Shares in soft drinks firms fell sharply yesterday after George Osborne’s shock sugar tax announcement left them facing costs of £500million a year.
Celebrity chef Jamie Oliver joined health charities to praise the Chancellor for introducing a levy that could hit drinks such as Coca-Cola, Pepsi and Red Bull.
It comes after months of government indecision with David Cameron previously blocking the move even though Health Secretary Jeremy Hunt was in favour. But, in a move that surprised MPs, Mr Osborne gave the soft drinks firms two years to reduce sugar in their products or face a levy on their sales volumes in the UK.
Celebrity chef Jamie Oliver, pictured outside Westminster yesterday, celebrated the new sugar tax
Chancellor George Osborne gave firms two years to reduce the amount of sugar in their products or face a new levy which is planned to be paid for by the drinks manufacturers and not passed on to consumers
The Office for Budget Responsibility said the levy could increase a litre of fizzy drink by up to 24p
His idea is to force the businesses, not consumers, to pay the extra cash.
However the independent Office for Budget Responsibility (OBR) has estimated the levy could add 18p to 24p to the price of a litre of fizzy drink if the full cost is passed on to the consumer. The price of a can of Coca-Cola could go up by 8p. The price of some own brand colas could rise by 80 per cent.
Mr Oliver, who has led a high-profile campaign for action on child obesity, took to social media within minutes of Mr Osborne’s announcement, saying on Instagram: ‘We did it guys!! We did it!!! A sugar levy on sugary sweetened drinks.
‘A profound move that will ripple around the world. Business cannot come between our kids’ health.’
But shares in listed drinks firms dropped sharply on the London stock exchange immediately after the Budget announcement. Irn-Bru maker AG Barr, which also makes Tizer and St Clement’s, was down 4 per cent at one point, while Robinsons squash firm Britvic fell 2 per cent and at one stage Vimto maker Nichols was down as much as 7 per cent.
Jon Woods, general manager of Coca-Cola Great Britain & Ireland, said the levy ‘flies in the face of evidence from around the world which shows taxes do very little, if anything, to reduce sugar and calorie intake or obesity levels but do add to people’s cost of living’. He added that Coca-Cola ‘will continue our work to reduce the sugar and calories consumed from our drinks’.
Lovers of gin and tonic will also be hit by the move, it emerged. Schweppes Indian tonic and high-end brand Fever-Tree contain enough sugar to fall in the scope of the tax.
The sugar levy – which will be brought in in two years to give manufacturers time to drive down the sugar content of their drinks – is expected to raise £520million in its first year. This will be used to double the amount of funding for sport in every primary school, with secondary schools encouraged to offer more sport as part of longer school days.
The tax will be imposed on firms according to the volume of the sugar-sweetened drinks they produce or import. There will be two bands – one for total sugar content above 5g per 100ml up to 8g, and a second, higher band for the most sugary drinks with more than 8g per 100ml.
Pure fruit juices and milk-based drinks will be excluded from the tax. ‘Boutique’ manufacturers will also be exempt.
The OBR said the tax would push up the UK’s inflation rate by 0.25 per cent the year it is introduced.
The Treasury said it would be up to manufacturers to decide whether to pass the cost of the levy on to consumers. The aim was to encourage manufacturers to reformulate their drinks and reduce the amount of sugar, enabling them to dodge the tax. A source insisted there were no plans for a tax on sugary foods such as cereals, saying: ‘This is not a precedent for a wider sugar tax.’
Simon Stevens, chief executive of NHS England, said: ‘This bold and welcome action will send a powerful signal and incentivise soft drinks companies to act on the health consequences of their products. Obesity now affects one in five children, causes one in five cancer deaths, and already costs the NHS £5billion a year – so obesity is the new smoking.’ But Gavin Partington, director general of the British Soft Drinks Association, 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.’
Sam Bowman, of think-tank the Adam Smith Institute, said: ‘A tax on sugary soft drinks is the first step on the road to fat taxes and sugar taxes more generally.
‘It makes little sense to tax sugary drinks on their own, rather than sugar more generally – a couple of Mars bars are just as bad as a bottle of Coke – but the Chancellor probably reckons the public won’t care if he only targets soft drinks. Once the tax is in place, he will follow the lead of other “sin taxes” and raise it higher and higher, and impose it on more and more things. The costs of this tax will likely be passed on to consumers in the form of higher prices, so it will be regressive.’
George Osborne, pictured leaving 11 Downing Street made the shock sugar announcement in his budget
Mark Littlewood, of think-tank the Institute of Economic Affairs, said: ‘It is astonishing that the Chancellor has announced a tax on sugary drinks when there is no evidence from anywhere in the world that such taxes have the slightest effect on obesity.
‘Whether dressed up as a direct tax or a levy on industry, the effect will be that the Government will be picking the pockets of the poor for no benefit.’ Mr Osborne told MPs that obesity costs the economy £27billion a year. Sugar-linked taxes have been imposed in Mexico, parts of California and Norway.
He added: ‘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.’
The Chancellor 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”.’
Jeremy Hunt added his support for the tax, writing on Twitter: ‘Parents over Britain will welcome sugary drinks levy to fund doubling of school sport budget. More to do on childhood obesity but great start.’
But Ukip MP Douglas Carswell criticised the move, saying people should instead copy the Chancellor who has famously been on the 5:2 diet. ‘Osborne sugar tax – don’t tax mums and dads,’ he tweeted. ‘Reducing obesity means doing what George did. Eat less, move more.’
The Daily Mail reported on Jamie Oliver’s plea to MPs to introduce a sugar tax back in October 2015