Sugar tax

What is the soft drinks industry levy?

The soft drinks industry levy (SDIL), or ‘sugar tax’, is a levy applied to UK-produced or imported soft drinks containing added sugar. It was announced in George Osborne’s March 2016 budget and came into force from April 2018.

The levy is paid to HMRC by the packager for drinks produced in the UK, or importer for drinks produced overseas, at the following levels:

• No levy on soft drinks containing less than 5g of sugar per 100ml
• 18p per litre on soft drinks containing between 5g and 8g of sugar per 100ml
• 24p per litre on soft drinks containing more than 8g of sugar per 100ml.

Some exemptions apply, including milk-based drinks, juices and drinks produced by smaller businesses. ⁹¹ HMRC, ‘Check if your drink is liable for the Soft Drinks Industry Levy’, 2018, retrieved 10 November 2022, www.gov.uk/guidance/check-if-your-drink-is-liable-for-the-soft-drinks-industry-levy#drinks-that-are-not-liable-for-the-levy

Revenue from the levy was initially invested in programmes tackling childhood obesity; however since its first year revenue has, controversially, been gradually subsumed into the general tax pot. ⁹² Dixon, H., ‘Bitter row as sugar tax millions diverted away from fighting childhood obesity’, The Telegraph, 3 January 2022, retrieved 7th November 2022, www.telegraph.co.uk/news/2022/01/03/bitter-row-sugar-tax-millions-diverted-away-fighting-childhood

Why was it introduced?

The SDIL was introduced as an anti-obesity policy. It was central to the 2016 Childhood Obesity Strategy, ⁹³ HM Government, Child Obesity: A Plan for Action, 2016, retrieved 10 November 2022, www.gov.uk/government/publications/childhood-obesity-a-plan-for-action  and was informed by proposals from public health experts ⁹⁴ House of Commons Health and Social Care Committee, 1st Report - Childhood obesity – brave and bold action (HC 465), The Stationery Office, 2015. ⁹⁵ Tedstone, A., Targett, V., Allen, R. and others, Sugar Reduction – The evidence for action, Public Health England, 2015, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/470179/Sugar_reduction_The_evidence_for_action.pdf ⁹⁶ British Medical Association Professional Policy Division and Board of Science, Food for thought: promoting healthy diets among children and young people, British Medical Association, 2015, www.actiononsugar.org/media/actiononsugar/news-centre/sugar-in-the-news/2015/PO-FoodForThoughtreport-09-07-2015-(1).pdf  and high-profile campaigners. ⁹⁷ Addley, E., ‘Jamie Oliver: David Cameron must be brave with sugar tax’, The Guardian, 19 October 2015, retrieved 10 November 2022, https://www.theguardian.com/society/2015/oct/19/jamie-oliver-david-cameron-has-not-written-off-sugar-tax  Alongside its importance for public health, supporters emphasised its potential economic benefits through reducing obesity-related NHS expenditure and wider associated barriers to labour market participation. ⁹⁸ Department of Health and Social Care, ‘2010 to 2015 government policy: obesity and health eating’, 2015, retrieved 10 November 2022, www.gov.uk/government/publications/2010-to-2015-government-policy-obesity-and-healthy-eating

The SDIL’s primary aim was to incentivise soft drink reformulation to lower-sugar recipes. This was reflected in its design in that:

• manufacturers were given two years between the levy’s announcement and implementation to reformulate before it became active
• a tiered structure targeted the highest-sugar brands and incentivised sugar reductions
• it was restricted to soft drinks, where zero-calorie sweeteners make like-for-like reformulation relatively simple (and healthier, despite some initial wariness). ⁹⁹ NHS, ‘The Truth about Sweeteners’, NHS, 2019, retrieved 10 November 2022, www.nhs.uk/live-well/eat-well/food-types/are-sweeteners-safe

The levy also aimed to change behaviour, encouraging consumers to choose cheaper lower-sugar drinks over more expensive high-sugar options.

How was it introduced?

The SDIL was legislated through the Finance Act 2017, and implemented via the Soft Drinks Industry Levy Regulations 2018. Camilla Cavendish, head of the No.10 Policy Unit at the time, has said that this was strategic; the chancellor was concerned ministers would prevent the levy from entering parliament’s legislative programme if it followed the usual write-round process (whereby collective agreement is sought; something not required for finance bills). ¹⁰⁰ Institute for Public Policy Research, ‘How can health revitalise the economy? | Conservative party conference 2022’, [recording of public event], 6 October 2022, retrieved 10 November 2022, www.youtube.com/watch?v=s_BgVR8UM0Q

This reflected disagreement within government on the policy’s merits. Critics in parliament argued that the levy was:

• overly interventionist (breaking with previous orthodoxy under the Public Health Responsibility Deal, where industries voluntarily pledged to change recipes and labelling) ¹⁰¹ House of Commons, Hansard, ‘Written Statements’, 18 April 2017, col 603.
• lacking in its evidence base, due to the inherent uncertainties within hypothetical impact models ¹⁰² House of Commons, Hansard, ‘Written Statements’, 22 March 2016, col 1439.
• unfair on the soft drinks industry, as other unhealthy industries were not being similarly targeted ¹⁰³ House of Commons, Hansard, ‘Written Statements’, 22 March 2016, col 1438.
• regressive, as price rises disproportionately impact low-income households. ¹⁰⁴ House of Commons, Hansard, ‘Written Statements’, 30 November 2015, col 5WH.

Impact of the SDIL

Sugar consumption

Despite these criticisms the SDIL is widely regarded as a success. The total sugar sold in soft drinks by retailers and manufacturers decreased by 35.4% between 2015 and 2019, from 135,500 tonnes to 87,600 tonnes. Over the same period, the sales-weighted average sugar content of soft drinks declined by 43.7%, from 5.7g/100ml to 2.2g/100ml. ¹⁰⁵ Tedstone A., Targett V., Allen R. and others, Sugar Reduction – The evidence for action, Public Health England, 2015, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/470179/Sugar_reduction_The_evidence_for_action.pdf  Recent research has found that this fed through into a lower overall daily sugar intake for both children and adults. ¹⁰⁶ Thomas T, Children’s sugar consumption halved since tax announcement, study finds, The Guardian, 9 July 2024, www.theguardian.com/society/article/2024/jul/09/childrens-daily-sugar-consumption-halves-just-a-year-after-tax-study-finds

The primary mechanism driving these reductions has been recipe reformulation, representing 83% of SDIL-associated reductions in weekly calorie intake from soft drinks. ¹²⁸ Dickson A., Gehrsitz M. and Kemp J., Does a Spoonful of Sugar Levy Help the Calories Go Down? An Analysis of the UK Soft Drinks Industry Levy, Institute of Labor Economics, 2021, retrieved 10 November 2022, www.iza.org/publications/dp/14528/does-a-spoonful-of-sugar-levy-help-the-calories-go-down-an-analysis-of-the-uk-soft-drinks-industry-levy  The two-year lead-in appears to have been key to this: almost a fifth of drinks above the 5g/100ml threshold when the levy was announced had dropped below it by 50 days before implementation. ¹²⁹ Scarborough P., Adhikari V., Harrington R.A. and others. ‘Impact of the announcement and implementation of the UK Soft Drinks Industry Levy on sugar content, price, product size and number of available soft drinks in the UK, 2015-19: A controlled interrupted time series analysis’. PLoS Med, 2020, vol. 17, no. 2, retrieved 10 November 2022, https://journals.plos.org/plosmedicine/article?id=10.1371/journal.pmed.1003025

The remaining 17% of SDIL-associated reductions in weekly calorie intake from soft drinks were driven by consumers switching towards lower-sugar drinks. ¹³⁰ Dickson A., Gehrsitz M. and Kemp J., Does a Spoonful of Sugar Levy Help the Calories Go Down? An Analysis of the UK Soft Drinks Industry Levy, Institute of Labor Economics, 2021, retrieved 10 November 2022, www.iza.org/publications/dp/14528/does-a-spoonful-of-sugar-levy-help-the-calories-go-down-an-analysis-of-the-uk-soft-drinks-industry-levy  Evidence suggests consumers are not substituting sugar from elsewhere (e.g. buying more confectionary), ¹³¹ Pell D., Mytton O., Penney T.L., and others. ‘Changes in soft drinks purchased by British households associated with the UK soft drinks industry levy: controlled interrupted time series analysis.’ BMJ, 2021, Vol. 372, No. 254, retrieved 11 November 2022, www.bmj.com/content/372/bmj.n254  indicating these changes have contributed to reducing sugar consumption overall.

Sales

As the chart above shows, while sugar consumption from soft drinks fell, total soft drinks sales increased by 14.9% between 2015 and 2019. ¹³² Pell D., Mytton O., Penney T.L., and others. ‘Changes in soft drinks purchased by British households associated with the UK soft drinks industry levy: controlled interrupted time series analysis.’ BMJ, 2021, Vol. 372, No. 254, retrieved 11 November 2022, www.bmj.com/content/372/bmj.n254  Within this, sales of no-levy drinks increased by 54.2%, while sales of low- and high-levy drinks fell by 79.1% and 54.8% respectively. ¹³³ Tedstone A., Targett V., Allen R. and others, Sugar Reduction – The evidence for action, Public Health England, 2015, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/470179/Sugar_reduction_The_evidence_for_action.pdf  The industry’s long-term profitability was not harmed by the SDIL. ¹³⁴ Law C., Cornelson L., Adams J., and others. An analysis of the stock market reaction to the announcements of the UK Soft Drinks Industry Levy. Econ Hum Biol., 2020, Vol 38, August 2020, retrieved 11 November 2022, www.sciencedirect.com/science/article/pii/S1570677X19302096

Prices

Prices for high-levy (un-reformulated) drinks have increased, with studies reporting a range of pass-through rates* from 31% ¹³⁵ Scarborough P., Adhikari V., Harrington R.A. and others. ‘Impact of the announcement and implementation of the UK Soft Drinks Industry Levy on sugar content, price, product size and number of available soft drinks in the UK, 2015-19: A controlled interrupted time series analysis’. PLoS Med, 2020, vol. 17, no. 2, retrieved 10 November 2022, https://journals.plos.org/plosmedicine/article?id=10.1371/journal.pmed.1003025  (7.5p/litre) to 140% (33.6p/litre). ¹³⁶ Dickson A., Gehrsitz M. and Kemp J., Does a Spoonful of Sugar Levy Help the Calories Go Down? An Analysis of the UK Soft Drinks Industry Levy, Institute of Labor Economics, 2021, retrieved 10 November 2022, www.iza.org/publications/dp/14528/does-a-spoonful-of-sugar-levy-help-the-calories-go-down-an-analysis-of-the-uk-soft-drinks-industry-levy  This does make the tax regressive as feared by critics. However prices for levy-exempt, reformulated and standard-levy drinks (the majority of the market) have remained more stable, meaning consumers still have a similar range of affordable soft drink options to before the levy. ¹³⁷ Scarborough P., Adhikari V., Harrington R.A. and others. ‘Impact of the announcement and implementation of the UK Soft Drinks Industry Levy on sugar content, price, product size and number of available soft drinks in the UK, 2015-19: A controlled interrupted time series analysis’. PLoS Med, 2020, vol. 17, no. 2, retrieved 10 November 2022, https://journals.plos.org/plosmedicine/article?id=10.1371/journal.pmed.1003025

Alongside increasing prices directly, some manufacturers have also utilised ‘shrinkflation’, reducing the size of containers to compensate for the levy. While one recent study concluded this has not been widespread among branded soft drinks, ¹³⁸ Scarborough P., Adhikari V., Harrington R.A. and others. ‘Impact of the announcement and implementation of the UK Soft Drinks Industry Levy on sugar content, price, product size and number of available soft drinks in the UK, 2015-19: A controlled interrupted time series analysis’. PLoS Med, 2020, vol. 17, no. 2, retrieved 10 November 2022, https://journals.plos.org/plosmedicine/article?id=10.1371/journal.pmed.1003025  some big brands like Coca-Cola have confirmed they have reduced product sizes for their highest-sugar products. ¹³⁹ Coca Cola, ‘The Sugar Tax: Find out what the Government's soft drinks tax means for our drinks and you’, (no date) Coca Cola, retrieved 11 November 2022, www.coca-cola.co.uk/ingredients/reducing-sugar/lets-talk-about-soft-drinks-tax

*Pass-through rates reflect the proportion of the levy costs passed on to the consumer through price increases. A 100% pass-through rate of the high-levy would mean a shelf-price increase of 24p/litre.

Obesity

Excess weight and obesity in the UK have continued to increase, with latest figures showing 64% of adults in England are overweight or obese. ¹⁴⁰ NHS, Health Survey for England, 2019, retrieved 7 November 2022, https://digital.nhs.uk/data-and-information/publications/statistical/health-survey-for-england/2019  This emphasises that the SDIL is not a ‘silver bullet’; reducing sugar consumption alone will not reverse these trends. With 14 different government strategies consistently failing to tackle these trends over the last three decades, ¹⁴¹ Theis D.R. and White M. ‘Is Obesity Policy in England Fit for Purpose? Analysis of Government Strategies and Policies, 1992–2020’, The Milbank Quarterly, 2021, Vol. 99, No. 1, retrieved 11 November 2022, https://onlinelibrary.wiley.com/doi/10.1111/1468-0009.12498  a wider rethink of how government designs and implements effective obesity policy is needed.

Where is the debate now?

Due to its rare status as a win-win policy for both public health and industry ¹⁴² White, M., ‘Sugar purchased in soft drinks fell 10% following introduction of industry levy’, MRC Epidemiology Unit, 2021, retrieved 11 November 2022, www.mrc-epid.cam.ac.uk/blog/2021/03/11/sugar-purchased-in-soft-drinks-fell-10-following-introduction-of-industry-levy/  the SDIL has enjoyed broad support, ¹⁴³ Pell D, Penney T, Hammond D, and others. ‘Support for, and perceived effectiveness of, the UK soft drinks industry levy among UK adults: cross-sectional analysis of the International Food Policy Study’, BMJ Open 2019, Vol. 9, No. 3, retrieved 11 November 2022, https://bmjopen.bmj.com/content/9/3/e026698  and was praised as a policy success in the Johnson government’s 2020 Obesity Strategy. ¹⁴⁴ Department of Health and Social Care, Tackling obesity: empowering adults and children to live healthier lives, 2020, retrieved 11 November 2022, www.gov.uk/government/publications/tackling-obesity-government-strategy/tackling-obesity-empowering-adults-and-children-to-live-healthier-lives

Calls to extend the levy’s remit to other unhealthy foods are growing. ¹⁴⁵ Action on Sugar, ‘The Conversation Continues… Call for Theresa May to Introduce an Energy Density Levy on Confectionery, Make Nutritional Labelling on Menus & Packaging Mandatory and Ban Marketing of HFSS Products’, press release, 20 May 2018,  retrieved 11 November 2022, www.actiononsugar.org/news-centre/press-releases/2018/the-conversation-continues-call-for-theresa-may-to-introduce-an-energy-density-levy-on-confecti…  The 2021 National Food Strategy (an independent review commissioned by Michael Gove and led by restaurateur Henry Dimbleby) advocated for a £3/kg sugar tax and £6/kg salt tax on ingredients for processed food manufacturers, restaurants and catering businesses. ¹⁴⁶ Department for Environment, Food & Rural Affairs, ‘National Food Strategy: part one’, 2020, retrieved 11 November 2022, www.gov.uk/government/publications/national-food-strategy-for-england

Both Liz Truss’ and Rishi Sunak’s government opposed extending the levy. The Truss government announced a Treasury-ordered review of the 2020 obesity strategy (including the SDIL), which sparked concerns it could be scrapped. ¹⁴⁷ Campbell D., ‘Liz Truss could scrap anti-obesity strategy in drive to cut red tape’, The Guardian, 13th September 2022, retrieved 11 November 2022, www.theguardian.com/politics/2022/sep/13/liz-truss-could-scrap-anti-obesity-strategy-in-drive-to-cut-red-tape  New prime minister Keir Starmer is more supportive of government interventions to reduce obesity, and has said he is not afraid of being called nanny statist. ¹⁴⁸ www.bbc.co.uk/news/uk-politics-67943548  But so far his government has not committed to extend the SDIL, as Dimbleby and others have called for. With concerning public health trends persisting, at a time public services and in particular the NHS are under immense strain, analysis suggests a policy response to obesity should be a priority for the government.