Food subsidies may provide answer to fat tax conundrum

14 June 2022

It is perhaps no surprise that Boris Johnson is reported to have outlined that it is not the time to ‘start whacking new taxes’ on unhealthy foods ‘that will just push up the cost’, rejecting the recommendations of a National Food Strategy (NFS) report by Henry Dimbleby, one of the co-founders of the Leon food chain.

The salt and sugar reformulation tax suggested by Mr Dimbleby may be badged as a ‘fat tax’, the phrase commonly used to label taxes on foods with higher fat, sugar or salt content. One of the common criticisms of ‘fat taxes’ is that they can have a disproportionate impact on low-income households, whose diets may include more of the food impacted due to financial constraints. 

As the government’s Food Strategy states, 69 per cent of those in the most deprived groups are overweight or obese and many are eating insufficient fruit and vegetables, fibre and oily fish. The National Diet and Nutrition Survey outlines that between 2008/09 and 2016/17, fruit and vegetable consumption increased with income (except in men aged 65 and over) but consumption was below the 5 A Day recommendation in all income groups.

The risk of increasing food prices further, in particular for low-income families, may be a politically impossible barrier to hurdle given the wider cost of living pressures. The approach suggested in the NFS report to counter this was for GPs to use some of the additional tax funds generated to prescribe fruit and vegetables to families suffering, or likely to suffer, from diet-related illness.  

If it’s accepted that some form of intervention is needed by the government to encourage the nation to make healthier food choices, is there a simpler route to do so? Food items such as fruit and vegetables do not suffer any VAT so it’s not possible to reduce taxes on them. The obvious alternative route then would be to subsidise certain food items.

Earlier in the year, a report by the University of Warwick outlined that a subsidy on fruit and vegetables would increase consumption by 15 per cent. The issue with a subsidy on food is that it may also be considered a blunt tool and poorly targeted at those most in need of financial support. As Mr Dimbleby stated in a recent podcast with the Institute for Fiscal Studies, a subsidy could be an ‘incredibly inefficient use of funds, it would be very expensive’.

If the government did share Mr Dimbleby’s concerns, one route may be to introduce a subsidy scheme for certain income groups. For example, those claiming Universal Credit could be given the opportunity of claiming a 25 per cent discount on fresh fruit and vegetable produce at the till using a unique discount code. Such schemes may be difficult to police against abuse but technology to combat voucher and ticket fraud is now commonplace. 

Latest statistics show that low-income families spend between around £35 to £50 a week on food and non-alcoholic drink and that on average, fruit and vegetables make up around 13.3 per cent of a family’s weekly spending on such goods. Based on a £50 spend, that equates to £6.65 spent a week on fresh fruit and vegetables by low-income families or just over £345 a year. If we assume that a subsidy might increase this spend to £400 a year then, on the basis there are 5.6 million claimants of Universal Credit, a 25 per cent subsidy for fruit and vegetables for such individuals could cost £560 million. There would of course be implementation costs on top of this but there are also potential savings to the NHS to be considered in the longer term that may ultimately offset these. If a fat tax is politically impossible, a subsidy on fruit and vegetables may prove a viable alternative to make real changes to our diets and ease the cost of living crisis.