sugar tax

Sugar tax fallout: is the industry ready?

By Aidan Fortune contact

- Last updated on GMT

The impact of the Soft Drinks Industry Levy may have far reaching consequences
The impact of the Soft Drinks Industry Levy may have far reaching consequences
With the Soft Drinks Industry Levy coming into effect today, manufacturers have been forced to either reformulate their products or face paying tax on drinks with a higher sugar content.

While trade bodies have expressed their displeasure at its implementation​, the fallout may expand beyond simple taxation.

Sales impact

Mintel research revealed just under half (47%) of consumers said that a tax making unhealthy food and drink more expensive would encourage them to cut down on these items. The research found that low sugar content now stood out as the single most important factor consumers looked for when seeking out healthy food. More than half (52%) said that low sugar content was important when looking for healthy foods, with consumers prioritising low sugar content over 5-a-day claims (48%) and low fat content (45%).

“A war is being waged against sugar by the government and the media​,” said Emma Clifford, associate director of food & drink at Mintel. “This sustained attack over a number of years has had a big impact on how consumers view this now demonised ingredient, what they think constitutes healthy food and their eating and buying habits. While fat was once the food villain, this crown has now been taken by sugar. This is clearly positive news for inherently non-sweet, low-/no-sugar products.

“For high-sugar products, the challenge is a complex one, with reformulation a risky business. There have been many cases of consumer backlashes against unpopular recipe changes and the use of artificial sweeteners is not a solution that sits well with all consumers. The use of naturally-derived sweeteners remains in its infancy in the UK, despite many consumers being open to the use of these ingredients.”

Scramble for change

Martin Hook, managing director of research & development (R&D) consultant Ayming UK​, said manufacturers had to work hard to reduce sugar in their drinks.

"Drinks companies have gone back to the drawing board across all of their products,” ​he said. “They have been steadily making their drinks healthier to combat obesity – sugar-free and diet versions have been around for some time. But recently it has been a scramble to find innovative ways to rethink their manufacturing processes and successfully reduce sugar content, without a potentially profit-devastating change in taste.
“It's definitely been a long and thorny ‘trial and error’ period for drinks companies: all drinks manufacturers have been busy researching new innovative ways to replace sugar with alternatives, all of which has incurred a burdensome R&D cost – with companies needing to strike the right balance between reducing new tax costs and avoiding a consumer backlash.
“It’s encouraging to see so many companies rolling out new products – the core Ribena and Lucozade owned products for example have cut sugar by 50%. Osborne’s initiative has evidently spurred investment into creating innovative ways to redevelop sweet drinks.”

Hook added that the taxation-influenced new product development (NPD) would continue long-term. “Looking ahead, it’s likely the research will continue as the developed markets push in a healthier direction, so manufacturers should keep the ball rolling, take a long-term view and continue successfully developing more consumer-friendly products.”

One brand, Cawston Press, decided to reformulate by taking the decision to only use pressed fruit juice to sweeten their drinks. Managing director Steve Kearns said: Artificial sweeteners just aren’t us and mask the taste of our delicious ingredients. It seems a shame that, despite many sectors in food and drink moving forward, for the most part soft drinks are still stuck in a time warp. We are proud to be doing things differently and showing the rest of the industry how it should be done.”

Its refreshed range launches this month and consists of Rhubarb, Cloudy Apple, Elderflower Lemonade and Ginger Beer variants.

Punishment

In the consultation following the levy’s announcement, respondents raised the question of what punishment there would be for non-adherence. In response, HMRC said it would develop a compliance strategy to ensure that businesses who were liable for the levy complied and paid the levy. Legislation will set out penalties for late filing and payment, and set out penalties for failing to comply with the obligations of the levy.

However, “the Government recognises that this will be a significant change for businesses in this sector and HMRC will consider a light-touch approach to penalties in the early stages”​.

Expansion

While the Government said it had no plans in place to extend the sugar tax to other food products, some have suggested the problem has just moved along, rather than being solved.

Geoff Ogle, chief executive at Food Standards Scotland said: “While we hope the Soft Drinks Industry Levy will help drive down the consumption of sugar and reduce calorie intake, the evidence in Scotland is that much more needs to be done. Our recent situation report: ‘​The Scottish Diet: It needs to change 2018’ has shown that while purchase of sugary soft drinks had decreased from 2010 to 2016, this has been offset by an increase in sugar purchased from other foods.

“We have been encouraged by the speed at which the proposed sugar levy generated changes to the formulation of soft drinks. The question to be asked now is, if other foods have the same amount of sugar or indeed more, shouldn’t they be subject to a levy too? Reformulation is certainly helping with sugar reduction, but the levy introduction has shown the pace that can be generated when changes such as this are introduced.”

Shirley Cramer CBE, chief executive of the Royal Society for Public Health, said this should be just the beginning. “With the UK suffering one of the highest levels of childhood obesity in Europe, we hope the introduction of the Levy will form part of a more ambitious obesity policy from the Government. While this marks significant progress, to tackle the obesity epidemic we face, no single measure will be effective in isolation. The Levy needs to form part of a much wider and more cohesive approach and package of measures over a sustained period of time, including improved regulation to combat the advertising of high-fat, -salt and -sugar foods.”

Meanwhile the British Dietetic Association warned that action could replace one substance with another. “Like any wide-ranging public health policy, the sugar levy has had some unintended consequences, and it is important that steps are taken to mitigate these. For people with the condition phenylketonuria (PKU), the increased use of aspartame and other ingredients containing phenylalanine, which they cannot break down, has a serious impact. The BDA believes clear labelling and an approach that reduces the overall sweetness of drinks, rather than just replacing sugar with sweeteners, is the best way forward.”

Related topics: Regulation, Beverages, Obesity Debate

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