Last updated: 28.11.18

The impact of sugar tax: what's next for the food industry?

6th April 2018 marked the introduction of the UK's soft drinks industry levy, more commonly known as the sugar tax.

By reducing the amount of sugar in soft drinks, the government hopes to tackle obesity - particularly among children - and consequently reduce strain on the NHS. The money raised from the levy will go towards provisions such as healthy breakfast clubs and upgraded sports facilities for schools.

But what is the likelihood of the tax having the intended impact, and should the industry expect more policies like this in the future?

How the tax works

Intended primarily to encourage companies to reformulate their soft drinks, the levy is applied at a rate of 24p per litre for drinks that contain eight grams of sugar or more per 100 millilitres.

Drinks that contain between five and eight grams of sugar per 100 millilitres will be subject to a tax of 18p per litre.

There are exemptions, such as pure fruit juices with no added sugar and drinks with a high milk content, owing to their calcium benefits.

The sugar tax applies specifically to manufacturers, meaning it is up to these businesses whether they pass on higher costs to their customers.

Will it have the desired effect?

According to the government, the new levy yielded results even before it was fully introduced in April 2018.

In a statement to mark the policy's launch, the Treasury said the two years since its initial announcement had seen more than half of manufacturers cut the amount of sugar in their soft drinks. The resulting overall reduction equates to 45 million kg of sugar every year.

Consequently, the government's projections of tax revenue from the levy dropped from £500 million to £240 million a year.

Major brands such as Fanta, Ribena, Lucozade and Irn Bru have reduced the amount of sugar in their drinks, a trend welcomed by exchequer secretary to the Treasury Robert Jenrick, who said: "We want to persuade manufacturers to reformulate their drinks and lower the sugar content."

However, there have been doubts cast on the idea that simply taxing high-sugar soft drinks will be enough to tackle the UK's obesity problem and reduce the burden on the NHS.

In a letter to the Financial Times, Professor Timo Strandberg of the University of Helsinki, Finland, pointed out that saturated fat and cholesterol - not sugar - are key causes of vascular disease. Successful public health campaigns in Finland over recent decades have cut obesity risk and mortality by lowering national cholesterol levels, thanks to reduced consumption of saturated fat.

"The bottom line for obesity is that we are eating too much of everything, not only sugar", Professor Strandberg wrote. "Pizzas, fries and salty pastries do not include much sugar, still they can make one obese and their saturated fat increases the risk for vascular disease."

He added that a sugar tax "may be a good start in the prevention of obesity", but it shouldn't be assumed that cutting out sugar is a universal solution. With this in mind, it is possible that the soft drinks levy could be bolstered by taxes on other types of foods and beverages that are seen as a threat to public health.

Will a 'fat tax' follow?

According to the World Health Organisation, a continuation of current trends would see three-quarters of men and two-thirds of women in the UK classed as overweight by 2040.

With obesity placing a net cost burden of £2.5 billion on the public purse every year, the Centre for Policy Studies has argued that the soft drinks levy doesn't go far enough to address this issue, and would be well complemented by a saturated fat tax.

In 2011, Denmark introduced a tax on processed foods containing more than 2.3 percent saturated fat but was forced to abolish the policy after a year following an increase in cross-border trading of cheaper goods which harmed Danish business.

However, the UK would be unlikely to experience a similar problem, since it is not subject to the same cross-border trading pressures as countries in mainland Europe, according to the Centre for Policy Studies.

The think tank theorised that combined taxes on saturated fats and sugar would combat the common practice of manufacturers reducing fat in certain products to earn the 'low fat' label, but compensating by boosting sugar content.

Another potential option in the government's fight against obesity is to target processed foods and ready meals - traditionally popular but unhealthy options for time-poor families.

Whatever direction public health policies take in the near future, it's not unreasonable to expect that food manufacturers will come under growing pressure to develop products that are low in both sugar and fat.

Virtual College can help your business prepare for these challenges with a targeted workforce learning and development strategy. Contact us to find out more or for a free 30-minute consultation.

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