Adopting a new approach to VAT on food could significantly improve public health, reduce environmental impac and generate additional government revenues in the UK and EU, according to a new study led by UCL researchers.
People might be inspired to make healthier and more sustainable dietary choices if Value Added Tax (VAT) rates were adjusted based on health and environmental grounds, according to a new study led by researchers at University College London (UCL).
Published in the journal Nature Food, the study examines VAT rates for foods in the UK and the European Union (EU), using various assessments to predict the potential impacts of modifying these rates.
Lead author Marco Springmann, a professorial research fellow in climate change, food systems and health at UCL’s Institute for Global Health, and a senior researcher on environment and health at the University of Oxford’s Environmental Change Institute, emphasizes the urgent need for a modern tax system that addresses the significant health and environmental challenges posed by the current food system.
“When it comes to food, the tax systems across the EU and the UK are currently not fit for purpose,” Springmann said in a news release. “A modern tax system that addresses the critical health and environmental challenges of the food system is urgently needed.”
The study highlights that in the UK, while most fundamental food items like raw meat, fish, vegetables and fruits are currently zero-rated for VAT (i.e., 0% VAT), revising these rates could have substantial public health benefits.
Specifically, keeping a zero-rating on fruits and vegetables while increasing VAT on meat and dairy products to the full rate (20%) could lead to significant changes in dietary habits.
The researchers estimate that applying full-rate VAT to meat and dairy products could result in a reduction of these foods by one portion per week in EU countries. In the UK, this reduction could double to two portions per week.
Such reductions could potentially save tens of thousands of lives by decreasing instances of diet-related diseases, such as heart disease, stroke, cancer and diabetes. The study projects that this dietary shift could lead to 170,000 fewer deaths across the UK and EU, with over 2,000 fewer deaths in the UK alone.
In addition to health benefits, the environmental impact of such VAT reforms could be substantial. Lower demand for beef and milk would reduce the production of climate-warming gases by an amount equivalent to the total emissions of Scotland and Northern Ireland combined. In the UK, emissions reductions could equal half of London’s annual greenhouse gas output.
Moreover, this change could free significant agricultural land — comparable in size to the Republic of Ireland and Scotland combined across Europe — with the UK alone potentially freeing an area the size of Wales from agricultural use.
Water pollution levels would also see a notable reduction, dropping by about ten percent.
Despite the anticipated dietary shifts, the study found that these new diets would remain affordable. Consumers would likely replace more expensive meats and dairy products with cheaper fruits and vegetables, keeping overall food costs balanced.
This tax adjustment would also generate additional government revenues estimated at £36 billion, or 0.2% of GDP across the UK and EU. In the UK alone, revenues could rise by 0.6% of GDP.
“In the UK and many European countries, value added taxes (VAT) on foods are often reduced but without a clear justification,” Springmann added. “Setting VAT rates based on health and environmental considerations could have large implications for people’s health and the environment, alongside generating money for the economy.”
The findings of this study underscore the far-reaching impacts of tax policies on public health, environmental sustainability and economic stability. As policymakers consider changes to VAT, these insights offer a compelling case for reform that could usher in a wave of positive change.