Sin taxes – Can we do better?

17 May 2019

For decades the Treasury has benefited from measures designed to encourage the right behaviours in society. Traditionally, we all expected rises in tobacco, alcohol, gambling and fuel taxes in every budget.

The levels of taxation on these products are immense and saw a return to ‘traditional’ smuggling activities. A number of years ago, it was estimated that one lorry (hired on a normal driving licence) of smuggled tobacco would cost the revenue £1m in evaded tax.

New ‘sin’ taxes?

More recently, we have seen the introduction of air passenger duty, carrier bag levies, landfill tax, sugar tax, congestion and emission charges.

New taxes are rarely welcome. The introduction of these taxes has a certain moral justification and can be difficult to argue against. If, like insurance premium tax, they are effective as a revenue measure, they inevitably increase.

But what is the alternative?

What would be nice instead is a positive change to taxation. So rather than create a new tax, remove the tax charge – encourage behaviours through lower levels of taxation for positive action. We have seen this with respect to the taxation of motor vehicles. High emission vehicles are subject to higher rates of tax – the range starts at £0 and rises to £2,135. This has seen the increase of low emission vehicles which is better for society and has subsequently also changed manufacturing behaviours.

Taking this model forward, a more comprehensive approach to healthcare taxation could be introduced. Obesity is a national crisis. We have the ‘stick’ with the introduction of the sugar tax. Consideration should be given to the ‘carrot’. This should be lower levels of taxation for positive healthcare measures.

For example, if we introduced a lower rate of VAT (5%) or a zero rate (if we leave the EU) for gym membership, we reduce the cost of membership. This makes a strong statement that the government supports its citizens when they take positive measures to improve and maintain their health. The savings to the NHS over a longer period would greatly offset the tax cost. The measure could be linked to a healthcare campaign – possibly through schools.

There are some exemptions available already for gyms and leisure activities. If these could be extended, it would simplify taxation (a policy objective) for this sector and send a clear message that positive behaviours will be rewarded.

This is one idea. I am sure there are a number of areas where taxation could be used in a positive rather than punitive way to encourage positive behaviours. This would benefit both the individual and society as a whole.

If you would like to discuss this issue further or have any tax questions, please do not hesitate to contact me or your local UHY specialist to discuss your options.