EU Investigates Scrapped Danish Fat Tax

06 Feb 2015 --- The European Commission suspects that Denmark's so-called 'fat tax', introduced in 2011 but scrapped a year later, could be considered illegal state aid.

Opening the case on Thursday (5 February), the EU executive said it sought to determine whether or not food producers who were not forced to add an extra fat tax on their products received illegal assistance.

The Danish fat tax was introduced by the previous centre-right government to promote healthier diets and came into effect in October 2011. The tax was put on meat, dairy products, oils and other foods which contained more than 2.3% of saturated fat.

But the new centre-left government currently in power decided to abolish the tax in January 2013, citing administrative burdens.

The Commission's current view is that all products with saturated fats should have had the fat tax added. The case is being pursued by the Commission's Competition unit, led by Margrethe Vestager, a Dane who was Minister for Economics and Interior Affairs in Denmark when the tax was scrapped.

"I am puzzled why the Commission raises this case now, when the tax was repealed more than two years ago," Benny Engelbrecht, the Danish minister of taxation, said in a statement. "But the government will have a dialogue with the Commission in order to find a sensible solution," he added.

If the Commission concludes that these producers' products should have been included into the overall fat tax scheme, Denmark will have to collect the extra tax with compound interest. Even producers that were covered by the fat tax are at risk of having to pay an additional bill.

"We will do everything we can in order to make sure that this won't be the reality," Engelbrecht said.

In the 1990s and early 2000s, various Danish governments set up many proactive measures in order to combat cardiovascular disease with the fat tax and the ban on trans fatty acids in 2003 as two examples. This meant that the number of Danes who died from cardiovascular disease fell by 70% between 1985 and 2009. No EU member state has a recorded a greater decline in mortality.

However, the trans fatty acids ban also resulted in a lawsuit by the Commission over the potential discrimination of foreign fast food chains. This lawsuit was eventually dropped by the Commission.

Christopher Snowdon, Director of Lifestyle Economics at the Institute of Economic Affairs, has written a report, ‘The Proof Of the Pudding: Denmark’s Fat Tax Fiasco’, about the Danish experience. He suggests that while there was a small shift away from foods high in saturated fats during the lifetime of the tax, this may have been largely due to stockpiling of product before the tax was introduced and some cross-border trade. However, the tax had largely negative effects, from encouraging high inflation during the period, to making the poor poorer and contributing to the loss of 1.300 industry jobs. Furthermore, the administration costs involved and the effort & difficultly in implementing the changes were so far-reaching that most found it unworkable. 

Health outcomes are hard to assess after such a short time, but the little data that is available shows that there was no marked improvement in consumer buying habits and that the health impact was negligible. As ever, the lesson is that obesity and its related diseases are multi-factorial and there is no one answer.

There have been many efforts around Europe to reduce the rates of obesity and its related diseases, such as cardiovascular disease, Type-2 Diabetes and certain cancers. Many are in favour of a tax on the foods that are thought to promote obesity, but generally agree that the approach should be ulti-faceted.

Professor Graham MacGregor, of Queen Mary University London, is Chair of CASH, Consensus Action on Salt, which is also now campaigning for sugar reduction in all foods. He told NutritionInsight that there is a place for an unhealthy food tax: “As part of our plan to reduce salt and sugar and saturated fat, we strongly support taxes on sugar, saturated fat- particularly palm oil – and sugar.
 
“This is only part of the strategy, the other parts are incremental reformulation (as we have done for salt very successfully),  banning all advertising of unhealthy foods (like smoking), reduction in portion sizes and availability of unhealthy fast foods. So it is only part of the picture.”

Industry is unsurprisingly, against the idea. Barbara Gallani, Director of Regulation, Science & Health at the UK Food and Drink Federation, told NutritionInsight: “There is no single or simple solution to tackling obesity and a broad range of different initiatives embraced by food companies and others is required to drive change collectively. We believe that taxing specific nutrients or food categories would not help consumers understand how to eat a balanced diet. Additional discriminatory taxation on food or drink has not proven an effective means of encouraging long term healthier choices where it has been introduced in other countries and it is also important to note that in the UK most food and drinks are already taxed at the standard VAT rate of 20%.

"Balance is key and FDF members are playing their part to help families achieve a healthy, balanced diet, by developing healthier new options and changing recipes to add extra nutrients while reducing salt, sugar and fat. In addition many of our members offer a range of portion sizes and are providing clear on-pack nutrition information."