The headline news that was focussed upon greatly by the press was that Osborne was introducing in new levy on drinks with a high sugar content.The basic premise is that drinks with more than eight grams of sugar per 100ml will get hit with a 24p levy per litre, and between five and eight grams will get hit with an 18p levy per litre. Research has shown that such measures do reduce the consumption of these types of drinks, which will be good in terms of tackling obesity but although I support this move in principle there are a number of problems with the way Osborne has done it.
Firstly, by establishing two categories the Chancellor hasn’t been specific enough with raising revenue. In my view Osborne should have said that drinks with ‘x’ grams of sugar pay a certain levy and then that levy increases as the level of sugar does. This would bring in more revenue as a company making a drink with 15g of sugar per 100ml would pay three times as much as a company with a drink of 5g of sugar per 100ml.
On the public health question, the Chancellor said that his method would encourage companies to reduce the amount of sugar in their drinks but this isn’t the case either. If a company makes a drink with 15g of sugar per 100ml, they would only receive a tax reduction if they reduce the amount of sugar in their drinks by around half. Proponents of this approach would say that this is good because we all want to see the amount of sugar in these drinks reduced, and a big decrease is desirable. I would argue this approach will make businesses look at their products and say ‘fuck it, we’ll bite the bullet’. Businesses want to keep products that sell the same because it is a proven formula to make money from these drinks. By instituting the proportional system that I mentioned above, companies would be encouraged to reduce the amount of sugar as much as possible whilst maintaining the taste of their drink. Companies won’t get rid of lots of sugar from their drinks if it changes the flavour so significantly that people stop buying it. I don’t like capitalism but it’s not difficult to understand.
It is also worth pointing out that there is nothing in the Budget that would prevent these fizzy drinks manufacturers from simply passing on the additional costs to consumers. This could be taken in one of two ways. You could say that increasing the price of fizzy drinks would reduce the amount bought by consumers, which is a good thing. However, by doing so it means that there is no financial incentive for the manufacturers to reduce the amount of sugar in their products. The solution to this I suggest would have been to introduce a separate levy purely focussed at corporate profits. This secondary levy could would be introduced now and be lifted if a significant amount of sugar had been reduced from the manufacturers products.
For example, Coca Cola has 10.6g of sugar per 100ml. With this second levy, the government could say that their corporation tax bill would be temporarily increased by 5% (for the sake of maths) which would be a corporate sugar levy. The government could then say that this levy would be set annually based on how much sugar had been reduced from their products with sugar levels from this year as a baseline. In the short term this would raise revenue for the government but it would also pose a question to Coca Cola: reduce the sugar in their products, or keep getting taxed an addition 5% on corporate profits. By the time the next year comes around if Coca Cola had reduced the sugar content of their products by a little bit the rate could be set at 4%, and if sugar had been lowered by a lot they could not pay any additional tax at all.
Also, the measure would remain in place irrespective of whether revenue is being gathered or not. If all drinks manufacturers after two years have reduced the amount of sugar in their drinks to a much lower level, no revenue would be generated from this secondary levy but it would prevent sugar levels from increasing. Not only would it have increased the tax bill of big drinks companies in the short term, it would lower the amount of sugar in these products by such an extent that the NHS would save money in the long term even if the levy stops bringing in extra cash.
The final thing I want to mention is what type of drinks are exempted from the new measure. Specifically it is milk-based drinks, pure fruit-based drinks, and drinks under 5% of sugar per 100ml. First of all, the under 5g drink exemption speaks to the lack of ambition of the Chancellor whereas my suggestion above actually focusses on the problem. What that exemption says is that 5g of sugar per 100ml is ‘acceptable’, but the point of the Chancellor’s levy is to reduce sugar content in these types of drinks. If my proportionate levy was instituted a drink containing 4g of sugar per 100ml would still get taxed because I want to reduce the amount of sugar in it. There is no medical reason why 4.9g of sugar per 100ml is ‘acceptable’ but a drink will 5g of sugar per 100ml needed taxing to reduce its sugar content. It is an inconsistency that needs to be highlighted.
On the other two exemptions I understand why Osborne has done what he did, pure fruit and milk-based drinks shouldn’t be discouraged from being bought, but it ignores a couple of obvious things. The most obvious of them is that under this proposal chocolate milkshakes with over 10g of sugar per 100ml would not be taxed by a fizzy drink with half as much sugar as that milkshake will be. If the Chancellor wants to reduce the amount of sugar being consumed by people, he would not make policy based on whether or not the main ingredient came from a cow.
The other point goes directly against the methodology behind the policy. By saying that pure fruit and milk-based drinks are exempted from the levy, Osborne is making a value judgement: these two types of drinks are healthier than fizzy drinks. I would agree that, generally speaking, a glass of orange juice is healthier than a glass of Coca Cola, but that treats all pure fruit and milk-based drinks as the same. By having this exemption orange juice, for example, containing 10g of sugar per 100ml is treated in exactly the same way as orange juice with 3g of sugar per 100ml. Clearly this is moronic.
There is one clear reason that Osborne has enacted this policy in the Budget: publicity. This is a standard political trick to implement a policy that is largely popular whilst also giving exemptions to companies that mitigates its impact. It’s a trick because the public will see the policy be implemented and when campaigners say it hasn’t gone far enough the government an portray them as unreasonable and whining that they didn’t get everything they wanted. This may be a cynical view but looking at the policy it is the only conclusion that I can make.
Osborne has been working on the details of the Budget for weeks yet I can pick four or five holes in the policy within a day of it being introduced. Osborne was trying to do something about obesity and sugar consumption then he wouldn’t have done the exemptions for high-sugar drinks that are pure fruit or milk-based. Nor would he have structured the policy to give no financial incentive for companies to reduce the amount of sugar in their products. Good idea George, but the execution was as shit as usual.