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A sugary drinks duty

Parents have a responsibility for their children's health. But so too does the rest of society.  Government has a particular duty to support parents and children by introducing policies, services and funding to ensure this generation of children and their families enjoy the best life chances.

What is a duty?

Duties or levies are a common measure to deal with the additional cost and harm to society of particular activities. They are already in place on tobacco, alcohol, petrol, energy use and plastic bags. Just as extra duties on cigarettes have changed people's purchasing habits and helped reduce smoking, a duty on sugary drinks could encourage people to consume less. 

The end goal of a duty is to put the revenue raised back into society and make a substantial impact on children’s health and health inequalities.

Why is a duty better than other forms of tax?

Sales tax is the percentage of the total purchase of a drink typically applied on the receipt after purchase. A sales tax does not increase proportionally relative to volume of drink purchased and so adversely consumers may purchase larger volumes of drinks to reduce the impact of the tax.

Duty on the sugar content. Would be applied per gram of sugar added with a greater impact on high sugar drinks, such as dilutables. It incentivises companies to reformulate their products and reduce the sugar content. But it is harder to implement on account of the wide variation in the quantity of sugar in sweetened beverages.

A 20p per litre export duty may have a bigger effect because it may be more likely to be passed on to the consumer, while a 20% sales tax might be absorbed partly by the producers or retailers. An excise tax results in a uniform price increase per unit volume, removing any incentive for conusmers to switch to large portion sizes that will tend to represent “better value”’ under a sales tax. In France there seems to have been a pass-on rate of around 100% for their sugary drinks

Does the size of the duty matter?

The size of the sugary drinks duty applied will be largely determined by what it aims to achieve. A larger duty can both change behaviour and raise a substantial amount of money, though it is more likely to face industry opposition.

Sales taxes on a ‘regular soda’ in the U.S range from 1.5% to 7%. In France, sugary drinks with added sugar or artificial sweeteners are taxed at around 6p per litre. In Finland, soft drinks are taxed at 0.09p per litre. For more informatuion on the impact of these taxes, see our global case study section.

According to the British Soft Drinks Association, approximately 5,727 million litres of sugary drinks were consumed in 2011. A tax rate of 2p per 100ml, or 20p per litre, on soft drinks with added sugar could potentially raise £1b a year. This estimate does not take into account the hoped for reduction in sugary drinks consumption.

What is the impact on consumption?

Research has shown duties to be effective in reducing consumption.  In a review of 160 modelling studies in The American Journal of Public Health, it was shown that the own-price elasticity for a range of less healthy foods ranged from around -0.34 (sweets and sugar) to as high as -0.79 for soft drinks. Thus, a hypothetical 10% increase in the price of soft drinks would be expected to reduce consumption by as much as 7.9%.

What is the impact on health?

A study conducted by researchers in the Department of Public Health at Oxford University showed that taxing unhealthy foods (as defined by a nutrient scoring system) could prevent between 2,100 and 2,500m deaths in the UK each year due to lower consumption. Another study published in the British Medical Journal suggested that by extending VAT to the main sources of saturated fat, between 900 and 1,000 premature deaths a year could be avoided.

Research for Food Active discussed the “impact of a duty on sugar sweetened beverages (SSBs) for Local Authorities in the North West of England”[2]. It found that a 20% duty would reduce obesity adult obesity prevalence in the North West by 1.5% and a reduction in healthcare costs in the region by around £3.9m per annum.

What would the impact be on low income groups?

Diet-related ill health disproportionately affects lower income groups, so any moves to tackle health inequalities should be welcomed. Some of the highest consumers of sugary drinks are also the most price conscious, and thus most likely to switch to cheaper, less sugary alternatives. The studies suggest that people who swap to lower or no sugar alternatives, don’t tend to add on the extra sugar and calories elsewhere in their diets either.[i]  A higher price may also deter some shops from stocking sugary drinks in the first place, as has been the case with ‘dollar stores’ in Berkeley, California, since that city’s soda tax was introduced. Despite fears to the contrary, the regressive nature of any duty is likely to be extremely minimal. Modelling of how a sugary drinks duty might be implemented in Ireland suggests an impact of 67-82 cents per household per week.[ii]  In addition, the expenditure of the Children's Health Fund could be aimed more at particular demographics and areas to also ensure that this was a progressive measure, benefiting families in poverty and on low incomes.

Can’t VAT be adjusted to account for content ingredients?

A value added tax (VAT) is currently added onto most goods and services but is not adjusted to reflect a goods health or sustainability attributes. VAT is a lot more complicated and difficult to reform as it would have wider repercussions for all food and drink and would also have a much greater impact on the family budget. A VAT cannot simply be extended to soft drinks as other products such as mineral water and cordials are also subject to the standard rate of 20%.

A previous food tax in UK failed, why is this different?

The public objected to a tax which levied a 20% VAT on hot foods (the infamous pasty tax) but the tax was arbitrary. A food duty has to be consistent, and appeal to people’s common sense.

How will the revenue be distributed?

See the next section on the Children’s Health Fund.

Sugary drinks are therefore a logical starting point for a simple and easily understandable fiscal policy on food.  In the future we propose that levies are applied to all unhealthy and unsustainable foods and drinks, which could be defined in a number of ways.  For health we could already use a nutrient profile model similar to the one used by Ofcom to regulate and prevent junk food and drink advertising during children's TV programming.

 


 
[ii] Dr Micheál Collins, A SSD Tax: Revenue & Income Distribution implications - presentation at Irish Heart Foundation seminar,, 23rd June 2014, Dublin
[1] ONS, “Environmental Taxes – Tax Revenue up 4.8% in 2010,” Office for National Statistics, June 29, 2011, http://tinyurl.com/ctvm2uf
[2] See report
[4] P13  children’s future fund report

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