Tax and obesity

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I've been asked to take part in a BBC local radio broadcast this morning on tax and obesity. The inspiration is a new report from the Overseas Development Institute (ODI) about which the Guardian report today:

The extent of the world's obesity epidemic has been thrown into stark relief as a report from the Overseas Development Institute (ODI) puts the number of overweight and obese adults in developing countries at more than 900 million.

Future Diets, an analysis of public data about what the world eats, says there are almost twice as many obese people in poor countries as in rich ones. In 2008, the figures were 904 million in developing countries, where most of the world's people live, compared with 557 million in industrialised nations.

One of the solutions to the obesity issue that has been suggested is a 'fat tax'; that is a tax on sugary foods, in particular.

I have to say I am not in favour of such a move although I have long argued that tax can and should be used for social purposes by repricing goods and services that the market delivers at prices that do not take into account their externalities i.e. their social consequences. The trouble with repricing food in this way is that this is a very blunt instrument. We need sugar, and some fat in our diet. Taxing it hits everyone - and there is still a major problem of malnourishment and  a failure to thrive in developing countries because of a straightforward shortage of food. Taxing basic food stuffs would hit those already suffering in that way.

But taxing advertising for the foods that cause obesity does not suffer from this problem. Obesity is caused by two things, fundamentally (and I am aware of simplifying things here). One is a lack of education on a healthy lifestyle (including diet) and the second is the promotion by business of food products that encourage poor dietary choices.

So, as I argued in the Courageous State, I think the solution is to tackle the specific cause of the problem through the tax system and not the ingredients of foods likely to encourage obesity. How should we do that?

First, all advertising of such foodstuffs aimed at children should simply be banned.

Then such adverts should carry an additional VAT charge, whether an advertising tax or a higher rate of VAT. And third, business should not be allowed to offset the cost of advertising such foodstuffs against their income when it comes to calculating their tax liabilities.

Of course this won't entirely solve this problem: I accept that. But it would do three things. First it would help correct for the market failure in the pricing of these products as their cost would probably increase and cheaper, more balanced, alternatives would be more attractive.

Second, awareness of the issue would be increased by the simple existence of the tax.

And third, funds would be raised for vital food and nutrition education programmes.

There is no perfect solution to this problem, but this is one that goes some way to tackling it.

PS The broadcast is on BBC Radio Wiltshire between 9 and 10 this morning - I amy update when I know more. 

PPS I just hope they don't ask about my weight.