Following a Scottish Government announcement that it is considering reintroducing the Public Health Supplement – a tax on large retailers selling alcohol and tobacco – in this blog we look back at the previous application of this policy, which was in place in Scotland from 2012-2015, and examine some of the key insights and lessons learned from our research on it.
What does the new announcement say?
Scotland’s most recent annual budget, published in December 2023, included the following statement:
Recognising the importance of sustaining the public finances and public services, we are also committed to exploring the reintroduction of a non-domestic rates Public Health Supplement for large retailers in advance of the next Budget, while continuing work over the coming year to explore an Infrastructure Levy, to be implemented by spring 2026.
What is a Public Health Supplement?
The original Public Health Supplement was a tax on large retailers selling alcohol and tobacco. It was in place between April 2012 and March 2015. Effectively, around 240 large supermarket outlets in Scotland had to pay an additional tax through the business rates system. Retailers could, theoretically, avoid the tax by stopping selling either alcohol or tobacco products (since only large retailers selling both were subject to the tax).
Did the 2012-2015 Public Health Supplement achieve its goals?
The official legislative basis of the Public Health Supplement suggested that the main rationale was to raise additional public funds to support ‘preventative’ spending plans in Scotland. In terms of revenue-generation, the Supplement performed well, raising £95.9 million over its 3-year duration, which was very close – within a million pounds – to the amount of revenue the Scottish Government had estimated would be raised when the tax was introduced.
However, it is less clear that the additional funds were used to support ‘preventative’ spending – and thus, the extent to which the public health framing of the Supplement was legitimate is questionable. A tax may achieve public health goals in one of two ways: by raising revenue for health spending and/or by reducing the supply of, or demand for, health-damaging products. However, it is unclear if the additional revenue raised was directed to preventative (or any other health-related) spending, as there was no budgetary process to track this.
In addition, there is little evidence to suggest the levy prompted any consumer or retailer behavioural change. The 2012-2015 Public Health Supplement did not appear to have been designed to encourage people to buy, or consume, fewer alcohol or tobacco products. Even if retailers had opted to pass the costs of the levy on to customers (and we found little evidence to suggest that they did), there was nothing in the policy that required them to specifically increase prices on tobacco or alcohol products, rather than products in general. Nor was the tax large enough to persuade retailers to stop selling either type of product at any meaningful scale. Our research found that only Sainsbury’s experimented with not selling tobacco products, and only in a small number of stores for a short period (one interviewee from a competitor company claimed that several of the chosen stores were large, out-of-town premises that also had a separate petrol forecourt shops, small enough to avoid the levy, in which tobacco continued to be sold).
This means the extent to which this was really a ‘public health’ tax is open to question.
Why was the original Public Health Supplement discontinued?
The legislation for the Supplement referred to a three-year period. However, given the tax was successful at raising a predictable (and sizeable) revenue stream, it is surprising that the Scottish Government did not legislate to continue or even expand the tax beyond March 2015. Our research suggests this was for two reasons:
- strong and persistent opposition to the levy from large retailers (often framed as the broader business community); and
- the absence of a supportive health coalition to counter this opposition with active support for the levy.
Opposition from affected companies is to be expected with any new tax. The lack of support from health actors is initially more puzzling, especially given initial support from key health NGOs, such as ASH Scotland, who we identified (via media analysis) expressing support in the early stages of this policy. However, our interview data suggest this is explained by the lack of a clear health rationale for the levy and a failure by the Scottish Government to engage with health interests (even within the government).
Why is the Scottish Government considering introducing the Public Health Supplement again now?
It is apparent from the recent annual budget that revenue-generation is once again the key rationale for the Supplement – albeit, in this case, no explicit connection is made to preventative (or any other health-related) spending. In the context of limited funding from the UK Treasury under the Barnett formula, limits on the Scottish Government’s tax-raising powers, and the commitment to protecting spending for the NHS and reducing child poverty, the focus on revenue-generation is unsurprising. A new report from Alcohol Focus Scotland and the Fraser of Allander Institute predicts that a new Public Health Supplement set at the original rate would raise around £57 million a year.
There are also good reasons for the Scottish Government to consider raising more revenue by setting a new levy at a higher rate; since the Public Health Supplement was last in place, Scotland has introduced Minimum Unit Pricing for alcohol in Scotland, a policy that is estimated to have increased annual retailer revenues by between £41 million and £383 million.
However, the lesson of the original Supplement is that any new levy is likely to be fiercely opposed by retailers’ and linked interest groups. This has implications for the political sustainability of the policy in the absence of support among the general public, or countervailing pressure from public health advocates.
Could a new Public Health Supplement be sustained?
To be politically sustainable, the intended ‘public health’ impacts of a new Supplement should be spelled out, and the policy should include clear mechanisms for achieving these. In particular, an explicit and credible commitment should be made to using the funds for health-related spending, supported by a transparent budgetary process that connects additional revenues generated to additional spending in identified health-related programmes. There is strong evidence that credible earmarking in this way enhances public support for health taxes and can also help secure crucial support from health interest groups.
Alternatively, if Scottish policymakers are reluctant to undertake explicit earmarking in this way, it may be possible to frame the new levy as a mechanism for ensuring retailers’ excess (and unearned) profits resulting from alcohol Minimum Unit Pricing are redirected to the public purse.
An additional option is to ensure that the levy is set at a high enough rate to ensure that some large retailers opt to stop selling either tobacco or alcohol products, thereby reducing the high (and unequal) availability of alcohol and tobacco products in Scotland. However, this option is likely to be less appealing to government, as it would reduce the predictability and scale of the revenues generated by the Supplement, at a time when the Scottish Government is facing an estimated £1.5 billion shortfall.
Written by Professor Katherine Smith, Public Health Policy, University of Strathclyde, and Dr Mark Hellowell, Senior Lecturer, University of Edinburgh.
All IAS Blogposts are published with the permission of the author. The views expressed are solely the author’s own and do not necessarily represent the views of the Institute of Alcohol Studies.