The UK Soft Drinks Industry Levy (SDIL) was introduced in 2018 and has generally been considered successful in its goals to reduce sugar intake from sugary drinks and encourage reformulation across the beverage industry. But it hasn’t changed since it was introduced six years ago.
Championing the success of the policy so far, the UK government is now outlining two key changes: a new structure that will see the levy tied to inflation with rates adjusted each year, and a review into the tax to consider whether its scope can be increased.
UK sugar tax: How has the policy fared so far?
What is not changing is the fundamental scope of the tax. Pre-packaged soft drinks with added sugar are taxed under a tiered system: with lower sugar drinks paying less tax than higher sugar ones.
At the moment, drinks with less than 5g sugar per 100ml don’t pay the SDIL. Drinks with 5g sugar per 100ml or more pay a lower rate of 18p per liter; then drinks with 8g sugar per 100ml or more pay a higher rate of 24p per liter.
One of the key aims of the policy was reformulation: encouraging manufacturers to change the sugar content of their drinks to come in under 5g sugar per 100ml to avoid paying the tax, or reformulating the most sugary drinks to come into the lower tax band.
Since its announcement in 2016, the SDIL has been credited with successfully driving extensive product reformulation, with a 46% average reduction in sugar in soft drinks in scope of the levy between 2015 and 2020.
In today’s market, around 89% of drinks sold in the UK market don’t pay the SDIL. That’s because many brands reformulated ahead of the tax’s introduction in 2018 and have less than 5g sugar per 100ml.
However, the overall UK sugar consumption ‘remains significantly above recommended levels’, notes the government.
“With UK rates of obesity almost doubling over the last three decades, and average sugar consumption twice the recommended amount, the Government has made clear at the Budget its intention that SDIL should remain effective and fit-for-purpose.
“First, to protect its real terms value, the SDIL will be increased, over the next five years, to reflect the 27% CPI inflation between 2018 and 2024. Annual rate increases will take place from 1 April 2025 and will also reflect future yearly CPI increases.
“Second, the Government will review the SDIL’s operation and structures, with a view to further drive down the sugar content in soft drinks.”
Tracking inflation to retain impact
The rates for the levy has remained the same since the SDIL was introduced in April 2018. It has not been indexed to inflation, and so has gradually reduced in value. That leads to fears the tax could lose its impact.
“The Soft Drinks Industry Levy rates are not indexed to inflation and have not been increased since introduction, so are gradually reducing in value against inflation,” says a statement from the UK government.
The rates will now be reassessed every year to take inflation into account (rates will be increased on April 1 every year, with the details announced in Autumn Budget six months earlier).
“Uprating the Soft Drinks Industry Levy in line with inflation will ensure that the levy remains effective and continues to encourage reformulation by protecting its value in real terms,” says the government.
Tracking inflation
Scotland has just increased the rate for its Minimum Unit Pricing policy, which sets the minimum price (per unit) that alcohol can be sold for.
However, the rate has been increased not only to keep up with inflation, but also to surpass it: hoping to strengthen the effect of the policy.
However, price increases are likely to be modest: a standard 330ml can of a higher band (ie more than 8g sugar per 100ml) will increase by 3p by 2030.
“This measure, by protecting the real-terms value of the Soft Drinks Industry Levy and encouraging reformulation, is expected to have a positive impact on the health of individuals in the UK,” continues the government.
“Excess sugar consumption is associated with obesity and excess weight, which increases the likelihood of individuals developing a wide range of serious health problems, such as type 2 diabetes, heart disease and a number of cancers.”
Between 500 and 600 business are registered to pay the SDIL, but the government says the increases will have a ‘negligible administrative impact’ on these businesses, save for one-off costs to update systems to the new rates.
The rates will also be adjusted to apply per 10 liters – instead of per liter as before - so that rate changes can be made in smaller increments, to reflect the Consumer Price Index more precisely (therefore, the existing rate of 18p per 1 liter becomes £1.80 per 10 liters).
Unfairly targeted?
The British Soft Drinks Association calls the increase on the SDIL 'counter-intuitive'.
“It’s very disappointing that the Government wishes to pursue a sector that has dramatically reduced sugar content, both voluntarily prior to 2016 and additionally so since the soft drinks industry levy was introduced," says the trade association.
"Between 2014 and 2020 sugar intake from soft drinks was down 43.5% and today 7 out of every 10 soft drinks sold is low and no calorie. It is counter-intuitive to double down on a category that has changed so dramatically”.
How low can you go? Driving down sugar content further
But the changes to the UK SDIL could go much further. The UK government has also launched a review, which sets out to consider whether the 5g threshold should be lowered to encourage more drastic reformulation.
That could be dictated, for example, by the Nutrient Profiling Model (NPM), which scores foods and drinks based on their balance of nutrients, and where products containing more than 4.5g sugar per 100g score points for total sugar.
The review will also target the most sugary drinks: either by increasing the rate of the higher band or creating a third tax band for drinks with – for example – more than 10g sugar per 100ml.
Another key question is around milk-based drinks. These are currently exempt from the SDIL, on the condition they contain at least 75ml of milk per 100ml.
That exemption was created to ensure the SDIL did not disincentivize sufficient calcium consumption, particularly among children and young people.
In order to treat animal milk and plant-based alternatives fairly, milk substitutes are also exempt from the SDIL (provided they contain at least 120mg of calcium per 100ml).
But that means pre-packaged milkshakes and milky coffee drinks are typically exempt from the levy: despite the fact they can contain high levels of sugar.
Consequently, the review is considering extending the SDIL to milk-based and milk substitute drinks.
“As young people only get 3.5% of their calcium intake from milk-based drinks, it is likely that the health benefits do not justify the harms from excess sugar,” says the government. ”By bringing these drinks into the SDIL, the Government would introduce a tax incentive for manufacturers of these drinks to reduce sugar in their recipes.”
Dr Kawther Hashem, Head of Research and Impact at Action on Sugar, Queen Mary University of London, has been among the academics calling for the sugar tax to be extended to more products.
“We welcome the government’s proposed review to expand the scope of the sugar tax to include milk-based and milk-alternative drinks,” she said.
“With many of these drinks containing high levels of sugar and calories, removing their current exemptions could create a much-needed shift toward healthier market options. These drinks can be reformulated, which makes this an even more promising step.”
Looking further: Could the sugar tax be further revamped?
The government’s review identifies two key areas for consideration: the thresholds for the tax and the extension to milk-based drinks.
But the Local Government Association is using the opportunity to suggest that powers and administration should be devolved to councils and targeted at areas most in need.
National Child Measurement Programme figures for England, published this week, show obesity prevalence is more than twice as high among children in the most deprived areas, compared to those in the least deprived areas.
The data shows the prevalence of obesity in reception aged children (4-5) has increased from 9.2% in 2022/23 to 9.6% in 2023/24, while in Year 6 children (aged 10-11), it has decreased from 22.7% in 2022/23 to 22.1% in 2023/24.
The LGA says councils, which are responsible for public health, should be given the powers to decide how the money is spent. It wants to see the levy targeted at areas with severe child health inequalities, such as higher levels of deprivation, and greater rates of childhood obesity, tooth decay, and physical inactivity.
Latest figures show the soft drinks industry levy has raised £1.9 billion since it was introduced in 2018, yet the LGA says it is ‘increasingly concerned’ about where the money is being spent: “Critically, the levy is no longer ringfenced for use in tackling obesity and promoting physical activity”.
The LGA also wants to see the levy extended to milk-based drinks such as milkshakes and high-sugar coffees, and it also urges the government to consider expanding it further to items such as cakes, biscuits, and chocolate.
Cllr David Fothergill, Chairman of the LGA’s Community Wellbeing Board, said: “The soft drinks industry levy was a crucial step in the battle against child obesity.
Government officials will meet with a range of experts and interested parties across industry, academia and elsewhere before the review concludes in Spring 2025.
Any changes to the sugar tax - with regards to extending the scope of the tax and its thresholds - will be made 'following Budget 2025' (with the Budget released in the autumn, that would suggest any changes would be made in the new financial year in April 2026).
“We are urging the Government to grant councils control over the levy’s revenues and allocate funds to address the most pressing child health inequalities.
“It would also make more sense to target distribution of the levy to those areas that need it the most.
“With deep connections to local health services, schools and communities, councils are uniquely placed to direct resources where they are needed most, creating healthier, more resilient environments for our children.”
Devolving sugar taxes to local authorities would be more in line with the US model, where taxes are determined at a city level.
Another issue for sugar taxes is diet drinks. Philadelphia’s beverage tax, for example, includes diet drinks: covering those using calorie-free sweeteners.
Welcoming the Treasury’s decision to increase taxes on sugary drinks, Alex Wright, co-founder of sugar-free and sweetener-free DASH Water, said: “By making high-sugar beverages less accessible, we have an opportunity to shift consumer habits towards healthier choices, ultimately supporting long-term health and reducing strain on the healthcare system.”
However, he wants to see the review look at the question of how diet drinks should be treated.
“Whilst it’s incredibly refreshing to hear of such plans, the government must also address the issue of artificial sweeteners, particularly in light of last year’s WHO report, which revealed that these alternatives do not aid in weight loss and may even raise further health concerns. It’s essential to ensure that the push for healthier choices encompasses all aspects of sugary and artificially sweetened beverages."
