George Osborne has used his latest budget to announce a sugar tax to be imposed on the soft drinks industry in two years’ time.

Who will be affected?

The new levy will be targeted at producers and importers of soft drinks that contain added sugar. It will be assessed on the volume of sugar sweetened drinks companies manufacture and import, and will arise at the point drinks are packaged for sale.  It will rely on producers and importers reporting volumes for each quarter.

There will be two bands: a lower rate for drinks with 5g sugar per 100ml, and a higher rate for drinks with more than 8g sugar per 100ml.  Based on the Government’s revenue targets of £520 million in the first year of implementation, and £500 million in the second year, the Office for Budget Responsibility has indicated that these rates will be 18 and 24 pence per litre.  This calculation takes into account a number of assumptions regarding the potential behavioural effects of the tax.

The new tax will not apply to pure fruit juices or milk-based drinks.  Small operators will also benefit from an exemption, although the scope of this is not yet clear.

When will it come into force?

The Government plans to consult on the details over the summer, with a view to including the new regime in the Finance Bill 2017, to be implemented from April 2018 onwards.

What will it achieve?

The move is part of a wider Government drive to tackle obesity. The Government plans to use the funds raised to increase investment in school sports and breakfast clubs.  The levy is designed to incentivise manufacturers to reformulate their recipes and reduce portion sizes before 2018. The Government hopes that even if producers choose to pass the increased cost on to consumers rather than changing formulations, this will lead to reduced consumption.  The announcement follows the report published by Public Health England in October 2015 (“Sugar Reduction: the evidence for action”), which indicated that a tax of 10-20% would be necessary to have a significant impact on purchases and consumption.  

The levy has been met with disappointment from the drinks industry. There are concerns that it will stifle innovation and lead to job losses.  Many have also questioned why the new tax has been specifically targeted at soft drinks, without capturing other categories of food and drink.  

Producers are now faced with a tough choice between going through the costly process to reduce the sugar content of their products, or increasing prices to cover the cost of the levy.  In the meantime, the potential impact of this controversial measure on both the industry and public health remains to be seen.