Comment - Soft Drinks Tax: More Trouble Than it's Worth?

It was another busy day for the PR folk who have to defend the soft drinks industry yesterday (29 January). Here in the UK, an under-the-radar charity called Sustain caused a stir by urging the government to introduce a tax on “sugary” drinks. 

Sure enough, the move attracted plenty of column inches.

But, before either side gets too excited, it's worth reflecting on the experience of Denmark when it comes to legislation in this area. In October 2011, the Danish government introduced a so-called “fat tax” on foods containining more than 2.3% of saturated fat. A plan to introduce a sugar tax, affecting soft drinks, was also tabled. But, a year later, the government announced that both the fat tax and proposal for a sugar tax were being scrapped. 

The reasons given for the abandonment are telling. A number of “technical and legal problems” was one problem cited by the government, along with it being a bureaucratic nightmare for retailers, encouraging cross-border sales, and perhaps most significantly, the cost of the tax was not “commensurate with the limited positive health effects”. Off the back of this, the Danish authorities steered well clear of the sugar tax. 

Overall, then, a bit of a shambles.

Although, the Danish government said the removal of the tax would lead to a loss in revenue of DKK1.18bn (US$214.2m). 

Returning to the Sustain plea, it appears to want the Government to introduce a sugary drink tax as a new levy in March's Budget. Then, in the longer-term it wants the UK's VAT system to be revised to “reflect the healthiness of food and drinks”.

From my understanding, however, this could bring what you might call “technical and legal problems”.

Effectively, I'm told, a separate tax on soft drinks would be a tax on over-consumption. Any such system would have to be a “catch-all” measure that would include such drinks as smoothies and fruit juices. My source tells me, however, that taxing these drinks for over-consumption would be difficult, as they contain health benefits. The Treasury would be forced to say: “Where do you draw the line?”

Also, with the UK's VAT (value-added tax) system, there would also be problems. Soft drinks come under the current standard rate of 20%. The Government would not be able to charge more than this, as it would be illegal under European law. 

As the British Soft Drinks Association's Gavin Partington has admitted, nobody is denying obesity is a problem. But the group is keen to point out that 61% of soft drinks in the UK now contain “no added sugar”. 

Health lobbyists in the UK have no doubt been bouyed by the work being done by their campatriots in the US, notably New York City's move to ban large high-sugar soft drinks. Indeed, I hear that there are elements of the UK Government keen to do something in this area. France also introduced a tax hike on added-sugar drinks a year ago to help tackle obesity.

But, with the evidence currently on the table and the Responsibility Deal still in place, I believe that producers operating in the UK can relax for a while yet.