The UK government has announced plans to introduce a tax on sugary soft drinks, which will come into effect in two years’ time.
The levy is expected to raise around £520m in tax, which will be re-invested in funding for sports in British primary schools. The delay will allow soft drinks manufacturers time to prepare for the new legislation by reformulating their products, chancellor George Osborne said.
There will be two bands – one for sugar content above 5g/100ml and a second higher band for sugar content above 8g/100ml. It will only be applied to water-based soft drinks, meaning that milk-based beverages and pure fruit juices are exempt.
On the basis of the government’s revenue target for the levy, it accounts to a rate of £0.18 or £0.24 per litre unit charge according to sugar content – expected to be passed entirely onto the consumer. The budget’s policy costings statement claimed that the tax would add around a quarter of a percentage point to CPI and RPI inflation rates in 2018-19.
If the cost of the levy to manufacturers was applied like-for-like to the retail price of a 500ml bottle of Coca-Cola, the price would rise from around £1.25 to £1.37, depending on the retailer.
The government also predicts revenue from the tax to fall in the next couple of years, as consumption drops off.
The move will “help tackle childhood obesity by incentivising companies to reduce the sugar in the drinks they sell”, Osborne told MPs. “Sugar consumption is a major factor in childhood obesity, and sugar-sweetened soft drinks are now the single biggest source of dietary sugar for children and teenagers,” the government said.
Justifying the tax’s implementation, chancellor Osborne said: “I’m not prepared to look back at my time here in this parliament, doing this job, and say to my children’s generation ‘I’m sorry. We knew there was a problem with sugary drinks, we knew it caused disease, but we ducked the difficult decisions and we did nothing.'”
Leader of the opposition Jeremy Corbyn praised the introduction of a sugar tax but Labour said that the budget was flawed, with “unfairness at its very core”.
And Public Health England this afternoon tweeted: “We welcome the chancellor’s announcement of a sugar levy on soft drinks – a great step towards tackling obesity.”
Reaction to the news was felt immediately on the stock market: shares in Irn Bru maker AG Barr fell 4.9%, soft drinks producer Britvic was down 2.5% and Coca-Cola HBC shares were down 0.6% despite a good day of trading yesterday. Sugar producer Tate & Lyle fell by 1.5%.
Food and Drink Federation director general Ian Wright said: “We are extremely disappointed by today’s announcement of a new tax on some of the UK’s most successful and innovative companies. For nearly a year we have waited for a holistic strategy to tackle obesity. What we’ve got today instead is a piece of political theatre.
“The imposition of this tax will, sadly, result in less innovation and product reformulation, and for some manufacturers is certain to cost jobs. Nor will it make a difference to obesity. Many of those singled out today by the chancellor have been at the forefront of efforts to provide consumers with healthy choices. The industry will now ask whether such efforts are still affordable.”
But Justin Arnesen, director of R&D tax and grants for business performance consultant Ayming, told FoodBev that the move shouldn’t have come as a surprise: “The sugar tax has been in the works for some time now, so it shouldn’t come as complete surprise to soft drink manufacturers. Over the next two years we expect to see a surge in investment in innovation as soft drink manufacturers look to achieve the same level of taste whilst reducing the sugar content of their drinks below the taxable threshold.
“As manufacturers look to ramp up innovation in this area, it’s essential that they are aware and making use of the many government tax incentives that exist for businesses investing in R&D.”
The NHS recently announced that it was to take its own measures by introducing a 20% tax on all sugary drinks sold on NHS properties by 2020 and it’s expected that other nations across the globe are looking to follow suit with similar tax proposals.
Mexico introduced a soft drinks tax in 2014 but critics argue that the legislation only lowered consumption so far as to be in line with neighbouring countries, and point out that diet variants are still sold at the same price as regular versions.
Other measures included in the chancellor’s budget include a freeze on duty for beer, cider, whisky and other spirits.
Andrew Cowan, managing director of Diageo Great Britain, said: “Scotch, as a home grown industry, flies the flag for the UK abroad and the alcohol industry as a whole generates billions for the UK economy. This year’s freeze on beer and spirits will help to continue this. We have already seen the positive impact that last year’s duty cut had on industries such as Scotch whisky and so tonight, people across the nation will once again raise a toast to the chancellor.”
And, elsewhere, the industry has been responding to a number of measures that will affect the food and beverage industry including a cut of 3% in the headline rate of corporation tax, and dramatic changes to both the lower and upper thresholds for small business tax relief.
Ben Guy, managing director of Nottinghamshire-based food manufacturer Phoenix Group, was pleasantly surprised: “It was a budget for small business, no doubt about it. He said he’d give us ‘lower taxes on business and enterprise’ and I think, overall, he mostly delivered. I was extremely pleased to see the chancellor announce rate relief for small businesses. Raising the lower-rate threshold to £15,000 and the higher rate to £51,000 is a strong signal to British businesses to get on and deliver growth. It will make a real difference to hundreds of thousands of firms. Corporate tax cuts for SMEs, paid for by tougher regulation for big-business tax avoidance, is undoubtedly a headline-grabbing move but, behind all the noise of the House of Commons, this move goes some way to soften business challenges like the apprenticeship levy. Overall, a pleasantly surprising set of measures.”
© FoodBev Media Ltd 2019