Should we tax fat?

BBC's 'Panorama' programme this week raised the prospect of a "fat tax" being applied to junk foods that contribute to obesity in the UK. This is a fascinating debate which brings forth arguments about the justification for and effectiveness of government intervention on this issue as well as the fairness of a particular tax.

The economic justification for government intervention in this instance is that obesity has 'social costs'. This means that the cost of obesity is greater to society than the 'private cost' to the person who carries the weight. The difference between the two is the 'external cost'. Those external costs might be the extra burden on the NHS from treating obesity but also possibly sick days through related illnesses down to something as simple as the difficulties someone who is overweight may have playing a constructive role in many of society's activities.

2007: Plenty of fat to tax!

A 'fat tax' would suggest that the government feel that fatty foods are overconsumed and this is causing obesity. If the government can find a way to reduce the amount consumed then that would be better for society. If they can raise revenue from a tax to cover those external costs of overconsumption then that makes sense too.

So far, so economically rational. But does a tax on fatty foods actually solve the problem? And is there a chance it will create other problems?

I must declare an interest here because two years ago I would have been a 'target' for this tax. I am 6 foot tall and used to weigh 17 stones (107 kilogrames). I am now 14 stone (88 kilogrammes). How did I do it? By eating less calories and doing more exercise. Why did I do it? Because I was fed up of looking at a fat bloke in the mirror, because my daughter was starting to run around and I couldn't keep up with her, and because there's only so many times you can put up with being drawn as a

2009: calories in < calories out

big blob by a four year old child when on holiday with your friends' families.

Did eating less cost me less? No it didn't. It is a sad fact that eating healthily in this country is more expensive. Also, I spent a lot of money on getting the right clothes and shoes and equipment for exercise as well as gym membership.

Furthermore, I read a lot of magazines and websites about how to get fit and eat properly and I kept a daily diary of everything I ate and did exercise wise.

Put all that together and it worked. Took me 9 months to lose 3 stone and I ran a half-marathon comfortably at the end of those 9 months having not run for 18 years.

The point of this story? For people to lose weight and get fit, they need to have money, and they need to have the right information. A 'fat tax' would give them neither.

If you put a tax on fatty foods you will make them more expensive which should mean that people will swap to more healthy foods. But the difference in cost is large enough that it would have to be a large tax.  That would leave BOTH cheap fatty foods and healthier foods more expensive. Food is a need, so by making all types of food more expensive you are lowering living standards.

And this is where we get to 'fairness'. I hate to generalise, but obesity is more of a problem in this country for people on low incomes than those on high incomes. So a 'fat tax' will hit the poor harder, and is therefore regressive. The consequences of that could be uncomfortable for a government attempting to present themselves as fair and progressive.

What's more, many fatty foods are rather addictive, and quite frankly rather nice. Translated into economic terms - the quantity demanded of them would not go down anywhere near as much as the tax would take their price up. In other words, demand for fatty foods is 'inelastic'. The way tax works in this country, firms collect tax for the government - which means that taxes affect the supply of a good first, UNLESS they can pass on the entire tax to consumers - which in the case of fatty foods, they can, as demand won't fall by as much as the tax applied. So the quantity of fatty food eaten won't drop much.  What will happen is that government will get a lot of tax revenue.

Therefore, government intervention to solve the problem of obesity solely by way of a tax on fatty foods would not be effective and could result in further problems.

However, many say that the tax would be like a 'nudge' in a particular direction. Well, why not give consumers a nudge away from fatty foods and a further nudge towards healthy ones. The government could subsidise healthy foods, based upon the argument that they will gain that back through less cost to the NHS and less sick days from employees.

Also, as I said, it was information that really helped me. Government could make sure that everyone who wants to lose weight has access to the right information presented in accessible ways to help them. Much of this is already out there. But there is a lot about healthy eating, but is there really enough about the benefits of what really made a difference for me, exercise. So they can provide a lot of information about that too.

So, they could also subsidise gym membership, although the problem with that would be that people would still have to go to the gym once they are members - which has always been a problem. They could subsidise running clothes and shoes, although again the key is getting people out running.

Point is, it all goes back to each and every individual. Every time I bring up a solution I seem to be bringing up an argument against it. This is why we have ended up back at the 'fat tax', because if we can't get people to lose weight, let's at least try and raise the money from them to pay for the problems their weight causes, right?

The proof, on this issue, will be in the (gluten and sugar-free) pudding (yuk!)

'Fund our pot noodles or Millbank gets it' - The Tuition fees debate

So yesterday was the big protest about the increasing of tuition fees for university students in the future. The rise - is certainly controversial, yet, like most issues, has two sides both politically and economically.

First, it is vital to explain what is being proposed. This has sometimes been obscured by people who do not wish to have a proper debate, so it's worth making it clear.

The proposals allow universities to charge up to £9,000 per year, raising the cap from its current level of £3,290. The government would continue to loan students the money for fees. The threshold at which graduates have to start paying their loans back would be raised from £15,000 to £21,000.
Graduates would pay back 9% of their income each month above that threshold.The subsidised interest rate at which the repayments are made - currently 1.5% - will be raised. Under a "progressive tapering" system, the interest rate will rise from 0 for incomes of £21,000, to 3% plus inflation (RPI) for incomes above £41,000. If the debt were not cleared 30 years after graduation, it would be wiped out.

Right - so let's break this down:

The argument against tuition fees being raised

1. Education is vitally important to UK society. How much do we value having our citizens university educated? A well educated population should be more productive, which should lead to aggregate supply being increased without population increasing, which should allow for there to be sustainable economic growth without inflationary pressure.

2. University education is also a force for social mobility, so should we not pay for as many of our population as possible, whatever their background, to go to university, with the cost being no obstacle to them going?

3. The cost of free university education is a few billion a year, which is small compared to how much the UK spends on items which are surely worth less to British society, such as for instance aircraft carriers that will never be used?

4. Taking 9% of someone's income when they leave university will stop them being able to build up a deposit to get on the housing ladder, so this policy distorts the housing market.

5. Universities train our doctors, our nurses,our teachers and other vital members of our society. They should not be discouraged from these noble professions by the cost of it.

The argument for tuition fees being raised

1. Something has to be done about the deficit, and therefore the government has to be careful about what it is spending its' money on. Universities need to be properly funded, and asking those who benefit from it is surely the best way to do that.

2. Those who go to university benefit from it. Those who don't do not. So is it right to ask someone who earns a little bit more than minimum wage and thus pays a little bit of tax to fund the attempts by others to get themselves a higher wage? So this makes the taxpayer fully funding university a regressive tax.

3. How can tuition fees stop poorer people going to university? You do not pay it back UNTIL you are earning £21,000, which is close the median wage of the country - putting you already in the top 60% of earners. So you ONLY pay it back should you "benefit" from it in terms of future income - which will mean you aren't "poor" any more. Should your income fall below £21,000 you don't have to pay it so it is NOT like a mortgage. So it is actually progressive

4. Universities that charge over £6,000 would have to undertake measures, such as offering bursaries, summer schools and outreach programmes, to encourage students from poorer backgrounds to apply. Difference being they would have the money to be able to offer these schemes properly.

Some thoughts

It is interesting to look at the way that this gets organised in terms of the political continuum. Students tend to be left-wing. Why? Well, being left-wing is being optimistic in some way and looking for a utopia, which is fine. But just about everybody on that march yesterday have never paid a penny of tax, and it is often said that people get right-wing as they get older, and one of the main reasons is that they see tax literally taking the food off the plate of their children and being spent in dubious ways and they want it controlled. Students don't have these worries.

But actually, I think this could be more about what a university education actually does. Jon Cruddas, the highly-respected Labour MP who came to Latymer this afternoon was asked about this issue and he told the story of his family. 5 children - all with degrees, 2 PhDs and 2 Masters added to those. All without paying a penny. They didn't do those degrees for money, they did them to gain knowledge and wisdom and having inhabitants of our country with knowledge and wisdom is surely in the interests of society.

It's interesting the mess that the Liberal Democrats have got into over this. The problem with being a small third party in opposition is that sometimes you practice opposition for opposition's sake, thinking you will never get into government so it doesn't matter. To insist on full opposition for tuition fees in the middle of a massive receession without providing an economically sensical alternative runs the risk of exactly what has happened, which is that you may end up in power and having to act responsibly.

It's difficult for me, I got my university education free. I wish all my students could get one too. If this causes even one bright student not to go to university when it would have been right for them then I have a problem with the long-term consequences of that for the UK's prosperity. I go back to basic economics here - the opportunity costs of providing free university education could be large. The opportunity cost of not could be even larger.