George's not-so-marvellous medicine
In his budget speech today, the chancellor of the exchequer, George Osborne, has decided that the easiest way to balance the books is to hammer consumers for our allegedly sinful ways. The headline-grabbing announcement was a new levy on manufacturers of sugary soft drinks with the aim of raising £530million per year. But almost ignored was another hike in tobacco duty, bumped up by two per cent above inflation. At least tax on alcohol isn't going up...
The sugar levy is a PR stunt, giving Osborne something to talk about to distract attention from spending cuts. It's also a gift to public-health campaigners who will almost certainly be emboldened to come back for more when the levy has next-to-zero impact on sugar consumption. The sugar levy and the tobacco duty hike are both utterly regressive. Like any flat taxes, they will take a bigger proportion of the income of poorer people than wealthy people.
Of course, chancellors have to raise money for government spending and spread the burden as widely as possible to try to make taxes harder to avoid. But there is already a tax on most sugary products: VAT. Now, consumers will be hit in the pocket for enjoying the wrong kind of soft drink.
Laughably, Osborne said it was up to manufacturers if they decide to pass on the levy in higher prices, as if soft-drinks companies have half a billion pounds in loose change down the back of the sofa to pay it with. Of course the levy will be passed on. The Office for Budgetary Responsibility certainly thinks so, estimating the levy will add between 18 pence and 24 pence to the price of a litre of drink. Fruit juices - which are just as sugary as Coca-Cola - will remain exempt. There is the whiff of snobbery around the sugar levy.
As for tobacco taxes, which are already astonishingly high, this is yet another punitive assault on the pockets of smokers. The duty on cigarettes is already so high that anyone seriously swayed to give up by the price of a pack will have done so long ago. The only ones really cheering today's news will be the smugglers and bootleggers - their products just got that big more attractive.