The Economics of Change

Ryan Allen put one foot on his accomplice’s shoulder and hoisted himself onto a bronze horse statue in the centre of Royal Exchange Square in Glasgow in Scotland. Passers-by filmed the spectacle on their phones as he saddled up behind the bronze of the first Duke of Wellington. “There was adrenaline. It was technically illegal,” he later said. “It was just a sense of relief and accomplishment when I got up there.”

For more than 30 years, local pranksters had decorated the monument with traffic cones. Now in July 2017, from his seat behind the ‘Iron Duke’, Allen triumphantly crowned it with one of his own.

He considered his act righteous and necessary, emulating the Duke’s own fighting spirit. But Allen’s cause wasn’t land or liberty. It was fizzy drinks. Painted in the orange and blue style of his favourite Scottish beverage, the cone was inscribed with one simple demand: “Bring Back Real Irn-Bru.”

Three months earlier, the UK government brought in a so-called ‘fat tax’, a multi-tiered levy on sugary soft drinks - the latest effort to curb dangerous levels of obesity.

Public Health England (PHE) hoped to push companies like Coca-Cola, Pepsi and Red Bull to reformulate their products in ways that encouraged lower and less frequent sugar consumption. If they failed to change their recipes before 6 April 2018, the tax would go into effect and retailers would be forced to raise prices. Most opted to change the recipes of their popular drinks.

The Soft Drinks Industry Levy, also dubbed the ‘sugar tax’, seems to many in the UK like a sensible idea. But for lifelong lovers of fizzy drinks like Allen, it’s a direct assault on his culture. To him, less sugar in the iconic Scottish drink means less flavour. In July, the message on his traffic cone was clear.

How does a place like the UK respond to going cold turkey? To understand the scale of its sugar addiction you need to look at the next generation - 20% of Year 6 children (aged 10-11) are obese. Some 26% of adults are classified as obese in England. Can a tax really be used to promote cultural evolution? And if it can, what’s the best way to measure its success?

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A dire prognosis

The UK government debuted ‘Childhood obesity: A plan for action’ in August 2016, a comprehensive report produced by the PHE outlining the obesity epidemic and several paths toward a healthier future. PHE found that nearly a third of children age two to 15 were overweight or obese, and that people were becoming obese earlier in life and staying obese for longer.

“The economic costs are great, too,” the report cited. “We spend more each year on the treatment of obesity and diabetes than we do on the police, fire service and judicial system combined.” PHE found that the National Health Service (and therefore every UK tax payer) spends £5.1bn ($6.6bn) on weight-related medical services a year. In 2018, the estimate climbed to £6.1bn ($8bn).

Among its long list of solutions was the levy on sugary drinks. Teenagers in England, the biggest consumers of such drinks in Europe, could max out their recommended daily intake of sugar with a single 330 millilitre (ml) can. The time had come to tackle one of the underlying sources of the problem.

Then-Chancellor George Osborne announced the tax during the 2016 Budget Statement. The government would wait two years before implementing it to give manufacturers time to adjust their formulas. Companies that refused to reduce sugar would be taxed in two bands.

Drinks with more than 5 grams (g) of sugar per 100ml would face a tax equivalent to 18p per litre ($0.23). More than 8g would add a 24p tax per litre ($0.31). The expected yearly revenue was about £500m ($650m), which PHE said would be invested in obesity-reduction programmes for children.

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People might have expected drinks companies to erupt in outrage at the announcement and for the Treasury to sit in eager anticipation of a funding boost. But it was just the opposite.

It was almost as if they had seen it coming. Soft drink manufacturers rapidly began looking at ways to reformulate their products around the new guidelines, often swapping sugar for artificial sweeteners. Supermarkets Tesco, Asda and drinks companies Fanta, Ribena, Britvic and Lucozade slashed the sugar content in their drinks, some by half or more.

Irn-Bru reduced its own recipe from 10.3g of sugar to 4.7g per 100ml, stoking the ire of loyalists like Allen. The new formulas began rolling out long before the April 2018 deadline with minimal exceptions. Coca-Cola and Pepsi, opted to shoulder the tax hike and maintain their sugar content. While Pepsi declined to comment on this to BBC Capital, a spokesperson for Coca-Cola says that although Coca-Cola Original Taste is the only product not reformulated in recent years, the company's decision was made with its customers in mind.

"We decided not to change the recipe because people love it and have asked us not to change it. We believe people should have choice."

The number of new soft drink launches with less than 5g of sugar per 100ml since the 2016 report has risen from 32 to 45. Inversely, new beverages above the recommended threshold are down from 60 to 49 in 2018.

Of course, as more companies met PHE’s sugar standards, anticipated tax revenue fell from £500m to £385m by mid-2017, then again to £275m in November. Today, more than seven months since the tax was formally applied, it’s generated a measly £62m ($80m).

But Treasury officials are nonetheless hailing the tax a success. Lower revenue for the government implies a greater willingness by companies to hit healthier benchmarks. In this case, paradoxically, less really is more.

Kicking an ingrained habit

In the midst of this entente cordiale some can’t help but reflect on the days before obesity was considered an epidemic. Naveed Sattar, professor of Cardiology and Medical Sciences at the University of Glasgow, remembers growing up without fear of overdoing the sugar. UK obesity levels were 4%-7% in the 1980s when Sattar was a kid helping in his father’s corner shop. He often watched customers stock up on four litres of Irn-Bru a day.

“There’s many people who have grown up on Irn-Bru,” Sattar says. “I drank lots of Irn-Bru from a young age because I didn’t know any better. It was there.”

Sattar’s biggest reality check came in medical school. In a test of 300 people, Sattar was found to have one of the highest risks of diabetes based on his insulin levels. When his weight jumped three stone, he knew he needed to ditch the sugar.

 If people really give themselves a chance, you can adapt your taste buds - Sattar

“I religiously had two sugars in my tea, but I cut it,” he says. The transition, while difficult, was rather quick. Soon, his taste buds adjusted. “Now if you put it back in my tea, it’s vile.”

But quitting a soft drink addiction isn’t always that simple. One Irn-Bru addict at the cardiovascular clinic Sattar runs was referred due to high blood fat levels and a recent heart attack. He regularly drank six litres a day, Sattar says, and even got up in the night for a sip. He lost eight kilos after Sattar treated him, and began enjoying proper food for the first time in years.

“If people really give themselves a chance, you can adapt your taste buds,” Sattar says. “Just because they like something doesn’t mean they couldn’t change with a little time and a little perseverance.”

Sattar represents the majority of those in the medical community and wider public willing to accept the tax for the overall betterment of health. But he thinks it’s much too early to celebrate. Cutting out fizzy drinks is a great start, but experts believe they account for only 5% of the larger obesity issue.

Even with thousands of other sugary foods at their disposal, the more outspoken Irn-Bru fans think the tax has gone too far. Irn-Bru declined to comment when approached by BBC Capital. Allen followed up his cone stunt with a petition aimed at parent company AG Barr that received more than 50,000 signatures. Another man came up with his own Irn-Bru-flavoured concoction that he claims tastes just like the original. Others stockpiled the full-sugar version and now sell it illegally online.

Allen says he drinks four cans a week, which would cost him about £124 ($161) annually if he purchased each 300ml can individually. Had the makers refused to alter their recipe and passed the tax to Allen, his annual spend would have risen to about £140 ($182). “I would have rather paid the tax,” he says. “It’s brand-suicide and it’s a betrayal of the customers who have made it what it is.”

Few can match Allen’s passion, but he’s not alone. According to Kiti Soininen, head of food, drink and foodservice research at Mintel, 64% of people say they drink the same amount they did a year ago and 10% say they drink more. The extra-hot summer weather likely affected consumption a bit, Soininen says, but it’s an indicator that the UK has a long way to go.

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Global action

The UK is a latecomer to action on sugary drinks. Beginning mostly in the Pacific Islands, levies have slowly spread through cities and countries across every continent since the early ‘80s. Mexico’s 10% tax accelerated the movement in 2014. After just one year, Mexicans were consuming 12% less sugary drinks, the most significant reductions in the poorest households.

Five other areas followed suit the same year with a tax of their own, six each in 2015 and 2016, and a whopping 13 in 2017. Hungary witnessed a 40% decrease in soft drink sugar content in the wake of its tax. In Berkeley, California, a minimal tax decreased overall consumption by 21%. According to the World Cancer Research Fund, a total of 48 cities, nations and territories have now imposed taxes of some type on their soft drinks.

But it’s not all plain sailing. Chicago authorities repealed their 1-cent-per-ounce tax in 2017 just two months after it was applied. The measure was pitched primarily as a way of plugging the city’s $1.8bn budget gap (£1.4bn). Health concerns and obesity prevention were secondary priorities, according to the Washington Post. A media battle between the drinks companies and public health groups ended in defeat for the tax’s supporters. The UK’s cooperation with health officials and commitment to school programmes has, so far, allowed its tax to succeed where Chicago’s failed.

 A total of 48 cities, nations and territories have now imposed taxes of some type on their soft drinks

Looking long-term, one Cambridge University study uses a different yardstick to measure success. It estimates that the tax raised liable soft drink prices by approximately 38%, leading to a 26% decrease in consumption in England. Researchers say this decrease would prevent approximately 370 coronary heart disease deaths, effectively generating about 4,490 life years by 2021. Comparing the 617,000 hospital admissions in 2016 in which obesity was a factor, the projection becomes all the more realistic.

As Sattar cautioned, the war on obesity has only just started. Although the Department of Health and Social Care’s plan to cut 20% of sugar in foods most commonly eaten by children is well on its way, the UK has not met the overall 5% reduction goal for its first year. Whether a new wave of levies is picking up speed is anyone’s guess, but given the soft drink tax’s early success, Sattar believes it to be the best way forward.

“We need some clever people to make these companies aware of the changes they need to make,” he says. “Pricing taxation does work if you do it properly.”

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