Will extending the ‘sugar tax’ leave a sour taste?

As the government considers adding the levy to milk-based products, Sean O’Grady dissects a bittersweet policy proposal

The Cameron government introduced the levy in 2018 (PA)

The government is consulting on extending the existing “sugar tax” on soft drinks to pre-packaged milkshakes and lattes, ending the exemption on milk-based products and adding in non-dairy substitutes such as oat milk. It would, as now, only apply to shop-bought products, rather than those found in fast food joints or restaurants.

The Treasury has also confirmed proposals to reduce the maximum amount of sugar allowed in drinks before they become subject to the tax from 5g to 4g per 100ml. There has already been some strong reaction...

What’s the idea?

The sugary drinks tax, or soft drinks industry levy (SDIL) to give it its proper title, was proposed by then chancellor George Osborne in his 2016 Budget and implemented by the Conservatives in 2018. No doubt, raising money for the Treasury was one motivation, but so was reducing the amount of money the NHS had to spend dealing with the rising incidence of tooth decay, obesity and diabetes, especially among the young.

At the time there were concerns that if the tax was applied to milk-based drinks it might affect the intake of calcium, so products based around milk were exempted. Subsequent experience suggests that very little calcium is sourced from milkshakes and the like – 3.5 per cent – and that the benefits of reducing sugar intake outweigh the risk of reduced calcium intake among the young.

Has it worked up to now?

Yes. What’s happened is that the soft drinks industry has applied its skill and ingenuity to reducing the quantity of sugar to below the threshold for the tax, presently 4g, with little effect on sales or the palatability of the products. No one seems to miss the sugar that much.

Thus the government says that some 89 per cent of soft drinks sold in the UK are not subject to the tax because of widespread “reformulation” by manufacturers since 2018. However, as with all such fiscal rules, there’s been a trend to get drinks to just below the 5g/100ml “target”. Hence the move to 4g/100ml.

Does it raise much money?

Not really, because the drinks industry has managed to avoid it by revising their recipes. So in 2023-24 the government raised £338m from the SDIL – useful but tiny compared to other sin taxes. Ten times more than that comes in from duties on gambling, and £8.8bn in tobacco taxation. For scale, £300m is the amount GB Energy will invest in offshore wind farms.

Why have sin taxes?

Because of what economists call “externalities” – unavoidable costs borne by the entire community as a consequence of such activities – including cleaning up pollution, NHS spending on cancers, and the social and economic costs of problem gambling and alcoholism.

Are sin taxes regressive?

Unavoidably so, but can be ameliorated by raising the incomes of the poor.

What’s been the reaction?

For the Conservatives, the shadow chancellor, Mel Stride, said the move was a “sucker punch” to households when Labour had “already pushed up the cost of living for families”. Kemi Badenoch said it was too much nanny state – despite the scheme basically being a Tory proposal.

Nigel Farage, leader of Reform UK and famously partial to a cigarette and a pint said that he is “sick to death of a government telling us how we should live”. He says the focus should be on health and diet education. His Reform UK colleague, Lee Anderson, famously argued that meals could be cooked from scratch for just 30p.

What next?

Much the same arguments as apply to sugar can be made for taxing foodstuffs containing too much salt and/or fat, including meals eaten out. The National Food Strategy, an independent review commissioned by the Johnson administration and since shelved, suggested a £3/kg tax on sugar and a £6/kg tax on salt sold wholesale for use in processed foods, or in restaurants and catering businesses.

Whatever the merits of this, the British have long resisted taxing foodstuffs of any kind, including a reluctance to levy tariffs on food imports. It would certainly widen the tax base, ease the weight of the burden on the NHS (sometimes literally), and make the nation that much healthier and happier. But which politician is going to be brave enough to put the cost of groceries up?