Budget 2016: initial thoughts on proposals for a sugary drinks tax

In a break from our series of blog posts looking at proposals for new devolved taxes for Wales, Nisreen Mansour responds to the UK Government’s announcement to introduce a UK-wide sugary drinks tax.

There’s been plenty of speculation in recent months over whether the UK Government would introduce some form of sugar tax as part of its childhood obesity strategy. The idea has been backed by Public Health England and the BMA, and a petition for a ‘pop tax’ gathered over 150,000 signatures. So when George Osborne stood at the despatch box yesterday afternoon and announced plans for a sugary drinks tax, Jamie Oliver literally jumped for joy on Parliament Square.

Highlighted as a means of tackling childhood obesity, the tax will target producers and importers of soft drinks that contain added sugar. There will be two bands: a lower rate for drinks with at least five grams of sugar per 100 millilitres and a higher rate for drinks containing at least eight grams of sugar per 100 millilitres. The proposal will be consulted on this summer, and is expected to be implemented in April 2018.  It appears to be a considered take on a much-discussed idea.

But is the Chancellor’s sugar tax really what campaigners wanted? Has he actually crossed that ‘red line’ the food and drink industry feared  or is he is using campaigners’ language to cloak a more palatable interpretation of a pop tax, as some accused him of doing with the living wage?  Listening to yesterday’s announcement, there are four things that stood out about the UK Government’s proposals for a sugar tax:

1. What’s it trying to achieve?

Real concern struck as I realised the sugary drinks tax was intended to reduce sugar consumption and encourage manufacturers to change their recipes while funding an ambitious programme to make children more active, extend the school day and fund breakfast clubs (in England, with Barnett consequentials for Wales). While this all sounds positive, alarm bells rang at the thought of hypothecating the revenues of a tax which, if it is intended to reduce consumption, should (and are predicted to be) be depreciating.

Despite this conflict being raised during debates over a pop tax in Wales, the Chancellor’s message about what he wants this tax to achieve appears muddled – he needs to clarify if it is intended to change producers’ behaviour, consumers’ behaviour or raise revenue.

2. A tax won’t be enough to reduce our sugar habit

If we’re getting serious about reducing sugar consumption, a sugar tax will not go far enough. There is evidence that while a sugary drinks tax will go some way to reducing the amount of sugar we ingest (here, for example), it’s not going to make an enormous difference to obesity rates or dental health. Osborne’s announcement is a step in the right direction, but it risks taking momentum out of campaigns to implement a proper strategy to reduce over-consumption of sugar and improve diets. Only time will tell if this proposal will have dampened interest in clearer sugar labelling, banning supermarket deals on sugary foods and drinks and reducing portion sizes.

This is particularly important when you take into account that we are still two years away from this tax being introduced.

3. The wider economic impact

Employment in both the drinks industry and sugar production (the UK produces approximately half its sugar quota through sugar beet farming) could be hit by the introduction of a sugar tax, with the potential for this to extend to related industries (e.g. hospitality and packaging manufacturing) as well.

The wider  implications of targeting the sugar industry and the potential for job losses were not recognised in yesterday’s Budget announcement, and the OBR’s warning that the tax is expected to “add around a quarter of a percentage point to CPI and RPI inflation in 2018-19” was also downplayed. It will be interesting to see how the UK Government responds to any unintended consequences of a policy like the sugar tax.

4. And why has it not been devolved?

The Wales Bill Command Paper states that, “[i]f the UK Government intends to introduce a new tax that has a degree of alignment with areas of devolved responsibility, it will consult with the Welsh Government about the scope for that tax to be devolved.” However, the Chancellor gave no indication that such discussions had taken place or had even been considered, despite clear alignment with public health responsibilities – a devolved area.

Whether or not the sugar tax should be devolved is a separate question, and I have touched on some of the reasons why a UK-wide approach is more appropriate in this blog post. But as the devolved administration has its own strategies to tackle adult and childhood obesity, there is a case for the sugary drinks tax to be devolved so that it can be better aligned with existing and future policies in this area.

Nisreen Mansour is Policy and Research Officer at the Bevan Foundation. For more information about our work on new devolved taxes for Wales please click here.