The Sugar Levy: A Briefing

Abstract

In March 2016, George Osborne announced a ‘sugar levy’ on soft drink companies to start in April 2018. Under this policy, companies will be taxed on sales of medium and high sugar drinks (excluding fruit juice and milk-based drinks). As an anti-obesity policy, the sugar levy seems arbitrary. Consumption of both sugar and sugary drinks has been falling for years while obesity has been rising. Soft drinks make only a small contribution to average calorie intake. Comparisons between European countries show no correlation between sugary drink consumption and obesity. The Office for Budget Responsibility says the levy will increase inflation by 0.25% in 2018-19 thereby adding £1 billion to accrued interest payments on index-linked gilts. The inflationary effect will raise the cost of index-linked salaries, pensions and benefits by many millions of pounds. The levy will also require additional funding for enforcement and administration. The sugar levy will be loss-making and will give companies the perverse incentive to raise sugar levels up to the threshold of each tax bracket.

Keywords: UK, Britain, sugar tax, food consumption, food production, taxation, fiscal policy, sugar consumption, public health, health policy, healthy living

JEL Classification: I12, I18, L51, L66, D04, D02