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UK beverage firms gear up for long-awaited sugar tax

April 6, 2018
Consumer Packaged Goods

Soft drink companies in the UK will be subject to a sugar tax from tomorrow, while Irish firms have been given a temporary reprieve.

The governments of both countries opted to introduce separate taxes on sugar-sweetened beverages at different times. Both were due to begin enforcing the policy on 6 April; that will remain the case in the UK, but Irish companies will have until 1 May to register in order for the country’s government to receive state aid approval.

In March 2016, then-chancellor of the UK George Osborne announced a levy on sugary drinks that consisted of two bands: one for drinks with between 5g and 8g of added sugar per 100ml, amounting to £0.18 per litre of product; and a higher band for drinks with more than 8g of added sugar, which will add £0.24 per litre.

The extra cost will be charged to bottlers and importers at the factory gate, meaning unsold product will not be taxed.

In October 2016, Irish minister for finance Pascal Donohue announced a similar measure that features broadly the same rates and sugar thresholds as the UK’s sugar tax.

Who will the sugar tax apply to?

Details of the Irish tax are less clear than the UK equivalent, with the UK having much longer to prepare for its implementation (two whole years since it was announced, compared to 18 months for Irish companies).

The UK tax will apply to any soft drink with an alcoholic content lower than 1.2% ABV that is ready-to-drink or ready-to-dilute, and that is packaged for sale. In order to meet the taxable threshold, beverages will need to contain at least 5g of added sugars per 100ml of ready-to-drink or diluted product.

There are a number of exceptions: dairy drinks with at least 75% milk are being protected for their nutritional value by both governments, and as the taxes only apply to added sugars, pure fruit juices will escape the legislation in both countries regardless of their natural sugar content.

Further, in the UK, any alcohol substitute like de-alcoholised wine or beer, as well as any infant formula or baby food product, will also not be subject to the levy.

In a bid to protect small businesses, the British government has also granted a reprieve to soft drink producers selling less than 1 million litres of product a year.

But, if they grow so much that they exceed the 1 million litre threshold, they will have to register for the tax within 30 days of the month’s end.

The rates and exemptions of the Irish tax are very similar, including two taxable bands for drinks with 5g and 8g of sugar.

What did beverage companies say?

Both taxes were welcomed by health campaigners, who praised the UK and Irish governments for taking definitive action on obesity, but criticised by beverage industry insiders.

Many companies pointed to Mexico’s darling sugar tax, which despite resulting in an overall decline in consumption has come in for criticism and been described as flawed.

In the period since the levy was announced, the British government has had to continually downgrade its earnings forecast – first by £140 million and then by a further £105 million – as more companies reformulate to position themselves beyond the tax’s reach. The current expectation is that the levy will bring in £275 million a year.

While health campaigners will claim this is a victory for public health, it seriously jeopardises the government’s proposal to use the tax to fund sports in British schools.

Ian Wright, the director-general of the Food & Drink Federation, said: “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 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.”

Colm Jordan, director of the Irish Beverage Council, claimed the tax wasn’t in Ireland’s best interests: “With less sugar in soft drinks and fewer children drinking sugar-sweetened drinks daily, the singling out of sugar-sweetened drinks is totally unjustified.

“With the euro in our pockets now buying more against the sterling, Irish shoppers are increasingly heading north. The minister for finance must defer his plan for higher taxes on our weekly shop.

“We are forecasting that 11% of sugar-sweetened drink sales will be lost to cross-border shopping and the unofficial grey market. That amounts to a €30 million loss to our economy in a full operating year of the sugar tax. This must be seen in context: the soft drink tax will only raise €40 million.”

Source: FoodBev

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