A recent study spearheaded by researchers from UCL suggests that reforming Value Added Tax (VAT) rates based on health and environmental considerations could significantly encourage healthier and more sustainable diets. Published in Nature Food, the research involved a comprehensive analysis of VAT rates applicable to various food items within the UK and the European Union (EU). By integrating economic, environmental, and health assessments, the researchers estimated the potential impacts of modifying these tax rates.

Professor Marco Springmann, the lead author from the UCL Institute for Global Health and the University of Oxford, highlighted the inadequacy of current tax systems in the EU and the UK in addressing the pressing health and environmental challenges posed by the food system. He advocated for a modernised tax framework that could function as a no-loss policy while offering benefits for public health, environmental conservation, and government revenue streams.

In the existing tax structure of the UK, staple foodstuffs such as raw meats, fish, vegetables, fruits, cereals, nuts, and pulses are exempt from VAT (rated at 0%). The study proposes maintaining this zero rating for fruits and vegetables but suggests increasing VAT on meat and dairy products to the full rate of 20%. Such a change is expected to reduce these products’ consumption, promoting healthier eating habits. Specifically, the study projects reduced meat and dairy consumption by one serving per week in EU countries and by two servings per week in the UK.

The implications of reduced meat and dairy intake are significant, with potential reductions in diet-related diseases such as heart disease, stroke, cancer, and diabetes. The researchers estimate that these dietary changes could prevent approximately 170,000 deaths across the UK and EU combined, with over 2,000 deaths averted in the UK alone due to decreased meat and dairy consumption.

Moreover, the environmental benefits of such dietary shifts are notable. Decreased demand and production of beef and milk would lead to substantial reductions in climate-warming gases—equivalent to the combined emissions of Scotland and Northern Ireland. In the UK alone, the emission reductions would be comparable to half of London’s emissions. The study also anticipates a significant decrease in the demand for agricultural land, equivalent to the area between the Republic of Ireland and Scotland, including a freeing up of land the size of Wales within the UK and a reduction in water pollution by ten per cent.

From an economic perspective, the researchers found that the proposed changes would preserve affordability for consumers—who are likely to substitute higher-priced meats and dairy with more cost-effective fruits and vegetables—and generate increased government revenues. They estimate that the tax shift could yield an additional £36 billion in tax receipts, corresponding to 0.2% of GDP, with a 0.6% increase in GDP contributions from the UK.

Professor Springmann emphasised the implications of setting VAT rates with health and environmental considerations. Such a strategy could significantly impact public health and ecological sustainability and bolster economic growth by generating additional government revenue. This points to a need for a thoughtful reassessment of food tax policies in the UK and across Europe, suggesting that well-considered fiscal measures can lead to substantial societal benefits.

More information: Marco Springmann et al, A reform of value-added taxes on foods can have health, environmental and economic benefits in Europe, Nature Food. DOI: 10.1038/s43016-024-01097-5

Journal information: Nature Food Provided by University College London