Rachel Reeves is going to face the mother of all juggling acts when she comes to deliver her first Budget later this month. First and foremost, the Chancellor’s going to have to raise a lot of money – perhaps £40 billion – in order to meet her fiscal rules with any comfort.
She must try to do so in a way that supports the Government’s overriding mission of raising economic growth. And ideally, she in a way that helps achieve the government’s other missions, including reducing inequalities in healthy life expectancy.
Fortunately, there are a set of measures that can help her keep those balls in the air. As I explained in a recent briefing for UK Day One project, taxes on the alcohol, gambling and tobacco industry can offer a win-win for the public finances and health, and help the economy.
Drinking kills thousands every year
First, alcohol. Drinking kills 20,000 people a year, and they are disproportionately young: it is the leading risk factor for death, ill health and disability among 15-49 year olds. That is not just tragic, but bad for the economy: in 2018, an estimated 180,000 years of working life were lost to alcohol, a figure will have risen since the pandemic.
The most reliable and best evidenced way to reduce harmful drinking is to make it more expensive through higher taxes. The last Labour government implemented a “duty escalator”, which meant that alcohol taxes rose by 2% above inflation each year. Deaths duly fell.
Then Conservative-led governments began a cycle of cuts and freezes that mean that tax on beer, cider and spirits are between a quarter and a third lower today than they were in 2012. As a result, over 2,000 people lost their lives between 2012 and 2019, according to one analysis. Moreover, had previous governments stuck to Labour’s plans for alcohol duty – retaining the escalator to 2015, and raising tax in line with inflation thereafter – alcohol duty would be raising an additional £2.3 billion a year for the Exchequer.
Why does online gambling receive favourable tax treatment?
Next, gambling. Problem gambling, which on some estimates afflicts as many as 2.5% of adults, carries a range of costs to individuals and wider society, including financial hardship, mental and physical health issues, crime, relationship break down and job loss.
The issue is particularly significant for players of online slots, around a quarter of whom are classified as problem gamblers. Yet perversely, remote gambling receives favourable tax treatment relative to other goods and services. It is exempted from VAT, and operators have historically minimised their tax bills by basing themselves overseas.
There is substantial scope for the Chancellor to raise tax on online casino games. Our current rate of remote gaming duty – 21% of gross profit – is modest relative to international peers. Some US states, including new markets operators are scrambling to enter, have tax rates above 50%, as does Austria.
The Netherlands is set to raise its rate to 40%. Doubling UK Remote Gaming Duty to 42% could raise as much as £900 million – or, if it deters spending, reduce some of the harm that we have seen in recent years.
We should tax the excessive profits of tobacco firms
Third, tobacco. Unlike alcohol, duty on cigarettes has tended to increase in recent years. Thank goodness, given the demonstrated benefits of taxes in getting people off smoking. Yet, as I’ve previously discussed on Labour List, profit margins remain high.
There are a few ways that the government can tax away this excess profit, but my preferred option is the one set out by former Treasury adviser Tim Leunig, which would set tobacco duty at 73% of the retail price for more expensive cigarettes. This would mean that a pack selling for £17.55 would generate £15.74 tax, up from £12.15 today. The policy would be expected to raise £700 million a year.
These taxes are relatively popular
At a conservative estimate these taxes could raise £1.5 billion in the first year, and revenue could exceed £2 billion. They would also benefit the economy by helping more people into work. Most importantly, they would reduce some of the human suffering that results from cheap alcohol, online gambling and smoking, and which disproportionately afflicts disadvantaged communities.
People rarely like taxes, but these ones are relatively popular. 52% people would support an increase in online gambling. When we surveyed opinion on a range of revenue raising options, gambling, tobacco and alcohol taxes were ranked as the top three, in line with previous polls.
In general, these sorts of taxes affect poorer households more, but households across the income spectrum spend a similar share of their resources on alcohol duty. What’s more, the benefits accrue disproportionately to poorer families, helping to reduce health inequalities. Focusing taxes on online gambling (as opposed to land-based) and cheap supermarket alcohol (as opposed to pubs), can also better target harm, but will mean raising less revenue.
Given the state of the economy, public services and public finances, the Budget is going to be one of hard choices and investments in the future. The Chancellor is going to struggle to find many measures that raise money, command popular support, promote health, and reduce pressure on public services. Taxing alcohol, gambling and tobacco firms can make her juggling feat a little bit easier.
Read more of our Budget 2024 coverage:
- SHARE: If you have anything to share that we should be looking into or publishing about this story – or any other topic involving Labour– contact us (strictly anonymously if you wish) at [email protected].
- SUBSCRIBE: Sign up to LabourList’s morning email here for the best briefing on everything Labour, every weekday morning.
- DONATE: If you value our work, please donate to become one of our supporters here and help sustain and expand our coverage.
- PARTNER: If you or your organisation might be interested in partnering with us on sponsored events or content, email [email protected].
Value our free and unique service?
LabourList has more readers than ever before – but we need your support. Our dedicated coverage of Labour’s policies and personalities, internal debates, selections and elections relies on donations from our readers.
