This lunchtime George Osborne delivered his eighth Budget and announced a sugar levy on soft drinks. The issue of a ‘sugar tax’ is a multi-layered one that requires a great deal of unpacking.
Firstly, there’s the ideological conundrum facing the chancellor. As a Conservative, he would instinctively oppose central government ‘interfering’ in the lives of the public on such a micro level. The faces of his backbenchers as he made the announcement would appear to show that they would share that instinct. He justified this by saying that he would be unable to say to his children’s generation that despite knowing that the average 5 year old in the UK consumes their body weight in sugar each year, he stood by and did nothing.
So, an emotional, moral argument to begin.
Then there are the practical implications of the decision. Flat rate taxes disproportionately affect the less well off, who, incidentally, also happen to be the people most likely to consume sugary fizzy drinks. How to avoid this obvious criticism?
Well, the Chancellor chose his language carefully.
To quote from the Red Book, “The levy will be designed to encourage companies to reformulate by reducing the amount of added sugar in the drinks they sell, moving consumers towards lower sugar alternatives, and reducing portion sizes. Under this levy, if producers change their behaviour, they will pay less tax.”
In his speech, he said, ““Of course someone might decide to pass on this cost to the consumer, and that would be their choice.”
Osborne has cleverly placed the ball in the producers’ court. He’s issued a challenge to them to change their recipes and drive customers towards low sugar alternatives. He’s provided the option of paying less tax. So, if they end up paying more tax, that was their choice. And if they decide to pass on that additional tax burden to customers, again, it’s nothing to do with the Government.
What’s more, there’s a double incentive for the soft drinks industry. If they continue to make sugary drinks and choose to pass on the costs to consumers, not only have they raised prices, but they’ve elected to keep giving sugar to children. The companies in question, on a reputational level, have been left with almost no choice but to cut sugar.
Finally, the third aspect of the sugar levy; distraction.
A quick scan across news outlets reveals that the Sugar Levy has stolen the headlines, with Sky, BBC, Telegraph, Independent and Guardian, to name just a few, all leading with the story. But should it have done?
This was Budget that cut growth forecasts and revealed that the Chancellor will again miss his fiscal targets. But those facts are nowhere near as eye catching as a much debated levy on soft drink makers.
With just one announcement, Osborne may have sugared what could have proven a very bitter Budget pill.