U.K. Unveils Levy on Sugary Drinks
March 16 2016 - 1:10PM
Dow Jones News
LONDON—The U.K. government on Wednesday unveiled a surprise levy
on sugary drinks, setting up a new battleground between the global
soft-drinks industry and public-policy makers aiming to curb sugar
intake.
The move pressured shares of Coca-Cola Co., down 1.4%, and
PepsiCo Inc., down 1%, in New York trading. Britvic PLC—which sells
Pepsi's drinks in the U.K. and Ireland and has its own soft-drink
brands, including Tango and J2O—was down 2% in London. The
companies had no immediate comment as they worked to digest the
news.
While the U.K. is a relatively small market for global drink
makers, executives have worried about the precedent such a move
could set. France and Mexico have already rolled out similar
levies, while a number of states and municipalities in the U.S.
have toyed with the idea.
The beverage industry says it is unfair to single out sugary
drinks for special taxes and has spent more than $100 million since
2009 in the U.S. alone to defeat similar proposals in more than two
dozen cities and states.
U.K. Treasury chief George Osborne announced the new soft-drinks
levy in his 2016 budget statement, targeting the producers and
importers of drinks that contain added sugar. He estimated the
measure would raise £ 520 million ($736.7 million) in its first
year.
The U.K. government had previously said it had no plans to
introduce a tax on sugar-sweetened beverages. It generally has
argued that the focus should be on other measures, such as
increasing awareness of the dangers of consuming too much sugar and
better food labeling.
"I am not prepared to look back at my time here in this
Parliament, doing this job and say to my children's generation: I'm
sorry, we knew there was a problem with sugary drinks, we knew it
caused disease, but we ducked the difficult decisions and we did
nothing," Mr. Osborne said in announcing the new levy on
Wednesday.
The levy will be introduced in two years to allow companies
enough time to change their product mix and will be determined
based on the volume of sugar-sweetened drinks companies make or
import. It will be imposed according to two bands: one for sugar
content above 5 grams per 100 milliliters, and another for drinks
with more than 8 grams per 100 milliliters.
Mr. Osborne said pure fruit juices and milk-based drinks would
be excluded and that the government would ensure "the smallest
producers are kept out of scope." The U.K. government plans to
consult with the industry on the levy's implementation.
The immediate industry reaction to the plan was sharply
negative. "We are extremely disappointed by today's announcement,"
said Ian Wright, director-general of the Food and Drink Federation,
a U.K. trade body. "The imposition of this tax will, sadly, result
in less innovation and product reformulation, and for some
manufacturers is certain to cost jobs."
Companies can choose to either pass the added costs along to
consumers or absorb the costs themselves.
The U.K.'s Office for Budget Responsibility calculated that on
the basis of the government's revenue target, the sugary-drinks
levy would end up imposing unit charges of 18 pence or 24 pence a
liter, "which we expect to be passed entirely onto the price paid
by consumers."
Andrew Holland, an analyst at Socié té Gé né rale, said the levy
"looks like a sensible approach that may actually work. Just
putting prices up to the consumer has a modest impact on
consumption."
The £ 520 million raised from the new levy—which Mr. Osborne
estimated would fall in later years as sugar levels decline—would
double the amount of funding directed at sports in primary
schools.
The government says the estimated cost to the U.K. economy from
obesity is about £ 27 billion, with the National Health Service
spending more than £ 5 billion on obesity-related costs
Public Health England, the state body tasked with improving
health in the country, in October issued a report urging the
government to engineer a price increase of 10% to 20% on high-sugar
products through a tax or levy such as those on full sugar drinks.
Celebrity chef Jamie Oliver has lent his voice to the campaign to
introduce a sugar tax, including appearing before the panel of
lawmakers last year.
In the U.S., Philadelphia's mayor this month proposed a tax of
three cents per ounce on sugar-sweetened beverages—three times as
much as the tax in Berkeley, Calif., which in late 2014 became the
first U.S. city to pass such a measure. In 2012, then-New York
Mayor Michael Bloomberg failed in his effort to impose maximum
portion sizes on sugary drinks.
India, Indonesia and the Philippines are among the other
countries that have been considering special taxes.
Mike Esterl and Nicholas Winning contributed to this
article.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
(END) Dow Jones Newswires
March 16, 2016 12:55 ET (16:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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