Government plans to lower the threshold for the soft drinks sugar levy will mean nearly 900 products having to reformulate or face paying the toughened tax, with industry sources warning of an “inevitable” impact on inflation.
Household brands caught up in the move include Lucozade Energy, Fanta, Tango, Dr Pepper and Irn-Bru, alongside a huge list of other products, The Grocer can reveal.
Soft drinks bosses called the move a “major kick in the teeth” for the sector, which has led the industry in sugar reduction.
It is also spearheading plans to bankroll the government’s deposit return scheme, to the tune of hundreds of millions of pounds per year. The tax plans were announced less than 48 hours before ministers are expected to appoint the new industry-led DRS administrator.
The controversy comes after a joint Treasury and Department of Health consultation was launched yesterday on the back of proposals in the budget that will see the soft drinks sugar levy, first launched in 2016, extended to milk-based drinks. The threshold for drinks liable to pay the tax will be reduced from 5g of sugar per 100ml to 4g.
Plans to have a higher level of tax for products with 10g or more have been ditched.
The government claims its move will result in a further shift by the soft drinks industry to reformulate products and help tackle the obesity crisis, after the success of the levy, which saw 65% of soft drinks that contained more than 5g of sugar per 100ml reformulated to below 5g by 2019.
The 5g target
The consultation claims despite the major shift in reformulation since the sugar tax came in, large number of drinks products have clustered around a “target” of just below the 5g threshold, with the latest figures showing 866 products with between 4g and 4.9g of sugar per 100ml.
Companies have also targeted that level to align with the government’s nutrient profiling model (NPM) and avoid being classed as HFSS, it said.
The government claims reducing the threshold to 4g will capture an additional 17% of sales volumes. Its analysis also estimates per-person, per-day calorie reductions of 0.9 kcal in 5 to 10 year-olds, 2.1 kcal in 11 to 18 year-olds and 1.2 kcal in 19 to 64-year-olds.
It said it was giving companies two years to adjust to the new targets, as with the original tax, with the changes due to take place in April 2027.
It added: “The fact that over two-thirds of this market (73%) is already below 4g of sugar indicates that this lower target is achievable.
“We acknowledge that this new target asks more from the soft drinks industry – which has already achieved substantial sugar reductions.”
However, a leading industry source accused the government of delivering a major economic hit to suppliers and customers.
“This is the industry that has achieved more than any other when it comes to sugar reduction,” they said.
“To shift the goalposts now is totally unnecessary and frankly according to the government’s own figures is only going to deliver marginal calorie reduction.
The source added: “There is no good evidence to justify a shift down to 4%.
“It feels as if the forces within the DH are grappling for some sort of sign that they are doing something to tackle obesity.
“However, this is going to have a major impact on companies at a time when they are all facing financial headwinds.
“The suggestion that this can be delivered easily is misjudged. It is going to add costs to businesses which inevitably will be passed on to customers. This is going to inevitably have an inflationary impact.”
DMO announcement due
To add to industry anger, the toughening of the tax comes with an announcement due this week on the appointment of the new Deposit Management Organisation (DMO) to run the UK’s first deposit return scheme, with soft drinks companies having spearheaded the group.
The source added: “The timing of this announcement, just a couple of days before the DMO, is terrible and appears to show no joined-up thinking whatsoever from government.
“We are talking about an investment of hundreds of millions of pounds from the industry.
“There is much talk about the investment and jobs that DRS and the circular economy will bring. To hit the same sector with a whole series of costs is the worst possible step that they can take.
A BSDA spokesman added: “This decision is a muddled and damaging shifting of the goalposts which risks undermining years of reformulation investment with questionable positive health outcomes.
“More than seven out of every 10 soft drinks sold in the UK are low or no sugar and the total sugar removed from soft drinks between 2015 and 2024 is just under three quarters of a billion kilograms.
“Lowering the SDIL threshold to 4g – on top of the previously announced, backdated 27% increase to the levy – comes at a time of major and unprecedented financial headwinds for our members, from record-high inflation and NIC increases, to spiralling ingredient costs and incoming trade tariffs.
“Such cost increases have already impacted our members’ ability to grow their businesses and boost employment, and the lowering of the SDIL threshold risks making this even more challenging.”
An FDF spokeswoman added: “Soft drink manufacturers have already made significant progress reducing the amount of sugar in their drinks, including milk-based drinks.
“Food and drink manufacturers are facing a series of inflationary pressures and government must continue to create the right conditions for businesses to innovate and also be clear about their long-term goals to promote business confidence. A predictable regulatory environment is vital to ensuring our sector can continue to invest in developing healthier options.”
However, the government’s moves were warmly welcomed by health campaigners.
Obesity Health Alliance director Katharine Jenner said: “It is absolutely right that the Chancellor is looking to remove exemptions for the remaining sugary drinks on the market, to incentivise healthier drink production.
“The SDIL has been a clear success – cutting sugar consumption, particularly among lower-income groups, without harming sales.
“Voluntary action alone has failed; we need policies that make the healthy choice the easy choice. This review is a vital step towards building the healthiest generation of children ever.”
Dr Kawther Hashem, head of research and impact at Action on Sugar, said: “We are delighted to see the government taking steps to strengthen the levy which has already driven significant reductions in sugar across the drinks industry, and these new proposals are a bold and necessary next step.”
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