When in doubt, do what the Danes do

Just a year after introducing it, Denmark has dumped its nannying tax on fatty foods

by Rob Lyons 

Gone, by popular demand: Denmark’s fat tax. ‘The fat tax is one of the most maligned we [have] had in a long time’, said Mette Gjerskov, the Danish food and agriculture minister, in a press conference on Saturday announcing the decision to ditch the policy. ‘Now we have to try improving the public health by other means.’

The tax - more accurately a saturated-fat tax - came into force in October 2011 and added 16 kroner (about £1.70 / US$2.70 at current exchange rates) per kilogram of saturated fat in any product that contained more than 2.3 per cent saturated fat. According to the OECD, that worked out as ‘equivalent to up to 30 per cent more for a pack of butter, eight per cent more for a bag of chips, and seven per cent more for a litre of olive oil’.

Denmark isn’t alone in adopting food taxes in recent times. Hungary also introduced a tax in 2011 on manufactured foods that are high in sugar, salt or caffeine where a ‘healthier alternative’ exists. Basic foods are not affected. Finland introduced a confectionery tax in 2011, but pastries, buns and biscuits are exempt. (That tax has since been cut by 25 per cent.) The Finns also have a soft-drink excise duty of 7.5 euro cents per litre and a similar drinks tax now applies in France.

It turns out, unsurprisingly, that slapping taxes on things doesn’t necessarily persuade people to consume less of them. So Danes either went downmarket in their buying habits by buying cheaper products, or popped across the border to Sweden or Germany to buy their fatty foods there instead. The only real effect was to hit the profits of Danish companies. Chastened by the experience, the Danish government has also scrapped plans for a sugar tax, too.

As the OECD notes: ‘The impact of imposing taxes on the consumption of certain foods is determined by the responsiveness of consumers to price changes, ie, price elasticity. However, it is difficult to predict how consumers will react to price changes caused by taxation. Some may respond by reducing their consumption of healthy goods in order to pay for the more expensive unhealthy goods, thus defeating the purpose of the tax. Others may seek substitutes for the taxed products, which might be as unhealthy as those originally consumed. Depending on the elasticity of the demand for the taxed products, consumers will either end up bearing an extra financial burden, or changing the mix of products they consume in ways that can be difficult to identify.’

So, simply from a practical point of view, food taxes - indeed, any sin tax, including extra duty on tobacco or minimum prices for alcohol - can have some unwanted negative consequences while largely failing to achieve their intended aim. For example, olive oil is widely praised (rightly or wrongly) by health experts. But because it contains 14 per cent saturated fat, it was caught by the Danish tax. What is the logic in that? Moreover, there is a whole other discussion to be had about what is healthy and what is not. So in recent years there has been more talk of slapping taxes on sugary foods (particularly sweetened fizzy drinks) than on fatty foods. The latest example is the proposal for a new tax in Ireland that would add 10 per cent to the cost of fizzy drinks.

However, these practical issues should be beside the point. The real shame is that there is so little criticism of the principle behind these taxes: that the government knows what how we should live our lives and is therefore entitled to use a variety of methods - from lectures and nudges through to taxes and outright bans - to get us to live in the approved manner. Underlying these various assaults on our freedom to choose is a mixture of prohibitionist instinct - the desire by some to tell us how we ought to live - combined with a view of people as weak and in need of protection from big bad corporations or even ourselves.

Still, in our illiberal times, we must be thankful for small mercies. The fact that Denmark has pulled back from its food tax will hopefully discourage other countries - including the UK - from trying to implement their own. For once, the idea that the answer to any social problem is to ‘do what the Scandinavians do’ might just be right.