Ministers are proposing significant changes to the soft drinks industry levy which will now include milk-based drinks, but campaigners want to see out of home products brought within its scope. Nick Hughes reports.
Milk-based and milk substitute drinks with a high sugar content will be taxed at source under new UK Government proposals.
The Treasury has confirmed plans first floated in the autumn budget to bring the drinks within the scope of the soft drinks industry levy (SDIL) – a move long called for by health campaigners.
Ministers also plan to reduce the minimum sugar content at which the SDIL applies from 5g to 4g total sugar per 100ml. This will bring into scope of the levy a large number of soft drinks that have clustered below the previous 5g threshold following reformulation by brand owners.
Campaigners have reacted with delight to news of the proposals. “The start of this consultation on strengthening the soft drinks industry levy is sweet music to our ears,” says Barbara Crowther, Children’s Food Campaign manager at Sustain. “The SDIL has already achieved significant sugar reduction, and we hope these proposals will encourage companies to go even further to reduce the sweetness of their drinks.”
There was disappointment, however, that sugary drinks served outside of the home will remain beyond the scope of the SDIL, which only applies to pre-packaged drinks. Surveys carried out in 2023 by both Action on Sugar and consumer organisation Which? found drinks such as milkshakes, frappes and frappuccinos from high street brands contained levels of sugar well in excess of an adult’s daily limit of 30g of free sugars. Final results from the government’s voluntary sugar reduction programme, meanwhile, showed a 12.7% increase in the average sugar content of milkshakes available in the out of home sector between the baseline year of 2017 and 2020.
“The use of levies is an effective lever to encourage companies to reduce sugar and calories in their products,” says Dr Kawther Hashem, head of research and impact at Action on Sugar based at Queen Mary University of London. “The soft drinks industry levy is a key example of this, which successfully removed a massive 46,000 tonnes of sugar from these drinks as well as raising millions of pounds which has been invested in children’s health. Therefore, the government needs to make sure all policies are including the out of home sector, particularly the major businesses operating within it, if we are to shift the market towards a healthier direction.”
Crowther points out the exclusion creates an uneven playing field between retailers and out-of-home operators. “The government’s sugar reduction reports and independent nutritional surveys indicate that this (out of home) is the area with the most excessive levels of sugar content and where greater impact could be achieved,” she adds.
Sugar success
The SDIL was first announced by the then chancellor, George Osbourne, in 2016 and came into effect in 2018. It currently applies to pre-packaged soft drinks containing at least 5g total sugar per 100ml. The levy is tiered so that a standard rate (£1.94 per 10 litres) is charged on drinks with 5g to 7.9g total sugar per 100ml, with a higher rate (£2.59 per 10 litres) applying to drinks with 8g or more total sugar per 100ml.
The levy was initially successful in driving product reformulation as suppliers sought to avoid paying the tax. Government analysis showed that between 2015 and 2019, 65% of soft drinks that contained more than 5g sugar per 100ml were reformulated to below 5g, bringing the total proportion of the market with less than 5g sugar per 100ml to 89%.
Evidence suggests the levy has also been successful in reducing sugar consumption. A 2024 study found free sugars consumed from soft drinks fell by around a half in children and by a third in adults in the three years following the announcement of the SDIL in March 2016. The government, in its consultation document, says modelling studies show the levy may have prevented thousands of cases of childhood obesity while simultaneously cutting down on tooth decay.
Yet UK sugar intakes remain around double the recommended levels. Almost a decade on from the original policy announcement, the government says it’s time to set a more ambitious target both to address the “anomaly” that sugary pre-packaged milkshakes and other milk-based drinks are exempt from the levy and the issue of products clustering just below the 5g threshold. Analysis of the market from 2020 found 866 products, representing 27% of products in the soft drinks category, contained between 4g and 4.9g of total sugar per 100ml.
Milking it
Under the new proposals, the SDIL standard rate would apply to drinks containing 4g to 7.9g total sugar per 100ml, rather than 5g to 7.9g as it currently does. The higher rate band of more than 8g will remain unchanged and ministers have also decided not to go ahead with creating a third, higher rate for the most sugary drinks – for example those with a total sugar content of 10g and above. The government does, however, plan to increase the tax rates by 27% by 2027, to account for a freeze in the rates since the levy’s introduction in 2018.
Milk-based drinks will no longer be exempt, although they will be subject to a “lactose allowance” to account for the natural sugars in the milk component of these drinks. This allowance will vary depending on the percentage milk content of a milk-based drink.
When the SDIL was implemented in April 2018, the milk-based drinks exemption was included to address concern that 1 in 5 teenage girls did not get enough calcium in their diet. Yet the consultation notes that milk-based drinks only provide up to 3.5% of calcium intakes for children aged 11 to 18 years, compared with 25% from plain milk and 38% from cereal products, including fortified white bread. When weighed against the harms of excess sugar consumption, the view now from ministers is that the contribution these drinks make to calcium intakes doesn’t justify their continued exemption from the SDIL.
Plant paradox
Perhaps the most contentious proposed change – and one that creates potential environmental trade-offs – is over the inclusion of milk substitute drinks, for example plant-based drinks such as soya, almond or oat drinks. These have been positioned by brands as a healthy and more sustainable alternative to animal milks but will now be brought within the scope of the levy if they contain added sugar. This is most likely to impact flavoured varieties that could be consumed as alternatives to flavoured milk-based drinks. Drinks with sugars only released from their principal, or “core”, ingredient will be out of scope of the levy to maintain parity with plain animal milks.
In practice, this means an oat milk containing the ingredients water, oats, sunflower oil and salt, with a total sugar content of over 4g per 100ml, would not pay the SDIL since the sugar comes from the principal ingredient, oats. However, a rice milk containing the ingredients water, rice, sugar, sunflower oil and salt with a total sugar content above the permitted 4g threshold, would pay the SDIL as the drink contains added sugar.
Concerned manufacturers will be picking through the details of the consultation, set to run until July 21st, and planning their response. The Grocer reported industry bosses were “raging” over the proposals, which are set to impact products such as Lucozade Energy, Fanta, Tango, Dr Pepper and Irn-Bru. Objections are likely to focus on the inflationary impact of the changes at a time when food prices and shoppers’ budgets are already under pressure.
Campaigners, meanwhile, have scored a notable win and will now double down on calls to extend taxes to sugary foods. “Current levies [….] do not address the high volumes of sugar, salt and calories in a wide variety of snacks and foods,” says Crowther. “We and our 46 partners in the Recipe for Change campaign urge the government to explore how similar financial incentives could be applied to a wider range of foods.”
They are not alone in their calls for an expansion of the levy. Professor Chris Hilson, lead author of the Transforming UK Food Systems Programme (TUKFS) report published in March, says: “Extending the sugar tax to all processed foods is vital. The current levy has successfully cut sugar in soft drinks, but we need to see the same success with products like milkshakes, biscuits, yogurts and breakfast cereals to improve public health.”
