The Treasury could take a hit of nearly £60billion a year as younger people stop drinking, smoking and driving polluting cars, a leading think-tank has warned.
Sin taxes are a major source of cash for the nation’s finances – but a clean-living revolution has put future tax revenues in doubt.
A combination of duties and VAT is predicted to give a multibillion-pound boost to the Chancellor’s coffers in the present financial year, with £29.2billion coming from fuel, £15.7billion from alcohol and £12.5billion from tobacco.
But the Prime Minister plans to phase out smoking by raising the smoking age every year, and the sale of new diesel and petrol cars will be illegal from 2035.
And more than a third of 18 to 24-year-olds do not drink alcohol, according to research carried out by YouGov.
Christopher Snowdon, of the Institute of Economic Affairs, warned taxpayers could be in for a shock when the Government has to find new sources of income.
He said: “Motorists, drinkers and smokers pay £57.4billion in tax every year. This huge sum is vital to the public finances.
“Legal tobacco sales will eventually dwindle to zero, thanks to Rishi Sunak’s prohibition, and the switch to electric vehicles will evaporate fuel duty.
“A crackdown on drinking would lose the Government billions more. Even hiking VAT to 25 per cent would not make up the shortfall and yet the Government will have to find something to tax.”
YouGov polling last month found that 39 per cent of 18 to 24-year-olds are teetotal, and 44 per cent have started drinking low or no-alcohol alternatives.
And Stuart Adam, of the Institute of Fiscal Studies, said that the challenge of recouping the “disappearing revenue from taxing petrol and diesel cars” is “one of the big questions the political parties ought to be talking about ahead of the election but aren’t”.
Maxwell Marlow, of the Adam Smith Institute, said a road tax would be a “more fair and efficient way of taxing vehicles” and would “involve taxing travel at peak times and areas of high congestion, disincentivising wasted time and fuel”.
He warned that politicians risk putting a “huge dent in the national finances in the long term by introducing over-zealous bans and by subsidising electric vehicles.
“Coupled with Generation Z’s more health-conscious culture, Whitehall will have to look elsewhere to fill the gap.”
But lifestyle changes could result in long-term improvements in the health of the population and boost the economy.
David Finch, of the Health Foundation, said: “We are already seeing the fiscal consequences of worsening health with an increased cost of £16billion a year since the start of the pandemic due to worsening working age health. Key measures to improve health, whether reducing smoking, alcohol consumption and having cleaner air, can make a real difference.
“But, crucially, these measures can also improve the public finances – with higher tax revenues from boosted employment and lower sickness benefit claims.”
A Treasury spokesman said: “Our decisive action to halve inflation and ensure debt falls as a share of the economy means we are now beginning to turn a corner.
“The best way to deliver sustainable funding for public services is to grow the economy. The UK has grown faster than France, Germany and Japan since 2010 and the Office for Budget Responsibility says our action in spring and autumn will deliver the largest boost on record.”
