Sugar tax on drinks: Yes, but, no, but... UK debate rages on

By David Burrows

- Last updated on GMT

The Institute of Fiscal Studies included a section on a sugary drink tax in its annual budget report for the first time. © iStock
The Institute of Fiscal Studies included a section on a sugary drink tax in its annual budget report for the first time. © iStock

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The UK's Institute for Fiscal Studies (IFS) has taken an over-simplified approach to its analysis on the pros and cons of a sugary drink tax by not looking at evidence from similar policies in Europe, the US and Mexico, say researchers.

Last month, the influential body published its annual Green Budget – a report aimed at informing the UK government’s budget, which is due to be published tomorrow (March 2016).

For the first time, IFS dedicated a section to a sugary drink tax​.​ That alone marks a shift in the policy climate given the reach of the IFS both in the media and politically.

But according to experts at the Universities of Oxford and Cambridge, the analysis came up short on a number of fronts. “They haven’t been as balanced as they might have been,”​ said Adam Briggs from the University of Oxford.

The paper​ he co-wrote, published in The Lancet, says: “The IFS have based their conclusions on economic theory without reference to the evidence gathered from the evaluation of sugary drink taxes introduced in Mexico, Hungary, Finland, France, and Berkeley (USA).”

Sugar switch

IFS warned that the introduction of a tax on sugary drinks could lead to consumers switching to chocolate. This is unlikely, Briggs told FoodNavigator, given that soft drinks are consumed to quench thirst rather than to satiate. As such, they’ll replace them with other drinks, and there is no evidence to suggest that alcohol is something they turn to either, he said.

The IFS also questioned whether retailers and manufacturers would pass on any tax. It’s also possible they could respond by “raising the price of diet cola”​, for instance.

The evidence from other countries again suggests otherwise. In Mexico and Berkeley taxes of sugary drinks “do not influence the price of substitute products such as diet drinks”​, the experts noted in The Lancet. In Mexico, for instance, prices of sugary drinks increased by more than 10% (i.e. more than a 100% tax pass-on rate), whereas prices of diet drinks were unaffected.

In France, where a tax on sodas was introduced in January 2012, prices of the beverages liable to the tax “increased significantly”​, according to a study published in 2012. For sodas 100% of the tax was passed on to consumers, whereas for flavoured waters and fruit juices only 60% to 85% was passed on.

In some cases, manufacturers and retailers may be moved to pass on more than the cost of a tax, Briggs added. Brands may see the price shock of a tax as an opportunity to address imbalance in their pricing models or to buffer profit margins against a likely fall in sales, he explained.

Worse off?

Sales figures from Hungary, Finland, and France have also shown measurable decreases in sales of sugary drinks.

Findings from Mexico, where the most detailed analysis has taken place, show that a sugary drink tax of about 10% introduced in 2014 resulted in an average reduction of 6% in sugary drink sales across the year, increasing to a 12% reduction in December, 2014, with greater reductions in lower socioeconomic groups.

A 20% levy will have a “relatively small”​ impact on even those likely to be hardest hit. Briggs has calculated that those in the most deprived demographics would be just £4.50 worse off a year.

There is also scant evidence to support the notion, often put forward by the industry, that jobs will be lost as a result of the sugar tax and falling sales. The only study – as far as Briggs is aware – used modelling, and the researchers calculated a net benefit in employment as a result of posts being created in the public sector to implement and, evaluate, the new policy.

The IFS also considered a more general tax on sugar, which may reduce sugar consumption to recommended levels. This will require much more careful design, it concluded. Briggs agreed that this concept was on “less firm footing”​ evidence-wise than a tax targeted at drinks alone.

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