Milkshakes and lattes hit by Government sugar tax
Britain will end the exemption for pre-packaged milkshakes and milky coffees from an existing tax on sugary drinks from January 2028, the health department has announced.
The sugar tax, also known as the soft drink industry levy (SDIL), is a tax on pre-packaged drinks such as those sold in cans and cartons in supermarkets.
It was introduced by the Conservative government in 2016 to help drive down obesity, particularly among children.
The Health Department has announced that:
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the government will reduce the current lower threshold at which SDIL applies from 5g of total sugars per 100ml to 4.5g of total sugars per 100ml
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the government will remove the current exemption for milk-based drinks with added sugar. A ‘lactose allowance’ will be introduced to account for naturally occurring sugars in milk
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the government will remove the exemption for milk substitute drinks with added sugar. Milk substitute drinks without added sugar will remain outside the scope of SDIL. This includes plant-based drinks that only contain sugars derived from their principal or ‘core’ ingredient
Key events
Widening the scope of the sugar tax should go a little way towards closing Rachel Reeves’s fiscal black hole.
The levy will raise up to £100m a year from 2027, according to The Times.
Milk substitute drinks which contain added sugar are also being dragged into the Soft Drinks Industry Levy (the sugar tax).
The health department says the government will remove the exemption for milk substitute drinks with added sugar. This will bring plant-based drinks with added sugar into scope of the Levy, if they contain 4.5g or more total sugars per 100ml.
However, plant-based drinks which contain only sugars released from their principal, or ‘core,’ ingredient – such as soya, or oats – will be out of scope, the same as plain animal milks.
Drinks made and served in cafés, restaurants and bars won’t be hit by levy
The new sugar tax rules will apply to pre-packaged milk-based drinks with added sugar, such as bottled milkshakes and coffee drinks.
‘Open-cup’ milkshakes prepared in cafés, bars and restaurants will remain out of scope; as will plain cow’s milk, and other milk drinks without added sugar, the government says.
Drinks makers have been changing their recipes since the original sugar levy was rolled out, to avoid the tax pushing up their prices or eating into their profits.
According to the government, there has been a 46% reduction in sugar in fizzy drinks within the scope of the levy since it came into force.
This reduction has decreased the number of calories consumed from soft drinks and, according to modelling studies, may have prevented thousands of cases of childhood obesity while simultaneously cutting down on tooth decay.
Cutting the threshold from 5g of total sugars per 100ml to 4.5g should bring more drinks within the levy’s scope.
Health secretary: We’re fighting obesity with sugar tax changes
Health Secretary Wes Streeting has pledged not to look away “as children get unhealthier”, as he confirms to MPs that milkshakes will be hit by the sugar tax.
Speaking at health questions in the Commons, Streeting said:
“Obesity robs children of the best possible start in life, hits the poorest hardest, sets them up for a lifetime of health problems and costs the NHS billions.
“So, I can announce to the House, we’re expanding the soft drinks industry levy to include bottles and cartons of milkshakes, flavoured milk and milk substitute drinks.
“We’re also reducing the threshold to 4.5 grams of sugar per 100 millilitres. This Government will not look away as children get unhealthier and our political opponents urge us to leave them behind.”
The decision to lower the threshold within the Soft Drinks Industry Levy to 4.5g per 100ml, down from 5g, means more beverages will be snared by the tax.
The Financial Times reports that the change will catch drinks such as Pepsi, adding:
Many well known brands such as Fanta and Irn-Bru sit at 4.5g and it is unclear if they will be caught by the tax
The public are generally quite pessimistic about the impact which tomorrow’s budget will have on their finances.
A new survey from the Harris Poll UK has found that 61% of people expect the Budget to negatively affect their personal finances. Of these, 36% expect a small negative impact and 25% expect a significant negative impact. Only 26% expect a positive impact and 13% believe it will have no impact at all.
Older generations are significantly more worried about the Budget’s impact. Concern rises steadily with age, reaching 88% among those aged 65+, compared with just 27% of 18–24-year-olds. This reflects “growing financial anxiety among older groups, who are often more exposed to rising living costs”, Harris says.
Milkshakes and lattes hit by Government sugar tax
Britain will end the exemption for pre-packaged milkshakes and milky coffees from an existing tax on sugary drinks from January 2028, the health department has announced.
The sugar tax, also known as the soft drink industry levy (SDIL), is a tax on pre-packaged drinks such as those sold in cans and cartons in supermarkets.
It was introduced by the Conservative government in 2016 to help drive down obesity, particularly among children.
The Health Department has announced that:
-
the government will reduce the current lower threshold at which SDIL applies from 5g of total sugars per 100ml to 4.5g of total sugars per 100ml
-
the government will remove the current exemption for milk-based drinks with added sugar. A ‘lactose allowance’ will be introduced to account for naturally occurring sugars in milk
-
the government will remove the exemption for milk substitute drinks with added sugar. Milk substitute drinks without added sugar will remain outside the scope of SDIL. This includes plant-based drinks that only contain sugars derived from their principal or ‘core’ ingredient
UK bond yields dip ahead of the budget
There’s a small recovery in UK borrowing costs today, as investors await tomorrow’s budget.
The yield, or interest rates, on 10 and 30-year bonds have both dropped slightly, as prices have inched a little higher.
Ten-year gilt yields are down 2.9 basis points to 4.515%, while 30-year yields are down 2.8bps at 5.337%.
Matthew Amis, investment director for rates management at Aberdeen Investments, argues that chancellor Reeves could still positively surprise the gilt market on Wednesday – if she takes effective steps to bring inflation down.
Amis explains:
Having stepped back from income tax hikes, the market noise may yet be behind us – but Reeves has one trick left.
The one rabbit out of the hat could be the extent of the inflation busting measures. If Chancellor Reeves can materially lower inflation, then this could spark the Bank of England’s imagination when it comes to rate cuts in 2026. This would see gilts perform well on Wednesday. If Reeves can lower the cost of living pressures we would assume this would be welcomed by the Labour backbenchers, and maybe the leadership discontent of recent weeks can reduce into year-end. Any perceived reduction in the simmering of tensions within the government would be welcomed by the long-end of the gilt market.
The obvious risk to Reeves and the gilt market is that front-loaded costs to lowering inflation are paid for with a collage of backloaded tax hikes. Any material increase in gilt issuance in the coming years will not be well received.”
UK retailers’ confidence falls at fastest rate in 17 years before budget
Sentiment amongst retailers has fallen at the sharpest rate in 17 years as budget fears mount, a new survey has found.
The CBI’s latest quarterly Distributive Trades Survey, just released, has shown that sentiment among retailers worsened in November to the greatest extent in 17 years – a sign that budget speculation and uncertainty has hurt the economy.
More firms expect their business situation to deteriorate over the coming quarter – this measure has weakened to -35% from -10% in August (meaning that the balance between optimistic and pessimistic companias has deteriorated).
The Distributive Trades Survey, which polled 66 retailers and 95 wholesalers across the UK, also found that retail sales volumes fell at a fast pace in the year to November.
November’s retail sales were judged to be “poor” to a somewhat greater extent than in October.
In a worrying sign for Christmas spending, retailers expect demand to remain subdued heading into December, with sales set to fall again, albeit at a somewhat slower pace.
Alpesh Paleja, deputy chief economist at the CBI, says:
“Retailers continue to grapple with a long spell of weak demand, as households remain cautious around day-to-day spending. With all eyes on the forthcoming Budget, uncertainty in the run-up has meant that businesses are holding back on plans for investment and hiring.
“The Chancellor must avoid pulling the business tax lever once again, at risk of further curtailing firms’ efforts to build a more resilient, dynamic economy. Businesses want bold decisions to wrestle back the government’s fiscal headroom and get the economy on a solid path to prosperity. This includes finding a landing zone for the Employment Rights Bill that doesn’t harm job prospects or shortchange economic growth.”
Dan Coatsworth, head of markets at AJ Bell, cautions that UK banks aren’t definitely off the hook for tax rises tomorrow:
“Reports that UK banks might get a reprieve in this week’s Budget from previously floated new tax measures helped give the likes of Lloyds, Barclays and NatWest a lift and underpinned the FTSE 100’s rise on Tuesday.
“It suggests that some intense lobbying by the industry has paid off, although U-turns have been a theme in UK politics for some time so banking boardrooms may not breathe a full sigh of relief until Rachel Reeves has sat down tomorrow afternoon.”
Analyst: pound could be in for a bumpy ride
The pound is creeping higher today; it’s up a third of a cent at $1.3134 against the US dollar.
Kathleen Brooks, research director at XTB, reports that the foreign exchange (FX) market is “nervy” ahead of the UK budget:
With taxes and spending on benefits and welfare payments expected to rise, the pound could come under pressure as the FX market questions whether this government can deliver growth. More FX traders are buying downside protection for the pound in the run up to this budget, and the 1-month GBP/USD risk reversal is trending lower. Thus, it could be a bumpy ride for the pound in the coming weeks.
The pound is one of the weakest currencies in the G10 FX space since the start of Q4, and is lower by 2.8% vs. the USD and by nearly 1% vs. the EUR. These losses have slowed since the start of this month; however, this is not a sign that the market has warmed to sterling. Instead, the market could be waiting for another driver to send the pound lower, and an unconvincing budget both regarding growth and long-term fiscal consolidation, could tip GBP over the edge, sending it below $1.30 vs the US dollar.
