Soft Drinks Industry Levy

12 January, 2017
by: Cripps Pemberton Greenish

George Osborne announced in his eighth budget the introduction of a soft drinks industry levy, known as the ‘Sugar Tax’, in a bid to combat obesity. It is claimed that an estimated £520m will be raised in revenue which will be put towards boosting sports within schools. It has been revealed, perhaps not unsurprisingly that Coca Cola, Red Bull and Old Jamaican Ginger beer contain the highest level of sugar with over 10g per 100ml.

The tax will not be immediate, it is set to launch in April 2018, and drinks companies will be provided with two years to change their ingredients and recipes. There will be two categories of taxation: one for sugar content over 5g and one for sugar content over 8g, per 100ml. Pure fruit juices and milk based drinks will be excluded from the Sugar Tax.

All countries are being urged to consider the introduction of a sugary drinks tax by the World Health Organisation, with Hungary taxing them since 2011 and France, Mexico, Chile, the state of California, Barbados and Dominica following suit. The Governments’ incentive being that vast sums of money spent on healthcare can be reduced by ‘battling the bulge’ especially in children.

The response?

Consumers have argued that it is not the government’s business to decide what society should and shouldn’t eat. These products are broadly consumed and to raise the price of them would disproportionately hit the living standards of lower income households. Research shows a link cannot be drawn between decreased sugar consumption and the tax being introduced in Mexico and the Mexicans have only saved five calories a day on average with the poor losing a bigger share of their income to the tax.

In 2012, the Italian government threw out a tax proposal because of the impact it would have on its economy and jobs. Denmark announced the abolition this year of its soft drinks tax acknowledging its regressive nature and the negative impact on regional jobs.

Impact on the Industry?

There is no guarantee that the sugar tax will increase the cost of sugary drinks, with the possibility that companies may decide to absorb the tax.

The announcement of the tax hit the stock-market value of soft drinks companies. Shares in the maker of Irn-Bru, AG Barr, fell 6% since George Osborne spoke to parliament. Shares in Britvic, which makes Pepsi in the UK, are down 3.3%.

As expected, some within the industry are arguing that “if you’re going to punish us then why not them?’’ referring to confectionary and food manufacturers. There is a huge amount of sugar hidden in processed foods which, unlike soft drinks, are not taxed through VAT, arguably because the administrative burden of policing sugary foods is too onerous.

More recently, it has been announced that, Lucozade and Ribena are to have their sugar content reduced by 50% meaning they will contain less than 4.5g of sugar per 100ml and therefore will no longer be subject to sugar tax.

Taking things one step further

NHS England, which is Europe’s largest employer with over 1.3 million staff, has proposed a ban on sugar-sweetened drinks in hospital vending machines and restaurants. Not only is it committed to improving the health of its workforce but it believes that obesity is having an adverse effect on staff sickness absence and their ability to give patients credible and effective health advice.

An overview of the draft legislation can be found on the government’s website at https://www.gov.uk/government/publications/finance-bill-2017-draft-legislation-overview-documents/overview-of-legislation-in-draft