Goods and Services Tax: exemption or zero-rating for health foods (P.81/2011) – response of the Minister for Health and Social Services

STATES OF JERSEY

GOODS AND SERVICES TAX: EXEMPTION OR ZERO-RATING FOR HEALTH FOODS (P.81/2011) – RESPONSE OF THE MINISTER FOR HEALTH AND SOCIAL SERVICES

Presented to the States on 7th May 2014 by the Minister for Health and Social Services

STATES GREFFE

2014   Price code: C  R.60

REPORT

Introduction

In response to P.81/2011 [Goods and Services Tax: exemption or zero-rating for health foods] requesting the compilation of a list of healthy foods', the Public Health team  led  by  the  Medical  Officer  of  Health  undertook  a  review  of  international evidence of practice and policy approaches. The conclusion of the review was that it is neither feasible, practical nor desirable to develop a list of healthy foods'. This report recommends that if improved health outcomes were the intention of producing a list of healthy foods', then priority should instead be given to supporting the development of a new States of Jersey Food and Nutrition Strategy.

Background

On 16th September 2011, States Members debated P.81/2011.

The Assembly voted in favour of –

"(a)  to request the Minister for Health and Social Services to present to the

Assembly within 12 months a report listing those foodstuffs that can be defined as healthy foods';".

The Assembly voted against –

"(b)  to agree that the healthy foods as listed by the Minister for Health and

Social Services should be exempted or zero-rated for the purposes of Goods and Services Tax (GST) from 1st January 2013, and to request the Minister for Treasury and Resources to bring forward for approval the necessary legislation as part of the Budget 2013 proposals to give effect to the decision.".

It has been recognised at the outset that there would be considerable challenges in attempting to define any list of healthy foods'. No definitive list exists anywhere in the world. There is no realistic means of devising a list that would not be accompanied by negative effects and unintended consequences. It has not been achieved anywhere internationally with links to measurable improvements in health outcomes. In fact, any one  element  of  a  diet  consumed  out  of  balance  can  lead  to  negative  health consequences. Considerable evidence shows it is a balance and range of food in a diet that contributes positively to health. It is recognised that there has been a considerable time lapse between the original Proposition and this response, which is regrettable. However,  this  is  a  complex  matter  that  has  required  a  considerable  amount  of international research.

The review of the policy approaches and evidence base that has been carried out by the Public Health Directorate analysed the likely benefits, disadvantages and risks of possible approaches to identifying any healthy food list'. Further background can be found in the appended review.

Conclusion

The conclusion of this review, that it is neither feasible, practical nor desirable to develop a list of healthy foods' was presented to and accepted by the Council of Ministers on 12th March 2014.

It was agreed that further work is unwarranted in the pursuit of a list of healthy foods', and that priority in 2014 should be given to beginning the development of a comprehensive Food and Nutrition Strategy for Jersey, built on an evidence-based, multi-agency approach to promoting good nutrition and healthy weight.

Deputy A.E. Pryke of Trinity

Minister for Health and Social Services

APPENDIX

IDENTIFYING A LIST OF HEALTHY FOODS

Contents:

1. Purpose
2. Background
3. Approaches for defining a list of healthy foods'

Approach 1:  Defining healthy foods by nutrient value

Approach 2:  Defining  healthy  food  by  nutritional  food  groups or  retail

categories

Approach 3:  Identifying  a  single  nutritional  food  group  as  a  proxy  for

healthy food

Approach 4:  Adopting the existing UK VAT model

4. Fiscal policy considerations
5. Conclusion
6. Recommendations

Appendices

Appendix A:  Proposition P.81/2011

Appendix B:  Summary of FSA Nutrient Profiling Model

Appendix C:  Healthy Foods defined by Nutritional Food Group Appendix D:  Examples of UK VAT application to food

Appendix E:  Examples of Evidence-Based Healthy Eating Interventions

REPORT

1. Purpose

The purpose of this paper is to outline options for defining a list of healthy' foods. The advantages, disadvantages and risks associated with each option are also outlined to assist discussion. This paper does not include a discussion of the evidence base regarding the impact of fiscal policy on revenue or dietary consumption.

2. Background

In May 2011, former Deputy S. Pitman of St. Helier lodged a proposition: P.81/2011, Goods and Services Tax: exemption or zero-rating for health foods'. The proposition requested that the Minister for Health and Social Services present to the Assembly, (within 3 months) a report listing those foodstuffs that can be defined as healthy foods' (Appendix A). Paragraph (a) of the proposition, with an amended timescale of 12 months,  was  adopted  by  the  States  on  16th  September  2011,  although paragraph (b), requesting that the healthy foods listed should be exempt or zero-rated for the purposes of GST from 1st January 2013, was rejected.

The ambiguity in defining healthy and unhealthy foods makes it extremely difficult to create a definitive list. Many foods are composed of some elements that are considered to contribute to health and others which are considered detrimental, i.e. cheese is a good source of dietary calcium, but is also high in saturated fats.

Nutrition  experts  tend  to  talk  about  healthy  balanced  diets'  rather  than  healthy foods'. The Eatwell Plate demonstrates that foods from a variety of food groups are required for a healthy diet, including a small proportion of those high in fat and sugar.

Identifying a definition is also complicated by the need to consider the when', where' and for whom' a food is healthy. Full fat milk is recommended for those under 2 years of age, but skimmed or semi-skimmed is the recommendation for those over the age of 5 years. In addition, dieticians may recommend calorie-dense, high-fat foods for certain undernourished patients, depending on their individual needs.

3. Approaches for defining a list of healthy foods'

The main approaches for defining healthy foods are either to calculate the exact nutrient  value  of  individual  foods  or  food  products,  or  broadly  to  identify  foods through either nutritional' food groups or retail categories.

Approach 1:  Defining healthy foods by nutrient value

Defining individual foods by their nutrient value is one approach for categorising foods as healthier' or less healthy'. Focusing on only one nutrient, such as saturated fat  content,  is  inadvisable,  as  it  could  lead  to  an  increased  consumption  of  salt products, therefore increasing risk of death from cardiovascular disease. It may also encourage  the  food  industry  to  replace  saturated  fats  with  trans-fats  or  artificial additives to improve texture/taste. Using a model that considers the complete nutrient profile of a food product would be the most accurate means of categorising foods.

Food Standard Agency's (FSA) Nutrient Profiling Model

The Nutrient Profiling Model defines foods classified as HFSS (high fat, salt, sugar) by using a complex formulae to assess the nutrient profile of individual products and give  them  a  numerical  score  that  labels  them  as  less  healthy'  or  healthier' (Appendix B).  This  model  is  used  by  OFCOM  to  assess  products  suitable  for advertising during children's programming.

Advantages:

• Allows all products to be assessed individually rather than included in a general category', thereby reducing the risk of inaccurate taxation, misleading messages and subsequent adverse reaction from manufacturers.

Disadvantages:

• Implementation cost of applying the nutrient profiling model to all existing food products, as well as products new to the market, would be considerable and would need to be borne by either the States or the manufacturer. The major retailers in Jersey have approximately 17,000 – 21,000 different products, half of which are food.  (For  OFCOM  purposes,  the  profiling  is  the  responsibility  of  the manufacturer.)
• Manufacturers  frequently  change  their  production  processes,  and  the  resulting change to the nutritional content of foods would need to be re-assessed.
• There are approximately 1,500 new products introduced into Jersey supermarkets each year – the delay between national marketing campaigns and local availability would further increase if products were required to be analysed for a health rating.
• Nutrition guidelines for the whole population may have different criteria than that developed by FSA for food suitable for advertising to children, i.e. fats and oils would not be advertised to children, but there may be merit in promoting some oils over others for adults.

Approach 2:  Defining healthy food by nutritional food groups or retail categories

Categories of foods, as opposed to individual product profiles, could be used to define groups of foods which were deemed healthy.

This approach has more commonly been used by legislative bodies to apply additional tax to selected items. For example, several countries have found it more practical to tax a small number of well-recognised categories of food that play little useful role in nutrition, rather than try to define all products based on their health value. Categories most  commonly  taxed  at  a  higher  rate  in  other  jurisdictions  include  snacks, confectionary (chocolate and sweets) and soft drinks.

The  challenge  in  using  the  food  groups/category'  approach lies in the extensive variety of products within each group and the variations in the way in which food items are presented. For example, fish would classify as a healthy food under this approach, and would ideally include fresh, frozen and tinned fish products. However, tuna can be canned in spring water, brine, oil or mayonnaise. Similarly, poultry, pork,

lamb and beef all contribute toward a healthy diet; however some cuts are much higher in saturated fat than others. The lack of clear definitions for the terms such as processed' and lean' creates further ambiguity.

Healthy foods defined according to nutritional food groups

Groups of food which have been shown via the evidence base to contribute towards a healthy balanced diet, have been identified in Appendix C. This draft list has been developed with advice and information from the States-registered dieticians at the General Hospital and the Food Standards Agency (FSA) in the UK.

The draft list represents 4 major food groups from the Eatwell Plate (FSA, 2007) and encompasses staple foods for a balanced diet. The list does not include any items from the FSA's Eatwell Plate group of foods high in fat and sugar; however, variations of items within the recommended categories could contain high levels of fat, sugar or salt; for example, fruit tinned in syrup, cuts of red meat high in saturated fat, etc. Examples of areas requiring further consideration are highlighted in red within each category.

Advantages:

• Using food categories to create a list of healthy foods simplifies the process and is less time-consuming then calculating the nutrient profile of individual foods.

Disadvantages:

• This  approach  does  not  look  at  individual  products  and  may  result  in misleading information to consumers, i.e. –

• some excluded foods may be perceived to be unhealthy' even though they may still contribute to a healthy balanced diet, such as –

• healthy breakfast cereals/porridge oats, etc.
• composite foods based on healthy ingredients
• full fat dairy products for under-2s

• some foods may be included that are less healthy options within the category, i.e. –
  • fruit and vegetables that are canned with added salt/sugar
  • tuna canned in mayonnaise or oil rather than spring water.

• Retailers in Jersey all use a different categorisation system, potentially leading to different food products being exempted by different retailers.
• This approach does not help consumers distinguish between healthier' and less healthy' options in excluded food categories, i.e. oils, butter, margarine, etc.
• Need  to  monitor  and  ensure  that  all  retailers  classify  individual  foods  in similar way.

• Composite' foods are excluded, although they may be composed of foods from the list of healthy items.
• More likely to result in opposition from elements of the food industry whose products have been excluded.

Approach 3:  Identifying a single nutritional food group as a proxy for healthy food

All food groups have a role in a balanced and healthy diet; however, any of these food groups eaten out of balance can have negative health effects. The food group best placed  as  a  proxy  for  healthy  foods  would  be  Fruit  and  Vegetables'.  However, boundaries still exist on the relative healthiness' of foods that would be considered within this food group, including: frozen, canned, dried and juice products, as well as variations such as fruit tinned in syrup or canned vegetables containing added salt and sugar.

Advantages:

• This approach would be simpler to administer due to decreased number of product lines.
• Guidance exists for defining fruit and vegetable products that would classify as one of the 5 a day'.

Disadvantages:

• Need to ensure consistency of categorisation across retailers.
• Would  need  careful  consideration  of  borderline  products  within  this  food category.
• Inconsistent message regarding definition of healthier' foods within a healthy balanced diet.
• May result in opposition from producers/manufacturers of excluded categories (i.e. milk and dairy products) or excluded food item.
• Risk to health if shift to diets based exclusively or predominantly on fruit and vegetables.
• Likely  opposition  from  producers/manufacturers  of  excluded  categories (i.e. milk and dairy products) and other excluded food items considered part of a healthy balanced diet.

Approach 4:  Adopting the existing UK VAT model

If the purpose of producing a list of healthy foods was to go on and zero-rate it for GST, then the UK VAT model may represent a pragmatic approach. Most food is VAT zero-rated in the UK, but there are some exceptions that attract standard-rate VAT of 20%. All food provided as catering, takeaway or in restaurants is subject to

VAT, as well as some food products that may be considered to be less healthy', such as confectionary, ice-cream and crisps (Appendix D).

It should be noted however, that VAT on food in the UK is not explicitly based on health' considerations, resulting in items such as biscuits and cakes classified as zero- rated, while mineral water and fruit juice are subject to VAT.

Advantages:

• The majority of food products in Jersey are imported from the UK with existing codes for VAT classification, allowing for ease of administration and consistency across retail outlets.
• Fewer manpower considerations as decisions on tax exemption of individual food products is undertaken by external agency.
• Certain categories of food considered to be less healthy' are subject to VAT, such as confectionary, ice-cream and crisps.

Disadvantages:

• VAT on food in UK is not explicitly linked to health'.
• Many less healthy' foods, which are common sources of saturated fat in the UK diet, are not subject to VAT, such as cakes, butter, biscuits, etc.
• Some healthier' items, such as mineral water and 100% fruit juice, are subject to VAT.
• Basing  GST  exemption  on  current  VAT  status  would  not  be  consistent  with healthy-eating messages.

4. Fiscal policy considerations

The international evidence base for improving a population's nutritional intake via fiscal (tax) incentives is still evolving. Most of it is based on economic modelling studies. Some evidence indicates that fiscal policy in the form of increased tax (on unhealthy foods) combined with increased subsidy (on healthy foods) may have some impact on consumer purchasing. However, no evidence exists for changes in health behaviour or health improvement.

5. Conclusion

Following this review of options and policy approaches, it has been concluded that it is neither feasible, practical nor desirable to develop a list of healthy foods'. All possible approaches to devising a list would be accompanied by negative effects and unintended consequences. Furthermore, a healthy food list' has not been achieved anywhere internationally with links to measurable improvements in health outcomes.

6. Recommendations

Priority  in  2014  should  be  given  to  supporting  the  development  of  a  Food  and Nutrition Strategy for Jersey, built on an evidence-based, multi-agency approach to promoting good nutrition and healthy weight.

Head of Health Improvement Public Health Officer

2nd May 2014

APPENDIX A

PROPOSITION

THE STATES are asked to decide whether they are of opinion

1. to request the Minister for Health and Social Services to present to the Assembly within 3 months a report listing those foodstuffs that can be defined as healthy foods';
2. to agree that the healthy foods as listed by the Minister for Health and Social Services should be exempted or zero-rated for the purposes of Goods and Services Tax (GST) from 1st January 2012, and to request the Minister for Treasury and Resources to bring forward for approval the necessary legislation as part of the Budget 2012 proposals to give effect to the decision.

DEPUTY S. PITMAN OF ST. HELIER

APPENDIX B

Summary of FSA Nutrient Profiling Model There are 3 steps to working out the overall score of a food or drink.

1. Work out total A' points

A maximum of 10 points can be awarded for each nutrient.

Total A' points = (points for energy) + (points for saturated fat) + (points for sugars) + (points for sodium).

The following table indicates the points scored, depending on the amount of each nutrient in 100g of the food or drink:

Points  Energy (kj)

0..  >335. 1..  >335. 2..  >670. 3..  >1,005. 4..  >1,340. 5..  >1,675. 6..  >2,010. 7..  >2,345. 8..  >2,680. 9..  >3,015. 10..  >3,350.

Sat. Fat. (g)

<1...

>1...

>2...

>3...

>4...

>5...

>6...

>7

>8

>9 >10

Total Sugar (g)

<4.5.... >4.5.... >9... >13.5.... >18... >22.5 >27... >31... >36... >40... >45...

Sodium (mg)

<90 >90 >180 >270 >360 >450 >540 >630 >720 >810 >900

If a food or drink scores 11 or more A' points, then it cannot score points for protein unless it also scores 5 points for fruit, vegetables and nuts.

2. Work out total C' points

A maximum of 5 points can be awarded for each nutrient/food component.

Total C' points = (points for % fruit, vegetable & nut content) + (points for fibre [either NSP or AOAC]) + (points for protein).

The following table indicates the points scored, depending on the amount of each nutrient/food component in 100g of the food or drink:

Points  Fruit, Veg.

& Nuts

0..  <40. 1..  >40. 2..  >60. 3..  – 4..  – 5*  >80.

% NSP Fibre (g)

<0.7... >0.7... >1.4... >2.1... >2.8... >3.5...

Or AOAC Fibre (g)

<0.9.... >0.9.... >1.9.... >2.8.... >3.7.... >4.7

Protein (g)

<1.6 >1.6 >3.2 >4.8 >6.4 >8.0

3. Work out overall score

• If a food scores less than 11 A' points, then the overall score is calculated as follows:

Total A' points (energy + saturated fat + sugars + sodium) Minus

Total C' points (fruit, veg and nuts + fibre + protein)

• If a food scores 11 or more A' points but scores 5 points for fruit, vegetables and nuts, then the overall score is calculated as follows:

Total A' points (energy + saturated fat + sugars + sodium) Minus

Total C' points (fruit, veg and nuts + fibre + protein)

• If  a  food  scores  11  or  more  A' points,  and  less  than  5 points  for  fruit, vegetables and nuts, then the overall score is calculated as follows:

Total A' points (energy + saturated fat + sugars + sodium) Minus

Points for fibre + points for fruit, vegetables and nuts (not allowed to score for protein)

A food is classified as less healthy' where it scores 4 points or more. A drink is classified as less healthy' where it scores 1 point or more.

APPENDIX C

Healthy Foods defined by Nutritional Food Group

APPENDIX D

Examples of UK VAT application to food Examples of products where VAT is payable:

Wholly or partly chocolate-coated biscuits

Gingerbread man decorated with chocolate (unless this amounts to no more than

2 chocolate eyes!)

Arctic Rolls

Sorbet

Chocolate bar

Nuts or fruits covered in chocolate or yogurt

Flavourings for milk shake

Potato crisps

Roasted or salted nuts without shells

Water

VAT-exempt alternatives:

Cakes

Chocolate-chip biscuits

Chocolate spread

Millionaire's shortcake

Jaffa cakes

Cream Gateaux

Mousse

Chocolate spread

Toffee apples

Milkshake

Tortilla or corn chips

Roasted or salted nuts supplied in shells, e.g. monkey nuts, pistachios

Full guidance on VAT and Food is available at: http://customs.hmrc.gov.uk

APPENDIX E Examples of Evidence-Based Healthy Eating Interventions