The Soft Drinks Levy
Kate Smith
© Institute for Fiscal Studies
The “soft drinks industry levy”
• Tax paid by producers and importers of soft drinks that contain
added sugar implemented from April 2018 onwards
– excludes pure fruit juices and milk-based drinks
• The tax will operate with a specific revenue target of £500 million
for the second year of implementation (2019-20)
• The OBR estimates that this implies levy rates of:
– Main rate charge:18p/litre for drinks with 5–8g of sugar per 100ml
– Higher rate charge: 24p/litre for drinks with more than 8g per 100ml
© Institute for Fiscal Studies
How will the tax affect sugar consumption?
• Concern about rates of childhood obesity cited as an explicit
motivation for the tax
• Over 90% of households get more than the recommended share of
calories from added sugar
– For households with children around 21% comes from carbonated and
non-carbonated soft drinks
– For households without children this is less, at 14%
• Suggests that a soft drinks tax could be well targeted
• But if people have a strong taste for sugar, they could switch to
fruit juices, milkshakes, chocolate or confectionery
– This could reduce the impact of the tax on total sugar consumption
© Institute for Fiscal Studies
Estimates of revenue raised will depend on highly
uncertain behavioural responses
• On the consumer side:
– Substitution away from soft drinks
– Substitution towards other products
– Cross-border shopping and illicit trade
• On the manufacturer and retailer side:
– How prices of both taxed and untaxed products respond
– Reformulation of products to reduce their sugar contents
© Institute for Fiscal Studies
Designing a sugar tax
• The goal of a corrective sugar tax is to bring the perceived costs of
sugar consumption in line with the actual costs
• A sensible starting point for a tax would therefore be a constant
tax per gram of sugar
• The proposed tax is levied per litre of product, which means that
tax per gram of sugar is lower for more sugary products
© Institute for Fiscal Studies
Drinks that contain more sugar per 100ml will
attract a lower tax per gram of sugar
Tax (pence) per 100 grams of sugar
40
35
Main rate: 18 p/litre
30
25
Higher rate: 24 p/litre
20
15
10
5
0
1
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2
3
4
5
6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Sugar content of drink (g per 100ml)
Drinks that contain more sugar per 100ml will
attract a lower tax per gram of sugar
Tax (pence) per 100 grams of sugar
40
Coca Cola (10.6g sugar/100ml)
Tax per 1 litre: 24p
Tax per 100 gram of sugar: 23p
35
30
Sainsbury’s Orange Energy Drink
(15.9g sugar/100ml)
Tax per 1 litre: 24p
Tax per 100 gram of sugar: 15p
25
20
15
10
5
0
1
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2
3
4
5
6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Sugar content of drink (g per 100ml)
Designing a sugar tax
• The goal of a corrective sugar tax is to bring the perceived costs of
sugar consumption in line with the actual costs
– A sensible starting point for a tax would therefore be a constant tax per
gram of sugar
• The proposed tax is levied per litre of product, which means that tax
per gram of sugar is lower for more sugary products
• Someone could pay less tax and consume more sugar:
– 3 litres Coca Cola: 318 grams of sugar, 72p of tax
– 2 litres Sainsbury’s Orange Energy Drink: 318 grams of sugar, 48p of tax
© Institute for Fiscal Studies
Look familiar?
Tax per unit of alcohol: Wine products
Excise duty per unit (pence)
80
70
Wine
60
50
40
30
20
10
0
0
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5
10
Alcohol by volume (%)
15
20
Look familiar? We can’t blame the EU this time
Tax per unit of alcohol: Wine products
Excise duty per unit (pence)
80
70
Wine
60
50
40
30
20
10
0
0
© Institute for Fiscal Studies
5
10
Alcohol by volume (%)
15
20
Summary
• A tax on sugary soft drinks may be a good starting point at
reducing excess sugar consumption
– Evidence that households with children get more of their sugar from
soft drinks
• But the effects of a tax are uncertain and depend on how both
consumers and manufacturers/retailers change their behaviour
– The effect of a tax on total sugar consumption might be offset if
people switch to fruit juices, or other sugary products
• The design of the tax means that more sugary drinks will attract a
lower tax per gram of sugar
– A more sensible schedule would be a constant or increasing tax per
gram of sugar
© Institute for Fiscal Studies