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Think Tank: UK Sugar Tax Will Do More Harm Than Good

by Jason Gorringe,, London

22 August 2016

The UK's proposed Soft Drinks Industry Levy (SDIL) will fuel inflation, cost the Government more than it brings in, and have little impact on obesity, according to a new report from the Institute of Economic Affairs (IEA).

Chris Snowdon, author of the briefing, said: "The sugar levy will be a regressive stealth tax adding to the shadow economy and creating avoidable costs to the taxpayer, whilst doing nothing to improve the country's health. The international evidence is clear: there is no correlation between sugary drink consumption and obesity. It's time for the Government to come clean about its flawed logic and admit that its new levy will do nothing to reduce obesity, childhood or otherwise. It is a bad idea, poorly implemented."

The Government last week launched a consultation on the SDIL, which forms part of its broader Childhood Obesity Strategy. The SDIL will be charged to producers and importers of soft drinks with added sugar. It will apply to volumes of added sugar drinks with a total sugar content of five grams or more per 100 milliliters, with a higher rate for drinks with eight grams or more. It will not apply to drinks where no sugar is added, or to alcoholic beverages with alcoholic content above 0.5 percent ABV, which cannot lawfully be sold to under-18s. The rates have not yet been set.

According to the IEA, the justifications for the SDIL are based on myths. It argued that consumers are already shifting to low-calorie alternatives, and that teenagers get only 5.1 percent of their calories from soft drinks. It added that sugary drinks taxes in other countries have been associated with a rise in the sale of fruit juice, milkshakes, and alcohol.

The IEA said that there is no more sugar to be removed from diet drinks – which represent 50 percent of the market – and that companies will not change the recipes of popular original brands. It suggested that manufacturers may in fact raise sugar levels in reduced-sugar drinks up to the limit of their relevant SDIL bracket.

The IEA also pointed out that the Office for Budget Responsibility has estimated that the levy will increase the rate of inflation by 0.25 percent in 2018-19. It warned that this will raise the costs of index-linked salaries, pensions, and benefits. Furthermore, it said that as the SDIL will impose enforcement and administration costs on the Government, it will be loss-making in the short-term at least.

TAGS: compliance | tax | business | pensions | tax compliance | law | United Kingdom | enforcement | Health tax | tax rates | tax reform | trade association | trade | inflation

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