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The UK government has lowered its estimate of the value of the country’s proposed sugar tax by £140 million.
In his budget statement, Chancellor Philip Hammond confirmed that the tax would be taxed according to the same two bands proposed last year – one for sugar content above 5g per 100ml and a higher band for sugar content above 8g per 100ml.
But he said that the measure would bring in only £380 million for the treasury – less than the £520 million originally calculated – because ‘producers are already reformulating sugar out of their drinks’.
The tax, announced by the previous government, is scheduled to come into effect next year.
Hammond said that, despite the lower revenue forecast, the government would continue to fund £1 billion in additional spending for UK schools, which the sugar tax was intended to pay for. That will leave the government £240 million out of pocket by 2020.
Gavin Partington, director general of the British Soft Drinks Association, said he was dismayed that the government had decided to press ahead with plans for a sugar tax after criticising the proposals last year.
He said: “Given current increases in cost of goods, we’re surprised the Treasury wishes to put more pressure on businesses and raise prices for hard-pressed consumers. It’s also ironic that the tax hits the soft drinks category, which has led the way in helping consumers reduce sugar intake – down nearly 18% since 2012. We are also the only sector with a calorie reduction target for 2020.
“We support the need to address the public health challenge the country faces, but it’s worth bearing in mind that there is no evidence that taxing a single product or ingredient has reduced levels of obesity anywhere in the world.”
Mexico’s benchmark sugar tax, raised by current president Enrique Peña Nieto in September 2013, has produced inconclusive results, while South Africa and Ireland are also waiting for their own legislation to be implemented.
Justin Arnesen, director of R&D tax and grants for Ayming, said that confirmation of the tax will spur manufacturers on.
Arnesen said: “The sugar tax has been hotly debated since its announcement last March, but now that the government has confirmed the levy it should lead to a surge in investment in innovation over the next two years. Soft drink manufacturers will be seeking to achieve the same level of taste whilst reducing the sugar content of their drinks to below the taxable threshold.
“Despite lobbying, the sugar tax has been in the works for some time now, so it shouldn’t come as complete surprise to soft drink manufacturers. Although this levy will undoubtedly cost these businesses money, they should still be able to claim back a high proportion of what they spend on developing new soft drink products through the UK R&D tax incentive. The scope of the incentive is relatively broad for innovative companies, with costs for improving the performance of manufacturing equipment and methodologies, and even packaging developments, all potentially qualifying under the R&D tax incentive.”
A rise in alcohol duty
It was, perhaps, worse news for the spirits sector.
On top of confirmation of the country’s sugar tax, the chancellor announced that alcohol duty will be subject to inflationary rises that will add £0.30 to the price of a bottle of gin, taking the overall cost of duty on a 70cl bottle to £8.05.
Duty on a 70cl bottle of vodka will increase £0.28 to £7.54, while duty on a bottle of wine will rise by between £0.08 and £0.11 per 750ml bottle.
Miles Beale, chief executive of the Wine & Spirit Trade Association, said: “It is disappointing that the chancellor has failed to support a great British industry. He has increased what were already excessive and unfairly high rates of duty for the UK’s wine and spirit consumers and businesses.
“Between Brexit’s impact on the pound and rising inflation the wine and spirit businesses face a tough trading landscape. This is a missed opportunity to back British business and help out struggling consumers.
“The added uncertainty of another budget in six months’ time is unwelcome and will further undermine business and consumer confidence.”
The chancellor is due to give another budget statement in the autumn.
Miles Beale continued: “At least there is some sign that Philip Hammond cares about levelling the playing field. It is important that he treated all alcohol products equally. It is welcome news that he has introduced a consultation on wine and made wine between 5.5 – 8.5% – a category which holds a great deal of potential for innovation, especially for lower ABV products.”
And Charles Ireland, managing director of Diageo Great Britain, said: “Today’s tax blow from the chancellor is bad for the economy, bad for business and bad for the British public. It is staggering that the Prime Minister stood up in Scotland only on Friday and said that Scotch whisky is ‘a truly great Scottish and British industry… and directly supports tens of thousands of jobs’, and just five days later her chancellor hammers this industry at home. Tax on Scotch whisky is now so high – nearly 80% of the price of an average bottle will go straight to the government. We believe this duty rate increase will reduce total tax revenue. We are calling on the government to reverse this punitive tax hike and fundamentally overhaul what is clearly a flawed excise duty system.”
The Scotch Whisky Association (SWA), which previously called for a tax relief, earlier calculated that tax accounts for more than three-quarters of the price of a bottle of Scotch.
According to its own figures, the sector contributes nearly £5 billion a year to the UK’s economy.
So the chancellor’s decision to impose a 4% increase in excise duty represents ‘a major blow to a key UK industry’, the SWA said.
Acting chief executive Julie Hesketh-Laird said: “A nearly 4% duty rise and a 79% tax burden on a bottle of whisky is a major blow, reversing recent progress. Distillers will find it hard to understand why the chancellor is penalising a strategically important British industry with this tax increase.
“At a time when government should be supporting a key home-grown sector, we face a damaging tax rise on top of the uncertainties of Brexit. Looking to the autumn budget, we will be arguing strongly that it is time for a new approach to excise duty outside the constraints of EU excise law. The system is in need of a fundamental review and reform to make it fair and competitive.”
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