Chris Snowdon has received a number of honourable mentions on this blog, in particular for his role in marshalling the arguments against minimum alcohol pricing. He has now produced a paper for the Institute of Economic Affairs called Aggressively Regressive which sets out in stark terms how poor people pay a much higher proportion of their incomes in so-called “sin taxes” – i.e., alcohol, tobacco and fuel duties – than those who are better off.
The worst of all is tobacco duty, which not only is the highest in comparison with the base price of the product, but also where, unlike fuel and alcohol, the poorer sections of society tend to consume more. But he also has some pretty pointed things to say about alcohol duty:
...despite the rich consuming more alcohol than the poor, alcohol taxes remain regressive. Alcohol duty (and the VAT levied on the duty) accounts for two per cent of the disposable income of Britain’s bottom quintile, but only 0.6 per cent of the income of the top quintile. There is little argument in the academic literature about the regressivity of taxes on alcohol. Even if measured over the life-cycle, the poorest spend considerably more than the rich on alcohol taxes as a proportion of their income.He also makes the often-overlooked point that average figures conceal a wide variation between individuals. Setting aside the proportion of non-drinkers, people in the bottom income quintile who actually do drink spend an average of £278 per year on alcohol duty plus the VAT on the duty. And, despite the beer duty cut,
Nearly all EU countries have much lower alcohol taxes than Britain. Most of them, including Spain, Italy and Germany do not charge any duty on wine at all (European Commission, 2013: 15) and the vast majority have beer duty that is less than half of the current British rate (Ireland, Sweden and Finland are the only exceptions). Indeed, most EU countries levy beer duty at less than twenty per cent of the current British rate.Even VAT is regressive to some extent, as people tend to save more money the higher up the income scale they are, so poor people spend a higher proportion of their income on VAT than well-off ones.
It’s easy to say that if people on low incomes choose to drink and smoke that it’s their decision, and you have no sympathy. But that line comes across as patronising and sanctimonious. In the real world, people do drink and smoke, and it is generally recognised that the price elasticity of these products is relatively low. So, in reality, setting aside the moralising, the actual effect of these taxes is highly regressive, and any increases in them even more so. And who is to say people on low incomes shouldn’t be allowed a little pleasure in their lives once in a while?
It’s also interesting how those who bleat on about a “cost of living crisis” remain strangely quiet when it comes to the taxes that in practice take the biggest chunk out of poor people’s incomes.