Reactions to the Sugar Tax announcement
Our researchers' reactions to George Obsorne's inclusion of a sugar tax in the latest governmental budget:
The Budget announcement of a soft drinks industry levy is welcome news. It recognises that further action is needed to prevent obesity and that fiscal measures can be used to change the nations’ diet. But, this is not the simpler sales tax advocated by public health groups or used in places like Mexico where a 10% tax led to a 6-12% reduction in sales of sugar sweetened drinks. Further analysis is needed to understand how this levy might operate and the changes in diet that might be expected to occur.
The intention is that by taxing companies there will be an incentive for them to reduce the amount of sugar in drinks by reformulation (changing the recipe) or reducing portion size. But the government has left industry to decide how to handle this new levy. Changing their products is costly, and business may decide to just take the tax, or put up the costs of all its products to offset the tax.
Increasing prices of soft drinks across the board would be expected to lead to a small decrease in consumption, but ideally this levy needs to result in a clear price difference in the shops between drinks containing added sugar and those without. In this situation there is a clear price advantage for customers to switch to a no-sugar option. This switch would bring much greater benefits than reformulation. For example, a 30% reduction in sugar in a regular can of a sugary drink through reformulation or a decrease in portion size may reduce the energy content by about 40kcal. But switching to a no sugar drink would save more than three times this amount.
In the wake of the postponement of the childhood obesity strategy this levy is a useful down-payment, but it must be the start and and not the end of a raft of new policies to prevent and treat obesity.
The Budget announcement of a soft drinks industry levy is indeed welcome news. As Jamie Oliver says, this was a ‘symbolic move’ which won’t by itself fix childhood obesity but signals the determination of the Government to tackle this serious health problem. It’s a move that will be closely watched around the world by other governments, public health bodies and of course food and soft drink companies. A tax on sugary drinks at some point was, in our view, inevitable. And if it was going to be introduced by any Government this had to be in the first half of its term in office. So perhaps the timing of the announcement is not so surprising.
George Osborne’s proposal for how he intends to implement a tax is interesting because rather than being a sales tax that directly raises the price of sugary drinks (as, has been advocated by most public health bodies in the UK to date and is how a sugary drinks tax has been applied in a few other cases around the world) it is instead a tax levied on the manufacturers. From April 2018, soft drink companies will be required to pay 18p for every litre of sugary drink with 5-8g sugar per 100ml that they sell in the UK, and 24p for every litre with over 8g sugar per 100ml. For comparison, a Coca-Cola contains 10.6g sugar per 100ml.
The levy’s introduction in two years’ time is designed to give soft drinks companies enough time to reformulate their products and change their product mix. Once introduced, it will be then up to the company to decide how they change the price of their taxed (and untaxed) products, if at all and so the major question that has arisen since the Budget announcement is, ‘Will the tax actually lead to an increase in the price of sugary drinks?’ This is because the main purpose of a sugary drinks tax should, in our view, be to reduce the consumption of sugary drinks through increasing their price, rather than to raise revenue.
The finer details of the tax will be consulted on over the coming summer months. It will be interesting to see what happens next, but not just interesting. The implementation, and indeed the evaluation of the impact of the tax, should be closely watched by all concerned with the public’s health both here and abroad.