People would be encouraged to eat more healthy and sustainable diets if Value Added Tax (VAT) rates were set based on health and environmental considerations, finds a new study led by UCL researchers.
The new study, published in Nature Food, collected data on VAT rates for foods from the UK and the European Union (EU) and then used economic, environmental, and health assessments to estimate the impact of changes in these rates.
Lead author Professor Marco Springmann (UCL Institute for Global Health and University of Oxford) said: "When it comes to food, the tax systems across the EU and the UK are currently not fit for purpose. A modern tax system that addresses the critical health and environmental challenges of the food system is urgently needed.
"Adjusting the VAT rates of food groups based on their health and environmental impacts is as good as a no-loss policy gets whilst delivering benefits for public health, the environment, and even government revenues."
Currently, in the UK, most basic foodstuffs (such as raw meat and fish, vegetables and fruit, cereals, nuts and pulses) are zero-rated (i.e. 0% VAT).
However, the researchers found that maintaining a zero-rating on fruits and vegetables, while increasing VAT on meat and dairy products to the full rate (i.e. 20% VAT), could lead to healthier diets by reducing meat and dairy intake.
For example, the study estimated that applying full rate VAT to meat and dairy products would decrease the intake of both groups by a portion per week each in EU countries. And, in the UK, this reduction would double to two portions of each food group per week.
This is important, as eating more fruits and vegetables and less meat and dairy would reduce cases of diet-related diseases such as heart disease, stroke, cancer, and diabetes, which the researchers estimate would result in 170,000 fewer deaths in total across the UK and EU.
In the UK, the health benefits would amount to more than 2,000 fewer deaths due to lower intake of meat and dairy alone.
Additionally, as less beef and milk would be demanded and produced within Europe and the UK, climate-warming gases would be cut by an amount that is equivalent to those of Scotland and Northern Ireland combined. And in the UK alone, the equivalent of half of London's emissions would be cut.
The demand for agricultural land in the UK and Europe would also be cut by a size between that of the Republic of Ireland and Scotland, even when factoring in increased production of fruits and vegetables. Whereas in the UK, an area of land the size of Wales would be freed from agriculture, and water pollution would be cut by a tenth.
The study also found that the new diets would be similarly affordable. That's because consumers would be expected to replace some higher priced meat and dairy with lower-priced fruits and vegetables.
However, although the cost to consumers stayed the same, the shift in tax base would generate greater revenues that governments could use elsewhere. The researchers estimate that the value of additional tax receipts would amount to £36 billion in total, or 0.2% of GDP. In the UK, revenues would increase by 0.6% of GDP.
Professor Springmann added: "In the UK and many European countries, value added taxes (VAT) on foods are often reduced but without a clear justification.
"Setting VAT rates based on health and environmental considerations could have large implications for people's health and the environment, alongside generating money for the economy."
