It stands to reason that if the purpose of a tax is to help someone – by reengineering their choices, as it is in this case – then the tax should have an effect that is essentially benign. After all what would be the purpose of driving a family to the point of starvation in order to discourage the expensive and environmentally unfriendly practice of running a car, or smoking and drinking? Notwithstanding the idea that such a policy is illiberal, and undermines personal autonomy, as a way of helping people it makes no sense on its face.
That Sin Tax is, by now, certainly high enough to create that sort of problem is something of a surprise to me. I asked Christopher Snowdon to tell the audience how serious it had become:
He explained that, in real terms, the British state spends more than 6 times what it did after the second world war. There is no way for it to find that money by taxing the rich or even by taxing just the people who have a job. It has to do it in very sneaky ways using indirect taxes, and the burden of indirect taxes is on beer, cider and wine, on cigarettes, fuel duty and also on VAT which has crept all the way up to 20%. This has been extremely regressive, and oppressive
In 1977, the poorest 20% of the population were spending 22% of their income on Indirect Taxes, which has now risen to 30% of their income. But for the rich, it was 20% and is now 15%. So it has become increasingly regressive, although everyone is now paying more in absolute terms than they were before. During good times, it’s relatively easy to justify indirect taxes on the basis of saving the environment and good public health, but when the economy goes backwards the problem is far more obvious.
Sin taxes and Indirect taxes are a central part of the causes of the cost of living crisis now. If you are in the bottom 20% of the income bracket and you drive a car a moderate amount, and if you’ve drunk within the Government’s extremely modest guidelines, and if you smoke an average amount, you will be spending 37% of your disposable income on Indirect Taxes, not the products but just on indirect taxes – VAT, alcohol duty, fuel duty, etc.
Christopher suggested that fuel, alcohol and tobacco duties should be halved, VAT should return to 15%. VAT and Fuel add to the cost of everything so if we want to solve the crisis, now is a good time to reduce these taxes.
Ian Dunt differs from much of the left on these issues, and unlike his over-study he is uncomfortable with the level of taxation on so-called vices. Ian argued that sin taxes have proved to be a very poisonous cultural phenomenon. Firstly, when the budget comes around each year it is expected that a rise in sin tax is included. That impacts the way budgets are put together as we then expected a rise in these taxes, and they are not scrutinised.
The second point is more concerning, the way we’ve adopted a moralistic attitude towards people – the way we’ve started to look at health and life, not as something that should be had intensely and possibly for a shorter time, but something that should be assessed by how long it goes on for, regardless of the quality of the life itself. (Yaron looks extremely surprised by this comment), and this is an extremely authoritarian and toxic approach to public policy.
If you look at smokers, the truth is that smokers pay for themselves in the NHS. They do this by virtue of the fact that they often die (around 50% anyway) before the point in their life when they start costing the state money. Smoking is not something that kills you when you are 30. It tends to kill you (if at all) when you near 60. So all your working life is spent contributing to the state, and then you kill yourself when you are about to take any money from the state. Ian gets a laugh as the audience processes this gruesome idea. Ian does expose his collectivist streak when he suggests this is “good”, and accepts that it is in fact primarily good for the Treasury. According to Ian, we don’t just need to fight the taxes but the attitude and the culture that has turned authoritarian. In terms of fighting the cost of living, he does not accept that this is the best place to start.
Simon puts it to Yaron that alcohol is bad for you and surely a rationally self-interested person should not be engaging in it and since Yaron is committed to rational self-interest perhaps Yaron favours Sin Tax? In fact, says Yaron the state, your neighbour, and so-called society should not be telling me how to live my life. He agrees that it is stupid to smoke, for example, and it is self-destructive, but it is not automatically any of Yaron’s business. So Yaron asks why are we becoming more authoritarian, why do I we care about other people consuming bad food, etc? The reason he sees at work is that as healthcare is becomes more socialized, and if I am health and you are unhealthy, then I am subsidizing your unhealthy behaviour. The only way to step back from this authoritarian view of health is to step away from collective action in health and make people suffer the consequences of their own actions.
In a free market, he argues this would be automatic as – at a minimum – your insurance premium would go up, but then the collective is on then hook to pay for bad health then we start caring excessively and we become our neighbours watchmen.
Ian Dunt challenges Yaron on this because it does not correspond to the trend (or at least to other data). Typically America is where the fiercest anti smoking campaigns are happening, and this has been happening for the last 20 years but America is a free-market insurance based system. In a fascinating exchange Yaron corrects Ian claiming that even before Obamacare 51% of health spending was spent by the government largely because over-65s have a very high level of care provided so America has had socialised medicine since the late 1960s. Yaron agrees there is indeed a huge movement to regulate or tax fat and sugar, and soon the government might go as far as rewarding you if you exercise. Ian challenges Yaron on the point that people in America don’t consider that that is the system that they live in, instead typical-Americans think that they live in an insurance based system and so that doesn’t explain how that frenzied moral puritanism took over. Yaron, who watches the American elections for clues as to what ideas are dominant, describes how Republicans have campaigned to remove the socialised medicine that exists now and to protect free market healthcare but they always promise not to touch MediCare. As such there are actually conflicting opinions that are both popular and Yaron believes one of those conflicting opinions causes the puritan sentiment.
Christopher seems to settle matters by agreeing that the main argument people use to defend sin taxes is the cost to the NHS, but he believes this opinion is not sincerely held. The real underlying driver that they don’t approve of it and seek excuses to ban it. Kristian concurs, adding that 100 years ago people would say alcohol or smoking is bad because it’s immoral. Now nobody would say that because that would imply they are judgemental, so as a result they come up with all these rationalizations. In passing, Christopher remarks it is probably a good thing that blatant moralising is now frowned upon and that real puritans have been forced to hide it in order to make progress.
Before we break, Christopher Snowdon suggests that it all might be a lot simpler that this. The state is looting. Since the sinner, especially the smoker, is already the subject of opprobrium and is in a minority, it is a simple task to extract tax revenue from them because the majority will support it, and so punitive 37% rates of double taxation are imposed and the state gets away with it.