different picture of alcohol taxation altogether.
The report stated instead of a rising tax burden on the alcohol industry and the drinker, that:
" The government has cut alcohol taxes substantially in recent years: accounting for inflation, beer duty is 18% lower today than in 2012, and duty on cider and spirits has been reduced by 10%."
The report added that:
"...This is concerning from a health perspective because alcohol taxes are widely recognised to be among the most effective tools governments have to address harmful drinking. As alcohol taxes have fallen, progress in reducing alcohol consumption has stalled, and death rates have begun to tick up. It has also been a costly policy: at a time of squeezed public services, the government is set to give away over £9 billion in foregone revenue by 2023."
Instead of causing economic harm, the report suggests that increasing tax revenues would have a positive effect on revenue for public spending and lead to an £850 million contribution to the economy as a whole. The most contentious area of debate between the IEA and LSE positions is the question as to whether health outcomes are improved as a result of taxation and the IEA has made two extraordinary claims about alcohol consumption in a July 2018 report 'Sin taxes can cost poor families up to ten times more than they cost the wealthy':
• 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.
The data that the IEA has published alongside the 2018 article is now six years old and whilst it presents an argument that poorer people appear to bear an excessively high proportion of the tax burden, there is no explanation as to how lower rates of drinking among poorer people and higher rates of abstinence lead to higher levels of alcohol related harm. The second and more contentious point, that taxes on low incomes have not led to better health outcomes seems to be directly challenged by the results of nearly every minimum alcohol pricing project that has been undertaken. When there is a price rise per unit of alcohol, the most vulnerable drinkers (who are almost always the poorest), experience significantly improved health outcomes.
After twelve months of minimum alcohol pricing in Scotland for example, there were significant decreases in drinking among the most vulnerable drinkers. Alcohol Policy UK reported that:
"...as expected, sales of alcohol below 50 pence per unit dropped dramatically, whilst sales at just above 50 pence per unit jumped (see interactive graph here). Indeed, whilst sales of key drinks like cheap ciders and vodka have been reported to have reduced significantly, some drinks typically sold above the MUP - including Buckfast - have reportedly seen boosts in sales. This may be broadly seen as consistent with the overall predicted effect that small changes in consumption amongst heavier drinkers can equate to population level reduction in drinking."