Sugar tax comes into effect in the UK
Why introduce a sugar tax?
The UK has the highest level of obesity in Western Europe, with childhood obesity a particular concern. Obesity means a higher risk of chronic illnesses, particularly hypertension, cholesterol, diabetes and cardiovascular diseases.
Sugar taxes target soft drinks because a number of drinks contain a large amount of sugar; while are considered to contain ‘empty calories’ – providing little nutritional value.
While sugar taxes are controversial, one point all parties can agree on is the need to tackle the obesity epidemic.
How much is the tax and what does it cover?
It’s important to note that – as with most other ‘sugar taxes’ - the levy only covers soft drinks.
The Soft Drinks Industry Levy applies to non-alcoholic beverages (i.e. under 1.2% ABV) with added sugar (a drink is considered to contain ‘added sugar’ if sugar has been added at any stage during production: this includes pure cane sugars such as sucrose and glucose as well as substances that contain sugar such as honey). The levy rate for added sugar drinks with a total sugar content of 5g or more per 100ml is 18 pence per liter; and those with 8g or more per 100ml is 24 pence per liter.
The levy applies to packaged beverages.
Excluded from the UK levy are milk based drinks (with at least 75% milk); 100% fruit juice; alcohol replacement drinks (ie de-alcoholised beer and wine), drinks with less than 5g sugar per 100ml, and those from small producers.
Soft Drinks Industry Levy - full details here and a summary here.
What’s the big deal? The UK isn't the first place to introduce a sugar tax
Several cities and regions in the US already have a sugar tax, as do countries such as Mexico, France and Portugal. However, pressure has been mounting to introduce more sugar taxes; and the UK is one of the larger markets to do so.
Therefore, there will be a lot of eyes from around the world scrutinising the effect of the tax- both in the UK and elsewhere - and considering how it may be replicated in other markets.
How has the industry reacted?
Unsurprisingly, the beverage industry has been broadly against the introduction of sugar taxes. It says that the industry has been singled out despite its efforts over recent years to reduce calories.
However, the conversation has now turned to reformulation, with manufacturers’ efforts focused on reducing sugar and new product launches to minimize the impact of the sugar taxes on their portfolios.
Britvic says the industry has been ‘ahead of the game’ in preparing and reformulating, while A.G. Barr says it has developed an ‘unprecedented’ number of new recipes over the last year.
The result? Britvic now says that 72% of total portfolio and 94% of owned brands will escape the UK’s sugar tax. For A.G. Barr, ‘up to 99%’ of its portfolio will escape the levy; while 60% of Coca-Cola’s portfolio will escape the tax.
Companies have had to decide whether to reformulate their popular flagship beverages: while reformulation reduces exposure to the tax, it takes time, effort, expense and also risks damaging brand equity (more than one brand has faced a backlash from loyal consumers when the taste of a brand they know and love changes).
Sprite, Lucozade Energy, Capri-Sun and Irn-Bru have all reformulated flagship products in advance of the tax.
The other option for manufacturers is to create and promote lower calorie alternatives or entirely new products.
How much money will be raised from the tax – and where will it go?
Thanks to the industry’s ‘aggressive reformulation’, the levy in the UK is expected to raise less than half of that originally predicted by the UK government.
The government has welcomed this: saying the aim of the levy is to encourage companies to reformulate - 'even before coming into effect, the levy is already working', it says.
The expected amount of revenue is now £240m ($336m) in year 1. Money will go towards sports in schools and tackling childhood obesity.
Is anywhere else introducing a sugar tax?
Ireland was due to introduce a sugar tax in parallel to the UK levy. However, last week the Department of Finance announced that the introduction of the tax has been put back to May 1 to allow the government to ensure the levy does not infringe EU State aid law.
Ireland's Sugar Sweetened Drinks Tax will use the same two-tier divisions as the UK's Soft Drinks Industry Levy.
Meanwhile the Isle of Man - a self-governing Crown Dependency of the UK - has put its introduction of the Soft Drinks Industry Levy back by a year to April 1, 2019.
Further afield, South Africa's sugar tax also came into effect this week. You can also read more about how the sugar tax debate is shaping up in other parts of the world here.
Will the tax work?
That's the million dollar question.
It also depends what you mean by ‘work’. Will it reduce sugar consumption, will it reduce obesity, will the price increase be absorbed by manufacturers or passed onto consumers, will the levy change consumption habits, will it change the sweeteners used in the beverages we drink, and will there be any unintended consequences?
Collecting and analysing data will be key to trying to assess the impact of the levy.