Last year, the UK government set out its plans to bring the lower limit for the UK sugar tax down from 5g sugar per 100ml, to 4g sugar per 100ml.
This week, however, the government has announced that it will indeed lower the threshold the tax kicks in at: but at 4.5g per 100ml instead of 4g.
It says this is the best compromise between health goals (reducing sugar and ultimately the pressure on the National Health Service); and creating a conducive atmosphere for business growth and development.
Is it right? How will the sugar tax shift change the beverage market? Will the new threshold drive reformulation or create an unnecessary headache for beverage brands?
Sugar tax provokes ‘varying and strongly held views’
Sugar taxes are always controversial.
Earlier this year, the UK government ran a consultation on the proposed 4g lower limit, and received more than 170 responses with ‘varying and strongly held views of stakeholders’.
The government says it ‘listened carefully to feedback received on the technical challenges involved in reformulating products to below 4g sugar per 100ml, as well as the costs and risks of reformulation for businesses, which in turn affect their capacity to invest in the UK’.
“[We] consider that lowering the threshold from 5g to 4.5g total sugar per 100ml, rather than 4g total sugar per 100ml as proposed in the consultation, strikes the appropriate balance between supporting health objectives and fostering conditions that allow the soft drink industry to continue to grow and invest,” says the government in its announcement this week.
How many drinks will be affected? Crunching the numbers
Ahead of the introduction of the UK sugar tax in 2018, many brands reformulated so that they’d come in under 5g sugar per 100ml and thus escape the levy.
The 4g proposal left beverage manufacturers frustrated that – having reformulated their beverages in good faith in the run up to 2018 – they would face the same expensive and time consuming reformulation process all over again.
Circana data estimates that products in the original affected zone of 4-5g per 100ml (those that would have been subject to the levy, had the 4g threshold been implemented) represent 17% of carbonate volume and 4% of sugar left in the category after the UK sugar tax was introduced in 2018.
Crunching the numbers again this week, it finds that products sitting in the 4.5g–5g range (the beverages which will now be subject to the sugar tax from 2028) represent around 10% of volume and 1% of sugar content in the category.
“For manufacturers just above the 4.5g threshold, it is a case of reformulate or put prices up to cover the tax increases,” explained Alex Lawrence, senior strategic insights director at Circana.
“Most will likely reformulate to get just below the 4.5g threshold which will affect 10% of carbonate category volume and remove just 1% of the sugar in the category.
“The new threshold reduces the amount of volume impacted in the category from 17% to just 10%, and, crucially, reduces the amount of sugar likely removed from the category to 1% from 4% at the lower threshold of 4g per 100 ml.”
Milk-based drinks will now also be included in the sugar tax, although at this stage it is difficult to calculate to what extent they will be affected as details of a ‘lactose allowance’ are yet to be decided.
The UK's Soft Drinks Industry Levy (SDIL)
The UK's Soft Drinks Industry Levy currently applies to drinks with more than 5g total sugar per 100ml.
However, the rules will be changed in January 2028: and drinks with more than 4.5g sugar per 100ml will become liable.
The levy is split into two bands. Drinks containing between 4.5g and 7.9g per 100ml fall into a lower levy band. The current rate for this band is £1.94 per 10 liters (19.4p per litre).
Drinks above 8g per 100ml are in a higher levy band. The current rate for this band is 2.59 per 10 litres (25p per liter).
UK food industry bible The Grocer has carried out its own analysis of the impact of the soda tax changes on SKUs.
It assessed 1,855 soft drink SKUs from supermarkets Asda, Morrisons, Tesco, Sainsbury’s and Waitrose.
It found 204 SKUs in the 4g - 4.4g band. These drinks - which include Sprite (4.3g), Tango (4.3g) and some Dr Pepper SKUs (4.3g) - are now safe from the sugar tax.
A further 152 SKUs contain 4.5g exactly, meaning only slight tweaks to the formulation would be required to escape the sugar tax. These brands include Pepsi, Fanta, 7UP and Irn Bru.
At the end of the day, just 34 SKUs in this sample of 1,855 SKUs contain between 4.6g and 5g sugar per 100ml. These include Fanta Pineapple & Grapefruit (4.6g) and Schweppes Ginger Beer (4.9g).
Encouraging growth
While the British soft drinks industry has been against the expansion of the UK sugar tax, the first reaction to the new 4.5g threshold is one of relief: firstly because lower sugar beverages in the 4g–4.5g band no longer need to worry about the levy.
Reformulation gets more and more difficult as sugar is reduced. It is relatively easy to reformulate a high-sugar drink: less so for a drink that has little sugar to start with.
Secondly, this week’s announcement provides much needed clarity about the situation.
British Soft Drinks Association Director General, Gavin Partington, said: “We take comfort from the fact that a Government which describes itself as pro-growth has elected not to pursue its original goal of lowering the threshold to 4g per 100ml, which would have been technically challenging for industry.
“As well as protecting jobs and investment in our industry, the move to 4.5g acknowledges the widespread reformulation work undertaken by soft drinks manufacturers over the last decade. Since 2015, sugar consumption from soft drinks is down 43%, and today just 6% of take-home sugar in diets in Great Britain comes from soft drinks.”
But the problem is, any change creates a headache for manufacturers.
“Manufacturers whose products fall below the new 4.5g threshold will naturally welcome the reduced levy-free zone – it protects them from a potential tax hit and removes pressure to reformulate. But for everyone else, it’s yet another regulatory shift that must be navigated,” notes James Watson, UK partner at global operations strategy and transformation consultancy, Argon & Co.
“There’s also a sizeable cohort of producers whose products now sit close to the threshold. They’ll be forced to chase each incremental change with further reformulation – a costly, complex process that triggers new labeling reviews, compliance checks and export considerations every time.”
“And of course, some brands will simply say ‘this is our product’ and stick with their original recipe, much as Coca-Cola did when the levy first came in. They’ll either absorb the tax or pass the cost on to consumers, rather than risk compromising taste or brand identity – a risk clearly illustrated by Lucozade Energy Orange, which saw sales fall by more than £25m after reformulating from 13g to 4.5g of sugar per 100ml ahead of the initial levy.”
“The move from the expected 4g to 4.5g may soften the blow for some, but it doesn’t address the underlying issue: even well-intentioned obesity-focused policies bring operational consequences.
“Every adjustment – big or small – adds yet more complexity for manufacturers already contending with years of fragmented regulatory change.”
Reformulation: How low can you go?
The UK government says its new plans ‘are expected to reduce daily calorie intake by around 4 million in children and 13 million in adults across England. This could prevent almost 14,000 cases of adult obesity and nearly 1,000 cases of childhood obesity.’
Meanwhile, the adjustment will deliver ‘almost £1 billion in health and economic benefits, including by saving the NHS £36 million, reduce social care pressures by £30 million, and contributing around £221 million in economic output through improved workforce participation.’
It’s not clear how these figures have been calculated, but, in any case, health campaigners say the new sugar tax does not go far enough. The opportunity to drive real change across the UK beverage industry has been missed by opting for the 4.5g rate instead of 4g, it says.
Like Circana (and unlike the UK government), Action on Sugar believes the total sugar reduction from the expanded sugar tax is unlikely to be huge.
“We had hoped the government would go further,” said Dr Kawther Hashem, Senior Lecturer in Public Health Nutrition and Head of Research and Impact at Action on Salt and Sugar, responding to the new 4.5g threshold.
“The consultation explored reducing the minimum sugar threshold to 4g, so it’s unclear why this has now risen to 4.5g. Our own submission showed a median sugar content of 4.2g/100ml in soft drinks. We found nearly three-quarters of drinks already fall below 4g/100ml, so this week’s decision misses an opportunity to drive further meaningful reformulation.”
While the focus for most of the beverage industry has been on reformulation, brands with high levels of sugar have shrugged their shoulders and decided to take the financial hit. Action on Sugar would have liked the government to focus on these beverages, where larger impacts could have been made.
“We called on the government to create a new upper tier for drinks exceeding 10g of sugar per 100ml, targeting the major brands that have refused to reduce sugar in their high sugar drinks,” said Hashem. “This would have prevented companies that choose not to reformulate from gaining an unfair advantage over those actively investing in sugar reduction.”
