UK unveils sugar tax on soft drinks, freezes beer duty

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The UK is to introduce a sugar tax on soft drinks as governments increasingly target obesity with fiscal measures.

Sugar is blamed for rising obesity levels

Sugar is blamed for rising obesity levels

Britain's chancellor, George Osborne, announced the new measure today, saying sugary drinks are one of the biggest contributors to childhood obesity. The tax will start in two years and be assessed on the volume of sugar-sweetened drinks companies produce or import.

"We understand that tax affects behaviour," Osborne said. "So, let's tax the things we want to reduce, not the things we want to encourage."

The tax will have two bands - one for total sugar content above five grams per 10cl; a second, higher band for drinks with more than eight grams per 10cl. The UK government said the levy will raise GBP520m (US$732m).

According to Osborne, pure fruit juices and milk-based drinks are excluded, and "we'll ensure the smallest producers are kept out of scope".

"We will of course consult on implementation," he added.

Hungary, France and Mexico have already introduced taxes on soft drinks while Chile, Barbados and Dominica followed suit last year. Mexico has maintained a 10% tax on all sugary drinks and as a result, Coca-Cola's bottler in Mexico, FEMSA, has seen profits fall. In the first year of the levy, soft drinks sales fell by 6% and a 4% increase in sales of bottled water was recorded.

Today's announcement was a blow for the UK soft drinks industry. Gavin Partington, director general of the British Soft Drinks Association, said he was disappointed that government had singled out soft drinks. 

"We are the only category with an ambitious plan for the years ahead – in 2015 we agreed a calorie reduction goal of 20% by 2020," he said. "By contrast sugar and calorie intake from all other major take home food categories is increasing – which makes the targeting of soft drinks simply absurd."

However, the move is not a complete surprise. In January, UK Prime Minister David Cameron threatened a sugar tax if the industry failed to introduce measures to tackle the problem.

Osborne today acknowledged that soft drinks companies had started to reformulate their products. However, he said: "I am not prepared to look back at my time here in this parliament, doing this job and say to my children's generation: 'I'm sorry. We knew there was a problem with sugary drinks. We knew it caused disease. But, we ducked the difficult decisions and we did nothing'."

Osborne's announcement was part of his Budget speech, in which he lays out his government's fiscal strategy. He also outlined plans to halt duty on beer, cider and spirits. All other alcohol duties will rise by inflation as planned, Osbourne said.  

The beer freeze follows a reduction in duty over the last three Budgets. Last year, Osbourne announced a 2% cut in the rate of duty on spirits and cider, while beer duty came down by GBP0.01 a pint. Wine duty was frozen.

Responding to today's Budget, Heineken said: "We're pleased that the chancellor will not be increasing beer and cider duty for the coming year. Whist we would have liked to have seen a cut in these duties, it's good news that we haven't had an increase; which would have undone the positive effects of the cuts made in recent years." 

Molson Coors also welcomed the freeze, saying: "We applaud the government's recognition of the important contribution the beer and pub industry makes to the UK economy."

While the Wine & Spirit Trade Association (WSTA) applauded the freeze on spirits it said it was disappointed no action had been taken on wine.

"The freeze in wine duty in 2015 has resulted in GBP118m extra in revenue to the treasury in the last ten months, up 4%, which makes it very unfair that wine has been penalised," WSTA chief executive Miles Beale said. "We also deeply regret that the government has missed this important opportunity to support the emerging English wine industry, which is a real home-grown success story that needs nurturing rather than being hit by another unfair tax increase."

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