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Councils should be wary of getting hooked on the sugar tax

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Commentary from LGC features editor Jimmy Nicholls on the regressive nature of the soft drinks levy.

Since its introduction in April 2018, the soft drinks levy – better known as the sugar tax – has raised an estimated £250m, which is being given to schools to fund healthy food at breakfast clubs and to promote sports.

The tax take is slightly above the amount the government predicted it would raise when it was launched, but is half the £520m forecast for the first year when the policy was announced in the 2016 Budget.

Some of this shortfall is due to soft drinks brands cutting their sugar content and avoiding the levy, among them Ribena, Fanta and Lucozade. Drinks companies are only liable if their product contains at least five grams of added sugar per 100 millilitres, with exemptions for fruit juice and milk drinks.

That schools will be using much of what the levy raises to improve the diet of children is a bonus for the sugar tax’s advocates, whose intention was to reduce sugar consumption as the levy was passed to consumers through higher prices.

While supportive of this work, some local authorities are keen to get a portion of the money raised. This is not least because the tax has been introduced as councils’ public health grants were being cut by £531m between 2015-16 and 2019-20. Councils would like money to be spent on broader public health works, and to better integrate the efforts of schools and councils.

Ian Hudspeth (Con), chair of the Local Government Association community wellbeing board and leader at Oxfordshire CC, said: “To truly tackle our child obesity epidemic, councils need to be able to use this money to intervene earlier and do more to ensure that our children stay healthy, active and develop good eating habits, which they can continue into adulthood.”

In these austere times it is hard for councils to refuse any new sources of funding, including from what is effectively a sin tax. But they should be wary.

At the time of the sugar tax’s introduction, the Office for Budget Responsibility said it believed the levy would be passed entirely on to consumers. Original Pepsi and Coca-Cola Classic were two drinks that were expected to be sold at higher prices after the sugar tax came in, and the Wetherspoon pub chain raised prices on soft drinks by 10p.

When framed like this consumption taxes are regressive, hitting the poor relatively harder than the rich, as the implied surcharge is a larger proportion of poorer people’s income.

Proponents of the sugar tax, including Henry Zeffman in the New Statesman, have argued that because excess sugar consumption and obesity are more common for poorer people this is inevitable, and a justifiable cost if it results in behaviour change that improves public health.

It is a matter of judgment if this is a good trade, as well as whether the government should be seeking to steer an individual’s food choices. But the fact the soft drinks levy disproportionately hits the poor should give local government pause for thought as it eyes those revenues.

Should the money be allocated to local government’s public health programmes, we would have a situation where a regressive tax, disproportionately hitting the poor, is being used to fund measures to alleviate the effects of poor diet, itself linked to poverty. In other words, poorer people will be being taxed to address one of the ill effects of poverty.

You don’t have to be a socialist to find this situation unpalatable. There is a danger that councils legitimately seeking new sources of funding for public health become dependent on the sugar tax, which becomes the thin end of a consumption tax wedge. Rather than grasping for a short, sweet sugar rush, local authorities should seek more sustainable fuel.

Jimmy Nicholls, features editor

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