The Cost of the Sugar Tax to Manufacturers

The United Kingdom recently announced their budget plans. Within the plans there were several objectives created by Chancellor George Osborne to assist the United Kingdom to balance their budget. Some of the measures taken focused particularly on taxation including the raising of income taxes, introduction of taxes on redundancy payments, capital gains and sugar, and a crackdown on tax avoidance. In addition, there is a bright side of George Osborne’s budget which is the investment dollars associated to infrastructure projects such as the introduction of high speed rail lines within the United Kingdom.

One of the most interesting taxes associated to George Osborne’s budget is the sugar tax. The sugar tax which was recently introduced was not levied on all sugar products but soft drinks which contain sugar. There is concern that the tax levied on soft drink products will have a ripple effect throughout the economy and have a significant effect on the cost of soft drink products. Some of the branded soft drinks believed to be targeted for the tax raise are Coca Cola, Pepsi, Irn-Bru and Lucozade Energy. A lower rate of tax would be applied to soft drinks such as Dr. Pepper, Schweppes, Sprite and Fanta along with other lower sugar content drinks.

Similar to many countries within the world the United Kingdom is constantly fighting obesity. Although the United States still tops the charts when it comes to obesity, the United Kingdom is considered the fattest nation within Europe. When reviewing the numbers, it has been determined that almost one in four United Kingdom citizens are so heavy that they look at the possibility of an early grave. When reviewing the United Kingdom overall on how obese their citizens are amongst the richest countries within the world, the United Kingdom stacks up fiftieth overall only behind countries such as the United States, Mexico, Chile and New Zealand. In addition, studies show that without intervention from governments that the lifespan of an individual who is obese is typically ten years shorter than the life span of a person who is not obese. The obesity death rate can be closely correlated to that of the loss of lifespan which is incurred from individuals smoking tobacco.

Because of the obesity epidemic which exists within the United Kingdom, and the country taking honors as one of the fattest nations in the world, George Osborne was quoted saying “Doing the right thing for the next generation is what this government and this Budget is about. No matter how difficult and how controversial it is, you cannot have a long-term plan for the country unless you have a long-term plan for our children’s health care.”

Again, the industry hurt by the sugar tax is the soft drink industry. The way that the tax works is that soft drink companies have two years to change their formulas and ingredients of their soft drink products. The manufacturers will basically be taxed according to the amount/quantity of sugar content associated to their sweetened soft drinks that they produce and or import. In essence, there are two categories of taxation associated to the tax. The first category is associated to total sugar content which is five grams per one hundred ml and the second higher band for soft drinks with a sugar content which is more than eight grams per one hundred ml.

So, for example, companies such as Coca-Cola which produce a standard can of their soft drink costing 70 pence, would incur an 8 pence tax on it. Also, a standard can of Sprite, for example would have an additional cost associated to the consumer of 6 pence when the sugar tax goes into effect in 2018. It should be mentioned that fruit based juices along with milk based drinks will not be included, however, some tonic water brands could also be affected. The amount associated to the taxes are estimated to be in the range of £520M and will be put toward the primary school sports environment.

In the past, countries which have implemented programs to reduce the sugar content from public consumption have had success. Countries such as Mexico which has struggled with over consumption of sugar content and has initiated pin point programs in reducing sugar content from the diets of its citizens has seen a drop of over twelve per cent within 2015. Prior to the acts taking place within Mexico the country had one third of its population massively overweight. Countries such as Hungary who had also struggled with an obese population levied a significant tax on sugar consumption saw a fourth percent reduction in the sugar consumed.

Similar to the United Kingdom countries such as Hungary, Norway Finland and France all have imposed some form of tax on sugar products. In Norway taxes have been levied on chocolate products along with sweets and both Finland and France have levied taxes on sweetened drinks. The tax imposed in France which was introduced in 2012 caused outrage from citizens.

Many citizens of the United Kingdom believe that the tax on sugar is a diversion of Mr. Osborne’s poor economic plan. However, the British Government insists that that by implementing the sugar tax they will reduce the health costs associated to obesity problems within the United Kingdom. National Health Services (NHS) has projected that obesity within the United Kingdom costs the country £5.1 billion per year and that figure is to rise to £9.7 billion by 2050. A recent report created by NHS indicates that they believe that by cutting down the amount of sweets that United Kingdom citizens consume each year they can save tens of thousands of lives.

In closing, the new sugar tax introduced in the United Kingdom’s budget is reported to generate a significant amount of revenue if soft drink manufactures are unable to comply with the quantity of sugar presently in their products. Not only will the tax levied on products increase revenue it will more likely than not help save tens of thousands of lives for those individuals who struggle from weight problems.

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