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The first problem with so-called sin taxes — intended to change taxpayer behaviour — is deciding just exactly what ought to count as a sin.
There may be somewhat more consensus on the health risks from, say, alcohol, tobacco and sugar than the right approach to men’s facial hair, but “sin taxes” remain controversial. Accusations of nanny-statism abound. Such levies are nonetheless an attractive way for governments to raise funding while promoting other goals and sending a message about the sort of society they would like to be governing.
Despite being teetotal himself, Rishi Sunak, Britain’s chancellor, presented this week’s UK Budget as a much-needed salve for the country’s hard-pressed drinkers and publicans. As well as freezing the rate of alcohol duty — helping landlords after a year in which coronavirus restrictions raised costs and reduced custom — he announced a post-Brexit rationalisation of the system. It will now base the level of tax, quite reasonably, on the strength of the alcohol.
Dating from an attempt in the early 18th century to address gin drinking — the social consequences of which were memorably depicted in the work of artist William Hogarth — Britain’s alcohol taxes had since become as complex and unwieldy as a hipster cocktail. There were 15 main rates, garnished with some reliefs for smaller breweries. That means the latest bout of tax simplification is welcome even if it appears an exercise in barrel-scraping to find economic advantages from leaving the EU.
Sunak presented his reform of alcohol duty as a “Brexit dividend”. Freed from the shackles of Brussels, Britain would be able to follow World Health Organization guidelines and set the level of alcohol tax based on the strength of the drink; EU rules demand that port, sherry and wine are taxed by volume. That British-grown sparkling wine would now face a lower rate of tax than French red wine was, no doubt, merely the olive in the martini.
The second problem with sin taxes, of course, is that sinning is rather popular. While the petrol burnt in cars undoubtedly contributes to global warming, it has become an almost annual tradition for the chancellor to announce the government will again be freezing the rate of fuel duty rather than increasing it in line with inflation. In France, a particularly large increase in fuel taxes helped prompt the gilets jaunesprotests as rural and suburban motorists saw it as a charge on a necessity, not an indulgence. For a similar reason mooted meat taxes, also aiming to reduce emissions, have not got off the ground.
Britain’s soft drinks levy — a sugar tax on fizzy drinks — was, by contrast, unexpectedly popular when introduced in 2018. Taxpayers seemed if anything to want a little help staying away from treats. Or perhaps its success is down to manufacturers simply changing their recipes and handily demonstrating the third problem with sin taxes: if people become more virtuous the revenue dries up. After the recipes changed, the levy raised less than half what was forecast.
Still, there are no perfect taxes. The art of taxing, as an ancien régime French finance minister once said, is to pluck as many feathers from a goose with the least possible amount of hissing. Sin taxes are, at least, to be preferred to their opposite.
Your editorial “Taxing sin is better than the alternative” (FT View, October 30) states “there are no perfect taxes”. The perfect tax is resource rent taxation, a 100 per cent levy on the use of natural resources after a fair return has been made to investors and extractors. Squabbling over what is a fair return should not deter us from supporting tax regimes that aspire to this noble outcome.
Blandford Forum, Dorset, UK