Britain’s obesity epidemic

What's the problem?

Britain is now the world's second-most obese country, after the US, according to a recent report by the Royal College of Physicians. A quarter of all adults are obese, as are 20% of 10-year-old children. China, Mexico, Brazil, the Gulf states and the Pacific islands are also all experiencing surging obesity rates.

Whatever the causes (rising wealth, more sedentary lifestyles and changes in diet), obesity imposes costs not only on the obese (defined as those with a body mass index of 30 or more), but on the rest of society too.

These include lost working days, and the medical costs of treating the illnesses obesity causes, including diabetes, stroke, heart disease and damage to joints.

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What can policy makers do?

Nothing, argue some: obese people should be allowed to get on with it. The argument is that, although they may be the biggest drain on the NHS while alive, the obese tend to die young and (arguably) cost less overall.

Others disagree: policy makers should do for unhealthy foods what they have done for smoking, and use a mix of tough legislation (banning certain foods) and tax hikes to make people eat more healthily. But food is harder to regulate than tobacco.

For example, how can you tax full-fat milk, yet also recommend it as a vital part of a young child's diet? It's also a political minefield a much-cited 2004 paper for the Institute for Fiscal Studies noted that fat taxes would hit the poorest hardest, as they spend the biggest chunk of their income on food.

Tory-controlled Westminster Council last week floated the novel idea of docking benefits from overweight claimants if they refuse exercise regimes prescribed by doctors an idea promptly hailed by the British Medical Association GP committee chairman as one of "the silliest things I've heard in a long time".

Could a fat tax work?

Several countries (such as France and Canada) already impose higher rates of sales tax on foods such as sweets, soft drinks and vegetable fat. But the available evidence concerning explicitly targeted fat taxes' is limited.

Last year a group of academics from the University of Oxford's Department of Public Health surveyed the academic evidence on "health-related food taxes" gathered so far in the British Medical Journal (BMJ). These include the modest levies that several US states have long imposed on sweetened drinks, and a similar tax in Ireland during the 1980s. The paper also looks at efforts to use economic models to study the issue.

What did they discover?

They found only weak evidence of a link between changes in food prices (whether from taxes or subsidies) and levels of obesity. Taxes have a limited impact on food purchasing, both because food consumption is relatively inelastic, and because consumers are likely to substitute untaxed or cheaper foods for the taxed foods, reducing the impact on food intake.

The authors argue that it's better to tax a wide range of unhealthy foods rather than a narrow range, although if you're going to choose an area to target, "the strongest evidence base is for a tax on sugar-sweetened beverages".

The tax rate also needs to be at least 20% to have a "significant effect on obesity and cardiovascular disease, and should be combined with subsidies on healthy foods such as fruit and vegetables".

Some models the BMJ authors looked at predict that extending VAT to unhealthy foods in the UK would cut ischaemic heart disease by 1%-3%, meaning 900-2,700 fewer deaths each year.

What does the food industry say?

"When the whole of the food industry is focused on continuing to give hard-pressed families great-tasting food at an affordable price, discussing adding 20% to food prices seems fanciful, if not irresponsible," argues Terry Jones of the Food and Drink Federation.

Some of the studies reviewed in the BMJ lend some weight to other common arguments put forward by food companies for example, taxing one nutrient (such as saturated fat) may have negative effects on the consumption of others (such as salt or fibre).

For now, the UK status quo will prevail a voluntary Responsibility Deal, under which the food industry is supposed to co-operate with the government to help improve public health. David Cameron last year said that the UK would consider fat taxes, but Denmark's recent experience has given ammunition to its opponents.

In October 2011, Denmark introduced higher levies on butter, milk, cheese, pizza, meat, oil and processed foods containing more than 2.3% saturated fat. The tax was scrapped a year later because it proved complex and expensive to administer, and threatened to hurt the Danish economy by sending shoppers to supermarkets in Germany and Sweden.

Obesity will boost pharma stocks

Obesity is a challenge for the food industry, which has a tough task balancing health concerns with the need to make profits for shareholders. But it's a "big opportunity for pharmaceutical companies and makers of medical kit", says The Economist.

Specifically, rising diabetes and demand for kidney dialysis means extra business for Fresenius Medical Care (DE: FME) and DaVita (NYSE: DVA). In the heart field, Medtronic (NYSE: MDT) world leader in cardiac gadgets will get a boost.

Danish group Novo Nordisk (NYSE: NVO), tipped by Dr Mike Tubbs in his Research Investments newsletter, has focused on China, where it has helped train more than 220,000 doctors since 2003. It now has 62% of the diabetes drug market.