The long-awaited ‘sugar tax’ on soft drinks has been heralded by one business analyst as a spur to industrial innovation.
Martin Hook, managing director of business performance consultancy Ayming UK business performance consultancy, said the lengthy gap since the levy was announced by the then chancellor George Osborne had been crucial.
“Two years later and Osborne's sugar tax has arrived. Drinks companies have gone back to the drawing board across all their products.
“There’s been a scramble to find innovative ways to rethink manufacturing processes and successfully reduce sugar content, without a potentially profit devastating change in taste.”
The legislative change, which came into effect on 6 April, means manufacturers must pay a levy on high sugar drinks.
Drinks companies have gone back to the drawing board across all their products. There’s been a scramble to find innovative ways to rethink manufacturing processes
Martin Hook, MD, Ayming UK
Drinks that contain more than 8g of sugar per 100ml will be taxed the equivalent of 24p a litre, reduced to 18p in the case of products with between 5 and 8g.
Manufacturers could opt to reduce their sugar content – a route taken for drinks including Lucozade and Ribena but not Coca-Cola. Otherwise they can choose whether to underwrite the higher tax or to pass this on to the consumer.
Hook said that the search for new ways to replace sugar with alternatives had incurred a “burdensome” R&D cost for which companies needed to strike the right balance between reducing new tax costs and avoiding a consumer backlash.
“It’s encouraging to see so many companies rolling out new products – the core Ribena and Lucozade owned products for example have cut sugar by 50%. Osborne’s initiative has evidently spurred investment into creating innovative ways to redevelop sweet drinks,” he remarked.
Nicola Mallard, analyst for Investec specialist banking and asset management group, added a more optimistic note, pointing out the levy’s full effect would not be immediate.
She commented: “Although the sugar tax is effective from today, it’s possible that the levy related price increases will be phased in over a longer period of time. Stock in the supply chain of the major grocers will have been purchased at pre levy prices so there is no immediate need. A look at online prices at some major retailers confirms this.”
The fact that many sought to reduce sugar as an ingredient has forced the Treasury to amend its optimistic predictions of increased tax revenues of £0.5 billion annually. The actual figure looks likely to be just under half that amount.