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Sugar Tax - Good or Bad for the Drinks Industry?

30 March 2016

Unveiled by Chancellor George in the 2016 budget, a new Levy for tax on sugary drinks is to be launched in April 2018 to tackle child obesity.  

A two tier tax will be applied to drinks that contain more than 5g sugar per 100ml (e.g. Sprite & Fanta) and a higher rate of tax for drinks that contain more than 8g sugar per 100ml (e.g. Coca Cola, Irn Bru & Red Bull). However, this excludes fruit juices and milk based drinks.

Led by Jamie Oliver, the campaign for tax on sugary drinks received support from a number of groups within the industry, including; the British Medical Association, the Health Sector Committee, the British Retail Consortium as well as, support from David Cameron.

The Scientific Advisory Committee on Nutrition recommends that sugar should account for a maximum of 5% of energy intake for adults and children, which currently stands at 15% for children.

Just like the plastic bag tax, the sugar tax is planned to change behaviour amongst consumers, driving them towards healthier alternatives, and as prices of sugary drinks increase, consumers will look elsewhere; reducing obesity by 1.3% - a small but significant amount (The British Medical Journal).

Is there really a need to tax drinks? 

Results show that purchases of regular soft drinks actually fell by 32% between 2010 and 2014. So, why has the Government decided to hit the only category within the food & drink sector that’s consistently reduced sugar intake? The cost to implement the Levy (£1bn) is predicted to be more than the amount that will be raised (£520m) in the first year - it could be argued that it would be more beneficial to invest in another industry where sugar consumption is increasing, not decreasing?

How will this affect the industry? 

News of the Levy has already hit the stock market value of soft drinks, causing a drop in share prices. Drinks companies now have two years to accelerate efforts to reduce sugar in drinks and make any necessary product changes.

Multiple companies have already started taking action through a variety of techniques, including: reformulation, nutrition labelling, smaller pack sizes to help control portion sizes, refraining from marketing practices in areas where there’s a high number of children and updating product ranges with low or no calorie drinks. Over the next two years, the Levy will spark further innovation, research and development amongst the industry, leading to further investments and advanced alternatives. 

Many companies including Coca Cola and Vimto argue that the new Levy is unfair on consumers, it will not change behaviour and isn't an effective solution to reduce obesity. Soft drinks companies are considering taking legal action against the Government, on the basis that fruit juices and milk based products are not included. However, before any action is taken, companies need to understand more - exactly what is included and how the Government plans to implement the Levy. 

A similar tax was put in place in Mexico in 2014, which had very little effect on sugar consumption, reducing average intake by only 6 calories per day. Do you think singling out soft drinks alone will solve the problem of child obesity? 

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