The impact of eliminating VAT on sunscreen in the UK

The following is the Executive Summary from the Alma Economics report “Modelling the impact of zero-rate VAT on sunscreen” (August, 2024), prepared for Melanoma Focus. Find the full report here.

Skin cancer is among the most common types of cancer in the UK. The latest data indicates 156,000 initial diagnoses of non-melanoma skin cancers each year, while melanoma accounts for 17,500 yearly diagnoses. Despite its lower prevalence, melanoma skin cancer is the most deadly form of skin cancer, with almost all non-melanoma cancer patients surviving the disease.

Advances in immunotherapy, which have been available since 2011, along with progress in other treatments, have transformed advanced melanoma from a cancer with no effective treatments to a disease with moderate long-term survival. The 5-year survival rate for stage 1 melanoma patients is now almost 100%, exceeding 70% for stages 2 and 3, and approximately 25% for stage 4[1].

While the medical advancements save lives and bring vital wellbeing benefits, they have also contributed to the cost pressures faced by the NHS. The average cost of treatment for a patient with stage 4 melanoma significantly exceeds £200,000 (compared with approximately £9,000 for patients with stage 1 disease)[2].

The majority of the wellbeing and health care costs associated with skin cancer, including melanoma, are avoidable as the majority of skin cancers are preventable via simple sun protection measures[3]. The NHS, for example, recommends keeping out of the sun at the hottest times of the day, covering up and using sun protection factor sunscreen of at least 30 (SPF 30+) sunscreen and reapplying it regularly. These recommendations are in line with academic research. A well-executed randomised control trial in Australia found that daily sunscreen application is associated with a 73% decrease in melanoma skin cancer and a 40% decrease in squamous cell carcinomas, the second commonest non-melanoma skin cancer, compared to discretionary use, after follow-up for some 10 years.

Several organisations are urging policymakers to take action to tackle the rising prevalence of skin cancer. The Lancet emphasises the skin cancer risks associated with climate change, and calls for a reassessment of the factors “contributing to this public health crisis”. UK-based charity Melanoma Focus executes annual national awareness campaigns and advocates for zero-rate VAT on SPF 30+ sunscreen products to ensure sunscreens are viewed as an essential healthcare item and not a luxury product and to make them more affordable and encourage usage. This proposal shares similarities with the UK's abolishment of the tampon tax in January 2021, which aimed to make sanitary products cheaper and more accessible, and highlighted the principle that sanitary products are not a luxury item and therefore should be exempt from VAT.

Alma Economics was commissioned by Melanoma Focus to estimate the financial and non-financial impact of applying a zero-rate VAT on sunscreens. As part of the study, Alma Economics conducted a quantitative analysis using clinical and economic data, along with insights from the literature, to assess the impact of VAT abolishment on:

• Melanoma and non-melanoma skin cancer incidence and mortality (by stage for melanoma);

• NHS cost savings associated with skin cancer treatment (by stage for melanoma); and

• Lost tax revenue linked to the zero-rate VAT.

Our analysis suggests that implementing a zero-rate VAT on SPF 30+ sunscreen products could lead to an increase in sunscreen usage[4] , resulting in a reduction in skin cancer incidence and healthcare cost savings. The long-term and ongoing savings for the public sector would outweigh the revenues lost from the VAT abolishment. In particular, it was estimated that a zero-rate VAT policy would reduce the average price of sunscreen by 15%, leading to a 23% increase in sunscreen consumption[5]. This is equivalent to approximately an additional 11 million bottles of sunscreen (200 ml) sold per year.

After one year, in 2025, we estimate that a zero-rate VAT could save the NHS £128 million, with a corresponding VAT revenue loss of £67 million. That is, for each £1 forgone in VAT revenue, the public sector would save £1.9 in NHS treatment costs[6]. Projecting ahead to 2033, the net financial benefits for the public sector are expected to increase, reaching approximately £114 million. Specifically, by 2033, we anticipate that the NHS treatment cost savings resulting from the zero-rate VAT will nearly double the loss in tax revenue (£193 million vs. £79 million with a “Return on Investment” of £2.4[7]). The increased benefits of the VAT abolishment reflect the expected rise in skin cancer prevalence and the ongoing and additional advantages that sunscreen application is anticipated to deliver.

In addition to these financial and non-financial impacts, increased sunscreen use can yield significant wellbeing and economic benefits through prevention of acute sunburn, cancer prevention, lives saved, skin anti-ageing, solar keratosis as well as economic benefits associated with productive life-years saved. One year after the intervention, an estimated 2,500 melanomas and 2,800 non-melanoma skin cancer cases could be prevented and approximately 300 deaths per year avoided. Recent research suggests that melanoma is one of the most costly cancers in terms of productivity loss, due to its relatively young age of onset and age of death, estimated at significantly more than £200,000 per death. Nevertheless, the analysis of these impacts is beyond the scope of this study.

It is acknowledged that estimating the impact of the zero-rate VAT relies partly on assumptions that are challenging to pin down with certainty, including the uptake of sunscreens resulting from the zero-rate VAT and its impact on skin cancer incidence. We assessed the sensitivity of the results to various assumptions and found that different assumptions yield varying estimates, potentially altering the balance of evidence. Nonetheless, all scenarios see a reduction in the number of new melanoma and non-melanoma skin cancer cases.

The analysis in this report shows that the UK public sector finances and society have little to lose and much to gain, both in the short term and long term, from implementing this policy.

Footnotes:

[1] Surgery is the mainstay of treatment for melanomas diagnosed at an early stage.

[2] Additional treatments have recently been approved and approximately 50% of people with stage 4 metastatic melanoma will be living alongside their melanoma with quarterly scans which have not been costed. Some of these patients will also be living with serious long-term side-effects, often requiring additional health care support. See the methodology section of this report for more details on the costing.

[3] The carcinogenicity of solar radiation is now well established. For instance, see this UK study.

[4] This is consistent with a survey conducted by Melanoma Focus, which found that 67% of the people surveyed would use sunscreen more if it were 20% cheaper.

[5] These estimates are based on a pass though rate of 75% and price elasticity of 1.5. Refer to the methodology section for more details.

[6] It is assumed that the first year of VAT abolition is 2024, with the benefits materialising from 2025 onwards. In other words, there is a one-year lag between the abolition of VAT and the reduced risk of skin cancer from increased sunscreen usage. This is consistent with empirical evidence – refer to Figure 2.

[7] That is, for each £1 lost on VAT revenue, the public would save £2.4 in NHS treatment costs.