Shares in the soft drinks industry plummeted on Wednesday after the British chancellor announced a tax on sugar to combat childhood obesity.
As of 2018, any drinks with more than a teaspoon (5g) per 100ml will be subject to a tax, around $0.25 per liter.
Drinks with more than 8g of sugar per 100ml – such as Coca Cola and Red Bull – will be taxed even more, roughly $0.34 per liter.
The news sent shares in Coca Cola, Dr Pepper and Pepsi Cola into freefall when trading opened in New York, minutes after Britain’s George Osborne announced the new budget.
Despite picking up by the afternoon, Coca Cola was still down 1.3 per cent.
Shares in the soft drinks industry plummeted on Wednesday after the British chancellor announced a tax on sugar to combat childhood obesity. Pictured: Coca Cola’s shares on Wednesday afternoon
Dr Pepper also experienced a slump as soft drinks industry executives slammed the levy, coming in in 2018
Pepsi falls into the higher bracket, with more than 8g sugar per 100ml, meaning it will be taxed more in the UK
It puts into action the levy Michael Bloomberg tried and failed to impose as mayor of New York City. Bloomberg released a statement on Twitter (pictured) on Wednesday afternoon hailing the move
THE MOST SUGARY SOFT DRINKS TO BE HIT BY BRITAIN’S SUGAR TAX
Drinks with more than 5g of sugar per 100ml will be taxed at a lower rate of 6p per drink. These include:
Dr Pepper: 7.2g
Drinks with more than 8g of sugar per 100ml will be taxed at a higher rate of 8p per drink. These include:
Dr Pepper: 10.3g
Irn Bru: 10.3g
7 Up: 10.6g
Red Bull: 11g
Mountain Dew and 7-UP will also be rocked by the levy, which comes into effect in 2018.
In London’s FTSE 100 Index, share prices in Britvic, which makes Tango, Coca-Cola’s British arm, and Irn-Bru maker A.G. Barr fell by up to 27p ($0.38) per share.
Announcing the levy, George Osborne, secretary to the Treasury in David Cameron’s conservative government, claimed the government will raised £520 million a year – which is more than $745 million.
He cited research that showed soft drinks are the primary source of sugar for young people.
The UK has some of the highest obesity levels in the developed world, with one in five children obese by the end of high school.
Mr Osborne said that, at present, five-year-old children are consuming their bodyweight in sugar every year and experts predict that within a generation more than half of all boys and 70 per cent of girls could be overweight or obese.
He said: ‘I am not prepared to look back at my time here in this Parliament, doing this job and say to my children’s generation ‘I’m sorry. We knew there was a problem with sugary drinks. We knew it caused disease. But we ducked the difficult decisions and we did nothing.’
Anti-sugar campaigner and celebrity chef Jamie Oliver took to Instagram on Wednesday to praise the Chancellor’s announcement as ‘amazing news’, adding it would ‘ripple around the world’.
It puts into action the levy Michael Bloomberg tried and failed to impose as mayor of New York City.
Bloomberg released a statement on Wednesday hailing the move, saying it ‘puts the UK at the forefront of the global fight to reduce obesity & diabetes.’
France, Belgium, Hungary and Mexico have imposed similar taxes on drinks with added sugar.
The tax means even gin and tonic will be taxed because tonic water contains more than a teaspoon of sugar – even though the levy is meant to tackle childhood obesity.
Tax on beer, spirits and most ciders in Britain will be frozen, giving brewers a boost.
Pure fruit juices and milk-based drinks will be excluded, since milk has ‘health benefits’, and the smallest producers will have an exemption from the scheme.
Crucially, Osborne claims the tax will raise £520 million ($740 million) a year for the Treasury.
‘We did it guys !! We did it !!!’ wrote Jamie Oliver, who produced a TV show on nutrition in America, which involved analyzing the food provided in elementary schools.
‘A sugar levy on sugary sweetened drinks … A profound move that will ripple around the world,’ he added.
‘[B]usiness cannot come between our kids health !! Our kids health comes first … Bold, brave, logical and supported by all the right people … now bring on the whole strategy soon to come … Amazing news.’
However, he later told news stations that any drink with added sugar, including milkshakes, should have been included.
The proposed tax will be levied in two bands:
- A higher band for the most sugary drinks with more than 8 grams per 100 millilitres, which includes Coca Cola and Red Bull – adding 8p ($0.11) to the price of a can
- A lower band for drinks above 5 grams per 100 millilitres, which includes Fanta, Dr Pepper and Tonic Water – adding around 6p ($0.08) to a can or bottle
- Pure fruit juices and milk-based drinks, including sugary lattes, are exempt because milk has ‘health benefits’
- Soft drinks companies will be charged the tax – it will be up to them if they pass it on to British consumers
Mr Osborne, a contender to succeed David Cameron at the helm of the leading Conservative party, said the estimated £520 million ($740 million) a year raised from the sugar tax will be spent on doubling funding for sport in elementary and middle schools.
The levy will be introduced in two years’ time, to give companies time to adapt products to reduce their sugar content.
Currently examples of drinks which would currently fall under the higher rate of the sugar tax include full-strength Coca-Cola and Pepsi, and Red Bull, among others, the Treasury said.
The lower rate would catch drinks such as Dr Pepper, Fanta, and alcohol-free shandy. Escaping the tax altogether would be drinks like Volvic Touch of Fruit and Tropicana orange juice.
Shares in listed drinks firms dropped sharply on the London and New York markets after the sugar tax announcement.
Irn Bru maker AG Barr, which also makes Tizer and St Clement’s, fell 4 per cent, while Robinsons squash firm Britvic fell 2 per cent and Vimto maker Nichols plunged as much as 7 per cent.
Pure fruit juices and milk-based drinks will be excluded, and the smallest producers will have an exemption from the scheme.
Mr Osborne told British parliament: ‘Obesity drives disease. It increases the risk of cancer, diabetes and heart disease – and it costs our economy £27 billion a year; that’s more than half the entire NHS pay bill.
‘One of the biggest contributors to childhood obesity is sugary drinks. A can of cola typically has nine teaspoons of sugar in it. Some popular drinks have as many as 13. That can be more than double a child’s recommended added sugar intake.’
He said manufacturers recognized there was a problem and had started to reformulate their products with less sugar.
But Mr Osborne said he was ‘not prepared to look back at my time here in this Parliament doing this job and say to my children’s generation: I’m sorry. We knew there was a problem with sugary drinks. We knew it caused disease. But we ducked the difficult decisions and we did nothing.’
He said the new tax will be assessed on the volume of the sugar-sweetened drinks produced or imported by firms.
Mr Osborne added: ‘We’re introducing the levy on the industry which means they can reduce the sugar content of their products – as many already do. It means they can promote low-sugar or no sugar brands – as many already are. They can take these perfectly reasonable steps to help with children’s health.
Shocking: Many of Britain’s most sugary drinks contain more that the daily recommended amount for one person
‘Of course, some may choose to pass the price onto consumers and that will be their decision, and this would have an impact on consumption too. We understand that tax affects behaviour. So let’s tax the things we want to reduce, not the things we want to encourage.’
Soft drinks executives have lashed out at the proposed levy, suggesting many were unaware the announcement was coming.
Some also argued that the decision could cost jobs.
British Soft Drinks Association director general Gavin Partington said: ‘We are extremely disappointed by the Government’s decision to hit the only category in the food and drink sector which has consistently reduced sugar intake in recent years – down 13.6 per cent since 2012.
‘We are the only category with an ambitious plan for the years ahead – in 2015 we agreed a calorie reduction goal of 20% by 2020. By contrast, sugar and calorie intake from all other major take home food categories is increasing – which makes the targeting of soft drinks simply absurd.’
Roger White, the chief executive of AG Barr, whose biggest brand is Irn-Bru, also described the move as ‘extremely disappointing’.
He said: ‘At AG Barr we have reduced the average calorific content across our brand range by 8.8% in just four years and are actively contributing to the soft drinks industry-wide five-year target to make a 20% reduction by 2020.
‘We will await further details and ensure that we are fully involved in the consultation process to ensure our position, and progress to date, are well understood.’
Britain’s Food and Drink Federation director general Ian Wright said: ‘For nearly a year we have waited for a holistic strategy to tackle obesity. What we’ve got today instead is a piece of political theatre.
‘The imposition of this tax will, sadly, result in less innovation and product reformulation, and for some manufacturers is certain to cost jobs. Nor will it make a difference to obesity. Many of those singled out today by the Chancellor have been at the forefront of efforts to provide consumers with healthy choices. The industry will now ask whether such efforts are still affordable.’
Q&A: HOW SUGAR TAX WILL WORK AND WHAT WILL BE MORE EXPENSIVE
When will it come into force?
From April 2018 soft drinks companies will pay a levy on drinks with added sugar.
Why are the Government introducing this tax?
The move aims to help tackle childhood obesity. Sugar-sweetened soft drinks are now the single biggest source of dietary sugar for children and teenagers. Ministers hope the move will mean that drinks companies cut down on the amount of sugar in drinks. The measure could also move consumers towards lower sugar alternatives and reduce portion sizes, they said.
How will it work and who will pay?
The new levy will apply to drinks with total sugar content above 5 grams per 100 millilitres, with a higher rate for more than 8 grams per 100 millilitres.
What sort of drinks will be affected?
Examples of drinks which would currently fall under the higher rate of the charge include full-strength Coca-Cola and Pepsi, Old Jamaica Ginger Beer, Capri Sun blackcurrant, Red Bull, Strawberry Ribena, Lucozade Energy, and Irn-Bru, said the Treasury.
The lower rate would catch drinks like Dr Pepper, Fanta, Sprite, Schweppes Indian Tonic Water and alcohol-free shandies. Escaping the tax altogether would be drinks like Volvic Touch of Fruit, Vimto, Powerade and Tropicana Smooth Orange.
Will it apply to all drinks?
The new levy will not be paid on milk-based drinks and fruit juices.
Does this mean that sugary drinks will be more expensive?
The Office for Budget Responsibility (OBR) has estimated it could add 18-24p to the price of a litre of fizzy drink if the full cost is passed on to the consumer. But a Treasury spokesman said: ‘We are hoping that producers do not pass on to consumers the costs. They can obviously reformulate their products, which many of them have done, and Robinson’s for example has removed added sugar from most of its drinks and Tesco has pledged a 5% reduction in sugar in its ranges.
‘So they can reformulate, they can reduce portion sizes and they can promote diet products.’
How much money will this new tax raise?
Ministers hope the measure will raise £520 million in the first year. But the OBR estimates that this figure will drop as drinks companies reduce the sugar in their products and people make healthier choices.
What will happen to the money raised?
In England the money will be reinvested for sports in schools.
Is the Government the first in the world to introduce such a tax?
No – other countries have experimented with sugar taxes. Scandinavian countries have imposed similar taxes as have France and Hungary. In 2014 Mexico also introduced a sugar tax levy on soft drinks. South Africa plans to introduce a similar measure in 2017.
Has the Government looked at how these levies have worked elsewhere?
The Treasury said it has looked at the way sugar taxes have been used around the world and opted for a model similar to Hungary, where the introduction of a tax on companies has led to a 40% reduction in levels of sugar in products.