Benefits of the Sugar Tax

Excessive consumption of sugar has been linked to numerous health issues like obesity
and diabetes. By consuming sugar, individuals impose costs on themselves (low life expectancy)
and the community (higher health care costs and lower productivity) (Lloyd & MacLaren, 2018).
By imposing taxation on sugar, the government will be able to curb its consumption and at the
same time be able to raise revenue which can be channeled into other public use like improving
healthcare. Imposing sugar tax is expected to have various benefits:

External costs

The consumption of sugary drinks leads to high external costs on the community as the
consumption leads to diseases like diabetes (type 2), obesity, obesity-related illnesses, and
tooth cavities (Lloyd & MacLaren, 2018). The external costs are echoed in the increased
expenditure by the national health service in the treatment of these individuals, and due to
poor health, their productivity is adversely affected. This scenario indicates that the social cost
of sugar intake is higher than the private cost of sugar.

From the diagram, the free market is at Q1P1 but for social efficiency is at Q2P2 where social
marginal benefit (SMB)= social marginal cost (SMC). With imposing the tax, the price rises from
P1 to P2, reducing quantity consumed from Q1 to Q2 (Allcott et al., 2019).
Raises revenue

Statistics indicate that by imposing a 20% taxation rate on sugar, the United Kingdom would
raise an estimated £1billion. The amount raised can reduce taxation or VAT as £1billion is
equivalent to about 0.5% on the basic income tax rate. It can also be used to fund treatment for
sugar consumption-related diseases (Allcott et al., 2019).

Shifting supply and consumption

The taxation on sugar will drive the firms producing these drinks to supply healthier
alternatives. For instance, if one visits a first food restaurant, drinks made from sugar have been
promoted aggressively like free refills, and in this scenario, supply creates its own demand.
However, by offering incentives to firms to promote healthier drinks with low sugar content,
then the customers will, to an extend, move towards the supply (Lloyd & MacLaren, 2018). The
manufacturers will be forced to reduce the sugar content in their drinks to avoid tax, hence
reducing sugar consumption in society.

Demerit good

Sugary drinks can be classified as demerit goods because people may not be aware of the
individual costs associated with sugar intake. On the other hand, individuals may be aware of
sugar consumption dangers but find it hard to cut its uses due to its addictive nature. In the UK,
an average person takes 238 teaspoons of sugar in a week-often unknowingly, as that much
sugar is contained in soft drinks. The lack of awareness of the content denotes information
failure to consumers to help make informed decisions.

Limitations of the sugar tax

Though there are both health and financial benefits for taxation on sugar, some argue that
the tax is regressive and targets the low-income earners taking more from them (Allcott et al.,
2019). The critics give various reasons as to the way the sugar tax is not ideal.
Job losses

Critics argue that by imposing taxation on sugar, people in the country will face job cuts
as the tax would cost pubs millions of pounds (STALLMANN & DELLER, 2011). Economically, it is
hard to state with confidence that a sugar tax will lead to job cuts. The taxation is expected to
change the demand for sugar-free beverages and consequently shift demand within the non-
alcoholic market. There is a possibility that the taxation will result in a minor decline in the soft
drink market, and the decreased expenditure on soft drinks will result in reduced market share
and job losses (Allcott et al., 2019).

Though this may be the case, the revenue will be used on healthcare in the treatment of
sugar-related ailments, there will be job creation in the health sector, which translates to
shifting of resources from the sugar beverages to the health sector care market.

Unfair on low-income earners

The taxation on sugar beverages is argued to be regressive as it will draw a larger

percentage of income from the low earners (STALLMANN & DELLER, 2011). Due to the cost of
these sugar beverages, the low-income earners are the majority of the consumers, and with the
taxation, it will seem like the government is targeting the group. After being taxed by the
government, the producers and manufacturers will pass the tax burden down to the final
consumer (Allcott et al., 2019). This will be done through price increment of the beverages,
which the low-income earners will have to meet, hence the taxation burden being passed unto
them.

Tax may not be the best policy

Though taxation is seen as a way to reduce sugar consumption, it may not be effective
on its own. There are calls to have other policies put in place to assist in the campaign
(STALLMANN & DELLER, 2011). The government may require education, tax, and control on
advertising to have an effective program in sugar intake reduction.
 Discussion

The introduction of taxation on sugar drinks to curb sugar intake is expected to have
great economic, communal, and individual benefits. The taxation policy will play a crucial role in
driving the country to healthy eating habits while at the same time helping the government to
raise revenue. As discussed, the taxation on sugar will help the government raise money that
can be invested to treat the health complications that are brought about by sugar intake. With
the taxation also, there will be control over the intake of sugar by individuals. They will have to
shift to low or sugarless beverages and, consequently, lead a healthy life, making them
productive.

Though there are critics on the tax with the soft drink sector being adversely affected
and demand expected to fall, the tax is expected to bring avenues for the industry to develop
healthier alternatives as they avoid the tax burden (Allcott et al., 2019). Overall, the tax on
sugar drinks will be more beneficial and will have minimal disruptions to the economy.
 References

Allcott, H., Lockwood, B., & Taubinsky, D. (2019). Should we tax sugar-sweetened beverages?
An overview of theory and evidence. https://doi.org/10.3386/w25842

Lloyd, P., & MacLaren, D. (2018). Should we tax sugar and if so how? Australian Economic
Review, 52(1), 19-40. https://doi.org/10.1111/1467-8462.12299

STALLMANN, J. I., & DELLER, S. (2011). State tax and expenditure limitations, business climate,
and economic performance. Public Budgeting & Finance, 31(4), 109-135.
https://doi.org/10.1111/j.1540-5850.2011.00995.x

Tax on sugar-sweetened beverages: Large health and economic benefits. (2020).

PharmacoEconomics & Outcomes News, 857(1), 29-29. https://doi.org/10.1007/s40274-020-
6966-3