Strengthening the Soft Drinks Industry Levy consultation

Question 1

Summary

Accepted Answer

Subject of this consultation

Proposed changes to the Soft Drinks Industry Levy (SDIL).

Scope of this consultation

The government announced at Autumn Budget 2024 a review of the SDIL to identify opportunities to improve its effectiveness at reducing sugar in soft drinks. The government is not seeking to revisit the SDIL’s fundamental design and scope; the SDIL will remain a tax on pre-packaged soft drinks with added sugar.

This consultation sets out proposals for changes to the minimum sugar content threshold at which the levy applies, and the current exemptions for milk-based drinks and milk substitute drinks.

The government welcomes your views on these proposals as part of this consultation and your feedback will inform decisions taken by HM Treasury ministers. Following this consultation, the government expects to confirm the final policy at Autumn Budget 2025.

Who should read this

Individuals, consumers, or organisations that are directly affected by changes to the levy, or are otherwise interested in the SDIL, its policy scope and public health objectives.

Duration

The consultation will run from 28 April 2025 to to 21 July 2025.

Lead officials

This is a joint consultation between HM Revenue and Customs (HMRC) and HM Treasury (HMT) and responses will be considered by a joint HMT and HMRC policy team.

The lead officials from each department are:

Philip McCall, Indirect Tax, HMRC
Katie Latimer, Business and International Tax, HMT

How to respond or enquire about this consultation

Please use the online form to respond to this consultation. Email enquiries or responses should be sent to SDILconsultation@hmrc.gov.uk.

Written responses can be posted to:

SDIL Consultation Team
Indirect Tax, Floor 8(D)
HM Revenue and Customs
31 Water Street
L2 0RD

Additional ways to be involved

To engage with groups who would be affected by the proposals and issues under discussion in this consultation, the government will engage with key stakeholders and interested parties during the consultation process. A joint team from HMT and HMRC will consider written submissions and research provided by respondents.

After the consultation

Written returns received in response to these questions will be shared between HMT and HMRC policy officials working on the consultation for the purpose of developing government policy and for advising HMT ministers. Responses will be considered before any changes to the SDIL are confirmed and a formal response document will be published. If the government decides to make changes to the levy, HMRC will subsequently publish a technical consultation on draft legislation.

Getting to this stage

Since its announcement in 2016, the SDIL has successfully led to extensive product reformulation, with a 46% reduction in the sugar in soft drinks in scope of the levy. Between 2015 and 2019, 65% of soft drinks that contained more than 5g sugar per 100ml reformulated to below 5g, bringing the total proportion of the market with less than 5g sugar per 100ml to 89%. However, UK sugar intakes remain around double the recommended levels.

In this context, the government announced a joint HMT and HMRC review of SDIL at Autumn Budget 2024. This review considered the effectiveness of the existing thresholds, and the current exemptions for milk-based and milk substitute drinks. This review is now concluded with the outcome being the policy proposals included in this consultation.

Previous engagement

Since the announcement of the review in October 2024, officials have held meetings with, and reviewed written returns from, several industry and academic stakeholders, as well as relevant government departments, to help shape the changes on which the government is now consulting.

Question 2

Foreword

Accepted Answer

As a government, the principle that prevention is better than cure underpins our mission to tackle the underlying drivers of ill health and persistent health inequalities.

Our nation faces the formidable challenge of persistently high rates of obesity and overweight, affecting nearly two-thirds of adults and a third of children. This epidemic costs the health service an estimated £19 billion a year and the economy an estimated £15 billion annually. However, this is not an inevitability.

The SDIL demonstrates what can be achieved by combating the root causes of excess sugar consumption. With the right incentives, the industry has successfully removed nearly half (46%) of the sugar from the drinks in scope of the levy. 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.

The SDIL is a key part of the government’s strategy to combat obesity, alongside regulations on the promotion and advertising of less healthy foods. It also plays an important role in our economic strategy by fostering a healthier workforce, as outlined in the Get Britain Working White Paper.

We recognise that many products have been reformulated to just below the 5g sugar per 100ml threshold. Nearly a decade on, we believe it is time to set a more ambitious target. In addition, while there is no doubt about the nutritional benefits of plain milk, it remains an anomaly that sugary pre-packaged milkshakes and other milk-based drinks are exempt from the levy.

This consultation outlines pragmatic steps to extend the SDIL’s reach and amplify its impact. We propose measures that could save thousands more from becoming overweight or living with obesity, ensuring the levy remains fair, robust, and effective while minimising burdens on businesses. Your feedback is crucial to refining these proposals and achieving our shared objectives.

We invite you to participate in this consultation and contribute to a healthier future for our country.

James Murray
Exchequer Secretary to the Treasury

Ashley Dalton
Parliamentary Under-Secretary of State for Public Health and Prevention

Question 3

1.  Executive summary

Accepted Answer

The Prime Minister has set out his focus on moving from ‘sickness to prevention’ as part of the Health Mission. Only by preventing illnesses and chronic conditions before they happen can we put the NHS back on its feet, grow the economy, and see the people of the UK living healthier and happier lives. The public and private sectors each have a role to play to achieve this objective. A key step is changing industry incentives, as the SDIL has shown.

Health Survey for England data shows that 64% of adults aged 16 years and over were overweight or obese in 2022, up from 53% in 1993. In that same time, obesity has risen from 15% to 29%. Childhood obesity has also increased over the last few decades with 2022 NHS data showing 37% of year 6 children overweight or living with obesity.

It is estimated that the annual cost to the NHS of adult overweight and obesity in the UK is £19 billion, and the cost to the economy through lower productivity is £15 billion. The combined health and economic cost, £35 billion, is equivalent to one third of the UK’s education spending in 2022 to 2023. According to Organisation for Economic Co-operation and Development (OECD) analysis, between 2020 and 2050, overweight, obesity and related diseases will reduce life expectancy by about 3 years across the OECD, EU27 and the UK, and G20 countries.

Children’s sugar intake in the UK is more than double the recommended maximum of no more than 5% energy from free sugar, with 12% of total energy in children aged 4 to 18 years coming from free sugars. 17% of free sugars consumed by 11 to 18 year-olds come from soft drinks.

Since its announcement in 2016, the SDIL, which is a levy that applies to the production and importation of soft drinks containing added sugar, has successfully encouraged extensive product reformulation, with a 46% average reduction in sugar in soft drinks in scope of the levy between 2015 and 2020.

However, given the continued scale of the challenge, and looking to build on the existing success of the levy, the government has reviewed the SDIL’s operation and structures with a view to further reducing sugar consumption from soft drinks. The government is now specifically consulting on the following changes to the SDIL:

reducing the minimum sugar content at which the SDIL applies to qualifying drinks from 5g to 4g total sugar per 100ml. The SDIL standard rate would apply from 4g to 7.9g total sugar per 100ml, rather than 5g to 7.9g total sugar per 100ml as it currently does
removing the exemption for milk-based drinks whilst introducing a ‘lactose allowance’ to account for the natural sugars in the milk component of these drinks
removing the exemption for milk substitute drinks with ‘added sugars’ beyond those sugars derived from the principal ingredient, such as oats or rice

This consultation addresses each of these proposals sequentially, before giving account of the expected impacts of the whole package in Chapters 7 and 8.

Where the proposed changes to the SDIL are successful in influencing behaviour and lowering consumption of high sugar drinks, positive health and economic outcomes are expected from reduced calorie intake in diets. Indicative DHSC analysis estimates per person per day calorie reductions of 0.9 kcal in 5 to 10 year-olds, 2.1 kcal in 11 to 18 year-olds, 1.2 kcal in 19 to 64 year-olds, and 0.5 kcal in those 65 and over. This is equivalent to around 15 million kcal per day in children and 46 million kcal per day in adults on a population level in England. These calorie reductions could achieve health and economic benefits of around £4.2 billion over 25 years, including:

reduced morbidity could result in reduced cost pressures to the NHS, resulting in NHS savings of £0.1 billion
wider health benefits to the population through improved quality of life (reduced mortality and premature morbidity) are estimated to be worth around £3.1 billion
social care savings could amount to £0.1 billion
reduced morbidity and premature mortality could be expected to deliver around £0.8 billion economic output through additional labour force participation

Question 4

2. 	Introduction

Accepted Answer

UK government action on health

The Scientific Advisory Committee on Nutrition (SACN) concluded in its 2015 report, Carbohydrates and health, that free sugars should contribute no more than 5% to daily energy intakes. This was based on its findings that a high intake of sugar increases the risk of both weight gain and dental decay, and that greater consumption of sugar sweetened drinks is linked to an increased risk of weight gain and a higher BMI in children and adolescents, and associated with an increased risk of type 2 diabetes. It concluded that reducing sugar intake would reduce these risks and that the consumption of sugar sweetened drinks should be minimised by both adults and children. SACN’s recommendations were accepted by all parts of the UK government.

Successive governments have taken action to reduce levels of obesity and sugar consumption. This includes regulations to limit the placement of food and drink containing high levels of saturated fat, sugar and salt (HFSS) in certain places in supermarkets; and additional regulation to limit the advertising of HFSS food and drink, which comes in to force in October 2025. A voluntary reformulation programme, focused on foods that contribute most to sugar intakes of children aged up to 18 years, has produced sugar reductions of around 15% in breakfast cereals, 14% in yogurts and 7% in ice creams and sorbets.

SDIL – current operation and impacts

The government announced at Budget 2016 that it would introduce a new SDIL. Following public consultation, the SDIL was implemented from April 2018. The levy incentivises producers and importers of sugary soft drinks to remove added sugar and promote lower sugar alternatives.

SDIL is a tax on pre-packaged soft drinks with added sugar. It currently only applies to qualifying drinks with at least 5g total sugar per 100ml. SDIL is charged at its standard rate (£1.94 per 10 litres) on drinks with 5g to 7.9g total sugar per 100ml (lower band), and at a higher rate (£2.59 per 10 litres) for drinks with 8g or more total sugar per 100ml (higher band).

The levy does not apply to drinks that are:

an alcohol replacement, such as de-alcoholised beer or wine
made with fruit juice or vegetable juice and do not have any other added sugar
liquid drink flavouring that is added to food or drinks like coffee or cocktails
sold as a powder
prepared by mixing liquids and served in an open container, such as cocktails or mocktails
infant formula, follow on formula or baby foods
formulated food intended as a total diet replacement, or dietary food used for special medical purposes
at least 75% milk
a milk substitute, such as soya or almond milk, containing at least 120mg of calcium per 100ml
have an alcohol content of more than 1.2% alcohol by volume (abv)

‘Added sugar’ includes ‘sugar’ (calorific monosaccharides or di-saccharides) or substances containing ‘sugar’. Soft drinks are not treated as containing ‘added sugar’ where the only sugar they contain comes from fruit juice, vegetable juice or milk.

Between the initial SDIL announcement in 2016 and 2020, and due to the proactive response from the soft drinks industry, extensive product reformulation led to a 46% reduction in the sales weighted average sugar content in manufacturer branded and retailer own brand soft drinks within the scope of the levy.

As a result of this extensive reformulation by the soft drinks industry, and the SDIL’s sugar threshold design, 89% of soft drinks sold in the UK do not pay the SDIL, as they contain less than 5g of total sugar per 100ml.

The SDIL receipts for the 2023 to 2024 financial year were approximately £338 million, 95% of which is paid at the higher rate (drinks containing 8g or more total sugar per 100ml).

Evidence suggests that sugar reductions delivered by the levy could have prevented up to 5,000 cases of obesity in girls in the last year of primary school (aged 10 to 11 years) with reductions being greatest in girls who attended schools in the most deprived areas. Data also suggests that the levy was associated with a 28.6% and 5.5% relative reduction in the incidence of hospital admissions for dental caries related tooth extractions for children aged 0 to 4 years and 5 to 9 years, respectively, with reductions observed irrespective of deprivation status.

Uprating of the levy

The SDIL’s rates, which are expressed in nominal, cash terms, were unchanged between the levy’s introduction in 2018 and 1 April 2025. As announced at Autumn Budget 2024, to protect its real terms value, both the standard and higher rates of the SDIL will increase each year over 5 years to catch up for inflation between 2018 and 2024 – a 27% Consumer Price Index (CPI) increase. Annual rate increases will take place on 1 April, starting on 1 April 2025, and will also reflect future yearly CPI increases. The increment for inflation between 2018 to 2024 will be evenly spread between the 5 upratings from 2025 to 2029 inclusive. On 1 April 2025, the rates were also adjusted to apply per 10 litres so that rate changes can be made in smaller increments, to reflect CPI changes more precisely.

The SDIL review and outcome

At Autumn Budget 2024, the Chancellor announced that the government would review the current SDIL sugar content thresholds and the current exemptions for milk-based and milk substitute drinks. All contributions from stakeholders have been welcomed as part of this review, which concludes with the publication of this consultation.

The scope of the review was to:

consider lowering the 5g sugar threshold, with possible alignment to the Nutrient Profiling Model (NPM)
consider removing the exemption for milk-based drinks and milk substitute drinks
consider increasing the higher rate or creating a third, higher rate for the most sugary drinks (for example, a total sugar content of 10g and above)

The interaction of the NPM with the proposal to change the 5g sugar threshold is addressed in section 4 of this consultation document.

The proposals to end the exemption for milk-based drinks and milk substitute drinks are outlined in sections 5 and 6 of this consultation document.

Following discussions with stakeholders during the SDIL review, and the uprating strategy announced at Autumn Budget 2024, the government is not consulting on any changes to the higher SDIL rate, nor the creation of a third SDIL band for the most sugary drinks. As with all taxes, the government keeps SDIL rates under review as part of its Budget process.

Policy options and scope of the consultation

The 5g threshold has been treated as a ‘target’ for reformulation, with 89% of soft drinks sold in the UK below the threshold, following an impressive reformulation effort. However, with a concentration of products now sitting between 4g and 4.9g, it is clear that more can be done, so the government is consulting on reducing the 5g threshold to 4g, to build on existing success with a more stretching reduction.

The milk-based drinks exemption was initially provided due to concerns about calcium consumption, especially among young people. For parity of treatment between animal milk and alternatives to it, milk substitutes are also exempt from the SDIL provided they contain at least 120mg of calcium per 100ml.

Milk-based drinks were included in the Department of Health’s voluntary sugar reduction programme (SRP) due to their exempt status in the SDIL. Like other products, they were challenged to reduce sugar content by 20%. The latest outputs from the programme indicated that manufacturers exceeded this target, with a reduction of 29.7% in the sales weighted average sugar per 100ml between 2017 and 2020 for manufacturer branded and retailer own brand pre-packed milk-based drinks. However, this is considerably less than the 46% reduction in products covered by SDIL, and the underlying data shows inconsistent reduction across different products with many milk-based and milk substitute drinks remaining high in sugar.

Therefore, the government is reconsidering the case for the exemption. There is strong evidence that excess intake of sugar increases the risk of weight gain. Being overweight increases the risk of heart disease, stroke, type 2 diabetes, and some cancers. High sugar intake also increases the risk of tooth decay. As young people only get 3.5% of their calcium intake from milk-based drinks, it is also likely that the health benefits do not justify the harms from excess sugar.

By bringing milk-based drinks and milk substitute drinks into the SDIL, the government would introduce a tax incentive for manufacturers of these drinks to build on existing progress and further reduce sugar in their recipes.

Out of scope of this consultation

The proposals in this consultation seek to build on the SDIL’s substantial success to date, which stems in large part from its targeted nature. For this reason, the government is not seeking to revisit the fundamental design and scope of the SDIL. The SDIL will remain a tax on pre-packaged soft drinks with added sugar. This means that foods, alcoholic drinks, soft drinks with only natural sugars such as cows’ milk and pure fruit juice, and drinks made on-site in cafes, bars, etc., will not be considered as part of this consultation.

Small producers, as defined in Section 37 of the Finance Act 2017, will remain exempt. On this definition, a small producer is one that has produced one million litres or less (worldwide) of liable drinks over the past 12 rolling months and will not produce over one million litres of liable drinks in the next 30 days.

What is the government consulting on?

This consultation sets out the policy proposals for changes to the levy to ensure it maintains effective and fit-for-purpose.

Chapters 4 to 6 set out exactly what issues the government is consulting on and include a number of specific questions on:

reducing the minimum sugar content at which the SDIL applies to qualifying drinks from 5g to 4g. The SDIL standard rate would apply from 4g to 7.9g total sugar per 100ml, as opposed to 5g to 7.9g total sugar per 100ml currently
removing the exemption for milk-based drinks whilst introducing a ‘lactose allowance’ to account for the natural sugars in the milk component of these drinks
removing the exemption for milk substitute drinks with ‘added sugars’ beyond those sugars derived from the principal ingredient, such as oats or rice

Question 5

3. 	About you

Accepted Answer

Businesses, organisations, and individuals may have different perspectives, and we are interested in understanding the context of the answers you give to all the questions in this consultation.

Question 1: If you are a business please specify which of the following describe your business. You can choose more than one option:

a UK producer of soft drinks to which you own the brand
a UK ‘contract’ or licensed producer of soft drinks on behalf of someone else
a UK packager of soft drinks that you have produced
a UK packager of soft drinks that someone else has produced
an overseas producer of soft drinks
an importer of soft drinks into the UK
a UK retailer
a UK wholesaler or distributer.
a business providing goods or services that support the production, packaging, importation or supply of soft drinks in the UK (please provide further details)
none of the above

Question 2: If you are a type of business not listed in question 1, or want to give more information about your business, please provide details.

Question 3: Are you an individual? If so, please tell us your interest in this consultation.

Question 4: Are you an organisation? If so, please provide further details (for example trade or health body).

Question 5: If you are a business, where is your business established?

UK
Isle of Man
EU – please state
non-EU – please state
not applicable

Question 6. If you are in business, how many staff do you employ across the UK?

fewer than 10
10 to 100
101 to 500
more than 500
not applicable

Question 6

4.  Increasing reformulation of soft drinks with less than 5g sugar per 100ml

Accepted Answer

When the introduction of the SDIL was announced at Budget 2016, soft drinks manufacturers and producers were given 2 years’ advance notice prior to its implementation. The announcement both acted as a prompt to reformulate for those that had not started and a catalyst for those that were already reducing sugar levels. Major reformulating brands moved products to a sugar level just below the 5g per 100ml levy threshold and hence avoided the levy when it was introduced. This showed that large scale reformulation is possible.

As a result of product reformulation between 2015 and 2020, the sales weighted average total sugar content in manufacturer branded and retailer own brand soft drinks in scope of the levy fell from 3.8g per 100ml to 2.1g per 100ml; a decrease of 46%.

The levy effectively created a ‘target’ of just below the 5g threshold, and products have clustered below 5g as a result. In the latest published analysis, there are 866 products between 4g and 4.9g of total sugar per 100ml, of which 221 lie between 4g and 4.5g.

The level of reformulation by businesses has also been influenced by alignment with the points for sugar given in the Nutrient Profiling Model (NPM) which classifies foods and drinks that are high in saturated fat, sugar and salt (HFSS) and underpins regulations on advertising and product placement. The NPM attempts to balance the contribution made by ‘beneficial’ components/nutrients of food and drink alongside the negative contributions from nutrients where intakes are higher than recommended. Under the current version of the NPM, a drink will be classified as HFSS if it has a net score of 1 or more. To score 1 point for total sugars, it must contain more than 4.5g sugar per 100g, however this needs to be converted to 4.5g per 100ml to give an equivalent value for liquids. This exact conversion will vary depending on a drink’s specific gravity but will generally be slightly higher than 4.5g per 100ml.

We have considered whether the SDIL minimum sugar content threshold could, and should, align with the NPM. There are both practical and principled challenges with this. Practically, it would be complex to align the SDIL, which applies only to drinks and is based only on sugar content, with the NPM, which scores both foods and drinks by balancing beneficial and negative nutrients. However, more importantly, evidence shows that products have been reformulated to just below the HFSS threshold. This means that aligning with the NPM (to 4.5g total sugars per 100g) would be unlikely to drive extensive reformulation and bring the associated health benefits that setting a lower, more challenging target, will.

The government is therefore consulting on reducing the minimum sugar threshold to 4g as it believes this would encourage further reformulation of the products that currently lie between 4 and 4.9g of sugar per 100ml, by setting a more ambitious sugar reduction target.

Reducing the minimum sugar threshold to 4g would capture an additional 17% of sales volumes (meaning drinks currently between 4g and 4.9g) of the total market of soft drinks to which SDIL would apply were it not for the current 5g minimum threshold. The fact that over two-thirds of this market (73%) is already below 4g of sugar indicates that this lower target is achievable.

We acknowledge that this new target asks more from the soft drinks industry – which has already achieved substantial sugar reductions. We welcome feedback on how this can be best achieved, whilst allowing appropriate time for reformulation and giving sufficient certainty to business to support planning. As with SDIL’s initial introduction, we would expect to allow 2 years between consultation and implementation, with changes taking effect on 1 April 2027.

Questions

Question 7. What impact, if any, would a reduction in the SDIL minimum sugar threshold to 4g total sugar per 100ml have on your business? Please provide evidence to support your position.

Question 8: For those soft drinks producers affected by a reduction in the SDIL minimum threshold to 4g total sugar per 100ml – would you reformulate your products to below this threshold? Please provide evidence to support your position.

Question 9: Would it be easier for soft drinks producers to achieve incremental reductions in sugar content, for example, gradually reformulating over time to reach 4g total sugar per 100ml, or to go straight to 4g total sugar per 100ml? Please provide evidence to support your position.

Question 10: How long would soft drinks producers need to reformulate products to below 4g total sugar per 100ml? What variables would speed this up, or slow it down? Please provide evidence to support your position.

Question 11: What are the technical challenges in creating soft drinks with under 4g total sugar per 100ml? Please provide evidence to support your position.

Question 12: What unintended consequences (if any), including risk of non-compliance, could arise if the threshold is lowered to 4g total sugar per 100ml? How could businesses and the government mitigate these risks?

Question 7

5. 	The treatment of milk-based drinks

Accepted Answer

At Autumn Budget 2024 the government announced its intention to reconsider the current milk-based drink exemption in the SDIL. The exemption applies to milk-based drinks with added sugar and at least 75ml of milk per 100ml. Following engagement as part of the recent SDIL review, the government is now consulting on a proposal to end this exemption, whilst introducing a ‘lactose allowance’ into the SDIL to account for the naturally occurring sugar in the milk component of these drinks.

Plain milk and milk-based drinks with no added sugar are not in scope of the SDIL and this will remain the position going forward. Milk can be part of a healthy balanced diet as set out in the Eatwell Guide.

When the SDIL was implemented in April 2018, the milk-based drinks exemption was included due to concern that one in 5 teenage girls did not get enough calcium in their diet. These drinks were subsequently included in the SRP and the government stated that the sector’s performance against industry sugar reduction targets would be monitored and reviewed, alongside the continued case for the exemption of milk-based drinks in the levy.

Whilst young people still do not consume the recommended level of calcium, milk-based drinks are not a significant contributor to intakes. Milk-based drinks only provide up to 3.5% of calcium intakes for children aged 11 to 18 years, compared with 25% from plain milk, and 38% from cereal products, including fortified white bread. When weighed against the harms of excess sugar, the contribution these drinks make to calcium intakes does not justify their continued exemption from the SDIL. In the latest analysis from the Department of Health there are 203 pre-packed milk‐based drinks on the market that have a total sugar content of 5g or above per 100ml, comprising 93% of sales (in litres) in the pre-packed milk-based drink category.

By bringing these drinks into the SDIL, the government would introduce a tax incentive for manufacturers of these drinks to reduce sugar in their recipes. The SRP saw a reduction in the sales weighted average sugar per 100ml of 29.7% for prepacked milk-based drinks between 2017 and 2020. However, this is considerably less than the 46% sugar reduction in products covered by the SDIL.

To ensure a consistent approach that recognises the health benefits of plain milk, and accounts for naturally occurring lactose in milk, we propose to introduce a lactose allowance into the SDIL. The level of lactose allowance will vary depending on the percentage milk content of a milk-based drink. This is for fairness, so that a drink that is 90% milk receives a greater allowance for naturally occurring lactose than a drink that is 75% milk.

We propose to use the average lactose content of semi-skimmed milk (4.8g lactose per 100ml of milk) as the baseline for calculating the lactose allowance for a milk-based drink. To calculate a specific drink’s lactose allowance, the taxpayer would multiply 4.8g by the percentage milk content of the drink in question. For example, a drink containing 75% milk will get an allowance of 4.8g x 75% = 3.6g per 100ml. This lactose allowance would then be added to the relevant SDIL thresholds such that the drink would only be liable for the SDIL if it is equal or greater than the SDIL minimum threshold + 3.6g. Under the proposals in Section 4, this would be 4g sugar per 100ml + 3.6g lactose per 100ml = 7.6g. The lactose allowance should also be added to the SDIL higher threshold, if applicable.

The calculation of the lactose allowance will sometimes result in a figure with 2 decimal places (hundredths). As sugar content is usually expressed to one decimal place (tenth), we propose rounding down amounts up to four-hundredths to the nearest tenth and rounding up to the nearest tenth, five-hundredths and above.

For example:

for a drink containing 74% milk content, the lactose allowance calculation would result in a figure of 3.55g of lactose, which we propose rounding to 3.6g of lactose
for a drink containing 53% milk content, the lactose allowance calculation would result in a figure of 2.54g of lactose. We propose rounding to 2.5g of lactose

As part of the recent review of the SDIL, and specifically regarding the removal of the milk-based drinks exemption, some stakeholders have queried the treatment of milk-based fermented yogurt drinks and dissolvable powders. On milk-based fermented yoghurt drinks, we note that the removal of the exemption will affect all milk-based drinks that are currently covered by it, and that the current SDIL legislation provides for ‘milk’ and ‘milk-based drinks’ to include ‘fermented milk’. The treatment of dissolvable powders was considered in the 2016 consultation and subsequently excluded from the SDIL. There would therefore need to be a compelling case to warrant a redesign of the SDIL to include powders. We invite relevant evidence on both these product categories.

Questions

Question 13: Do you agree that the exemption for milk-based drinks with added sugar should be removed? Please provide evidence to support your position.

Question 14: Is the proposed method of calculating the lactose allowance for milk-based drinks an appropriate way to account for the naturally occurring lactose in those drinks?

Question 15: If you don’t agree with the proposed method of calculation, what alternative method of calculating the lactose content in milk-based drinks would you suggest and why?

Question 16: What mechanisms or controls should be put in place to ensure the method of calculating the lactose allowance is applied consistently?

Question 17: For soft drinks producers – how would you typically measure the lactose content of your milk-based drink?

Question 18: Should a milk-based drink have a minimum milk content (for instance, 75ml per 100ml) to qualify for a lactose allowance? Please provide evidence to support your position.

Question 19: Other than the naturally occurring lactose in milk, what do you see as the main challenges for soft drinks producers when reformulating milk-based drinks to reduce sugar? Please provide evidence to support your position.

Question 20: What would be a typical timeline for product reformulation of a milk-based drink to below a 4g minimum SDIL threshold (plus lactose allowance)? Please provide evidence to support your position.

Question 21: For those soft drinks producers affected by the removal of the milk-based drinks exemption – would you reformulate your products to below a 4g minimum SDIL threshold (plus lactose allowance)? Please provide evidence to support your position.

Question 22: Should milk-based fermented yoghurt drinks be treated differently compared to other milk-based drinks? Please provide evidence to support your position.

Question 23: Should the government consider including dissolvable powders in the SDIL? Please provide evidence to support your position.

Question 8

6.  The treatment of milk substitute drinks

Accepted Answer

When the SDIL was implemented, all milk substitute drinks (for example plant-based drinks such as soya, almond or oat drinks) were exempted provided they contained 120mg of calcium per 100ml. This offered alternatives to, and parity with, plain milk. It also means that flavoured milk substitute drinks with added sugar are also exempt from SDIL, provided they meet the minimum calcium requirement. This applies both to plain and flavoured varieties of milk substitute drinks, and therefore offers parity with the current treatment of milk-based drinks.

In light of the proposal in Section 5 to remove the milk-based drinks exemption, the government is consulting on changing the treatment of milk substitute drinks. The proposal is that the current milk substitute exemption will be removed, but drinks with sugars only released from their principal, or ‘core’, ingredient will be out of scope of SDIL, on the basis that they do not have ‘added sugar’. This is to maintain consistency of treatment between milk substitute drinks and plain animal milks – both of which will be outside the scope of the SDIL – whilst bringing into SDIL milk substitutes with added sugar, including the flavoured varieties that could be consumed as alternatives to flavoured milk-based drinks.

Most milk substitute drinks that are marketed as an alternative to dairy milks are available in sweetened (that is, with added sugars), unsweetened (no added sugar) and ‘no sugar’ versions. Unsweetened versions may still contain some sugars, which are released during the manufacturing process. Increasingly, manufacturers are bringing out no sugar versions of milk substitute drinks.

UK dietary guidelines advise that unsweetened, calcium-fortified milk substitute drinks, made from plants like soya, almond or oats, count as part of the ‘milk and dairy’ group in the Eatwell Guide and can make good alternatives to dairy products. These drinks can also be given to children from one year old as part of a healthy balanced diet. Unsweetened fortified milk substitute drinks also provide an option for people who cannot or choose not to consume cows’ milk because of allergies, religious or ethical reasons.

However, this guidance does not extend to milk substitute drinks with added sugar, many of which are flavoured. Currently the majority of flavoured milk substitute drinks sales are from products containing 4g or more sugar per 100ml.

The government therefore proposes to remove the current milk substitute exemption (based on calcium content) and bring milk substitutes (flavoured or plain) with added sugar into the SDIL. If any sugars (as defined in the introduction) other than the principal agreement are added to a milk substitute drink the SDIL thresholds will apply, based on total sugar content (g) per 100ml. Total sugars include those naturally present or released by the principal ingredient during manufacturing, plus added sugars.

We recognise that some milk substitute drinks, such as rice drinks, contain sugars that are released during the manufacturing process. To continue to keep these drinks outside of the levy, we propose that sugars derived from the principal or ‘core’ ingredient, such as oats in ‘oat milk’ (meaning those naturally present or released during manufacturing) be excluded from the definition of ‘added sugars’ in these drinks.

For example:

an oat ‘milk’ containing the ingredients water, oats, sunflower oil and salt, with a total sugar content of 4.2g per 100ml, would not pay the SDIL. As the sugar comes from the principal ingredient, oats (when processed), it would not be considered an ‘added sugar’ under this proposal
a rice ‘milk’ containing the ingredients water, rice, sugar, sunflower oil and salt with total sugar content of 6.5g per 100ml, would pay the SDIL as the drink contains added sugar

We expect removing the exemption to have a negligible effect on the tax treatment of plain milk substitute drinks as this affects a very small minority of these products – very few have both (a) added sugars as defined above and (b) at least 4g per 100ml of total sugars.

Questions

General

Question 24: Do you agree that the exemption for milk substitute drinks with added sugar should be removed? Please provide evidence to support your position.

Question 25: For milk substitute drinks where sugars are naturally released from the principal ingredient during the manufacturing process, do you support the proposal to keep these drinks out of scope of the SDIL? Please provide evidence to support your position.

Impacts

Question 26: For those soft drinks producers affected by the removal of the milk substitute drinks exemption – would you reformulate your products to below a 4g total sugar per 100ml SDIL threshold? Please provide evidence to support your position.

Question 27: Will removing the exemption change soft drinks producers’ approach to calcium fortification of milk substitute drinks? If so, what impact will it have and why? Please provide evidence to support your position.

Question 28: Is the proposed approach – meaning, to exclude from the scope of the SDIL milk substitute drinks only containing sugars derived from the principal ingredient – a practical and appropriate way to keep unsweetened milk substitute drinks out of scope of the SDIL? Would you propose an alternative approach? Please provide evidence to support your position.

Question 29: Is the language ‘sugars derived from the principal ingredient’ clear and sufficient to describe the sugars released from the core ingredient, such as oats, in the manufacturing process? If not, how could we improve the definition to ensure it is consistently applied across different types of milk substitutes?

Question 30: Should other nutritional factors be considered when determining the exemption for milk substitute drinks?

Question 9

7.  Assessment of impacts

Accepted Answer

Exchequer impact (£m)	The exchequer impact of any changes will be confirmed following the consultation and as part of a Budget.
Economic impact	This measure is not expected to have any significant macroeconomic impacts – on the basis that the levy is limited to soft drinks, and only 18% of UK soft drink sales are affected. We would expect producers of soft drinks affected by the new minimum sugar threshold to reformulate their product mix by lowering sugar content, promoting lower sugar alternatives, and reducing portion sizes. There would also be a behavioural response resulting from any change to the associated prices. The direct impact of the proposed changes on CPI inflation is expected to be negligible (an impact of less than 0.01 ppts). The Office for Budget Responsibility (OBR) will assess the full economic impact prior to confirmation of the policy.
Impact on individuals and households	Changes to the SDIL that encourage reformulation are expected to have a positive impact on the health of individuals in the UK. Excess sugar consumption is associated with obesity and excess weight, which increases the likelihood of individuals developing a wide range of serious health problems, such as type 2 diabetes, heart disease and a number of cancers. These health conditions can have major costs for individuals and families and can reduce individuals’ quality of life and ability to work. This measure will have an indirect impact on individuals, families and households who consume soft drinks containing at least 4 grams of sugars per 100 millilitres. This is because, where there is no reformulation, it is likely that businesses and importers will ‘pass through’ the SDIL charge to consumers in the form of increased prices. However, in practice, based on evidence from when the SDIL was initially introduced, we would expect significant reformulation of soft drinks. There is expected to be no impact on individuals’ experience of dealing with HMRC. Changes to the SDIL are not expected to impact on family formation, stability, or breakdown. Any future impacts of reforms, if taken forward by the government after consultation, will be fully examined and detailed.
Equalities impacts	Individuals from all protected groups are likely represented in the consumers of soft drinks who will be impacted by the SDIL. Changes to the SDIL will affect different elements of the population differently depending on the underlying pattern of consumption. HMRC does not hold protected characteristic data on consumers of soft drinks, therefore it is not possible to assess whether any protected groups are overrepresented in the impacted population. Any future impacts of reforms, if taken forward by the government after consultation, will be fully examined and detailed.
Impact on businesses and Civil Society Organisations	This measure may affect producers and importers of affected drinks – particularly those brought newly into the scope of the SDIL – as they may reformulate their product, face new tax liabilities and engage with new compliance processes. It may also have an indirect effect on businesses in their supply chains. There are around 200 UK producers and importers of soft drinks that are not already registered for the SDIL, including those that make or sell milk-based and milk-substitute drinks. We expect the administrative impact of the measure to carry costs to these businesses. However, there is some uncertainty, and we intend to use the consultation to understand these impacts in more detail. Businesses will incur one-off costs of familiarisation with the new rules and training for staff, registration with HMRC, and developing the required reporting framework to complete SDIL returns. There will also be continuing costs including completing, filing and paying quarterly returns, keeping appropriate records and amending returns. However, compliance should not be too challenging for most businesses. It is expected that businesses will already keep most of these records as good business practice. Guidance on completing SDIL related tasks has been available on gov.uk since 2018 when the levy was first introduced. Reporting occurs through an easily accessible, fully digital online service. The smallest producers, producing less than a million litres a year, will remain exempt from the levy. There are no anticipated impacts on civil society organisations. The indirect impact on supply chains – and dairy farmers in particular - is expected to be negligible. Milk-based drinks are estimated to form less than 2% of the overall utilisation of British milk. Any demand or price impact as a consequence of the SDIL will therefore be minor.
Impact on HMRC or other public sector delivery organisations	There is likely to be no/minimal impact as HMRC already administers the SDIL and any activity relating to non-compliance. However operational impacts will be reviewed when the consultation has closed, final decisions are made, and we understand the changes necessary for HMRC’s IT systems and processes to implement those decisions.
Other impacts	Other impacts have been considered and none have been identified

Question 10

8.  Health benefits assessment

Accepted Answer

Where the proposed changes to the SDIL are successful in influencing behaviour and lowering consumption of high sugar drinks, positive health and economic outcomes are expected from reduced calorie intake in diets.

Indicative Department of Health and Social Care (DHSC) analysis estimates per person per day calorie reductions of 0.9 kcal in 5 to 10 year-olds, 2.1 kcal in 11 to 18 year-olds, 1.2 kcal in 19 to 64 year-olds, and 0.5 kcal in those 65 and over (equivalent to around 15 million kcal per day in children and 46 million kcal per day in adults) by:

reducing the lower sugar threshold to 4g per 100ml (currently at 5g per 100ml),
removing previous exemptions for milk-based and milk substitute drinks

These calorie reductions could achieve health and economic benefits of around £4.2 billion over 25 years, including:

reduced morbidity could result in reduced cost pressures to the NHS, resulting in NHS savings of £0.1 billion
wider health benefits to the population through improved quality of life (reduced mortality and premature morbidity) are estimated to be worth around £3.1 billion
social care savings could amount to £0.1 billion
reduced morbidity and premature mortality could be expected to deliver around £0.8 billion economic output through additional labour force participation

The contribution to the calorie reduction from the 2 proposed changes to SDIL varies by age group, however, as an example for those aged 19 to 64 the contribution is:

85% for reducing the lower sugar threshold
15% for removing the previous exemptions for milk-based and milk substitute drinks

Methodology statement

Background

The SDIL was announced in 2016 and implemented in 2018. It applies to manufacturers and importers of added sugar soft drinks that contain 5g total sugars per 100ml or more. The current SDIL bands and rates are:

lower rate (£1.94 per 10 litres) applied to drinks with total sugar content between 5 grams (g) and 7.9g per 100ml
higher rate (£2.59 per 10 litres) applied to drinks with total sugar content equal to or greater than 8g per 100ml

No SDIL is applied to drinks containing less than 5g sugar per 100ml. Unsweetened juice and milk-based drinks (with at least 75% milk content) containing added sugar are not liable for the levy but are included in the UK’s SRP.

For drinks in scope of SDIL, there was a 46% decrease in sales weighted average total sugar per 100ml between 2015 and 2020 according to the latest progress report.

New proposals to strengthen the SDIL include the following 2 measures:

reducing the lower sugar threshold to 4g total sugar per 100ml (currently at 5g total sugar per 100ml)
removing the exemption for milk-based and milk substitute drinks

Approach

A diet high in sugar increases the risk of both dental caries and becoming overweight or living with obesity; with obesity itself being associated with an increased risk of serious health conditions such as type 2 diabetes, cardiovascular disease and several cancers. Childhood obesity has increased over the last few decades with 22.1% of children aged 4 to 5 years, and 35.8% of children aged 10 to 11 years, living with overweight or obesity in 2023 to 2024.

These proposals are designed to encourage producers to reformulate their products. Where the SDIL is successful in influencing behaviour and lowering consumption of high sugar drinks, we expect positive health and economic outcomes from reduced calorie intake in diets.

DHSC have carried out indicative analysis to estimate the calorie reduction from these proposals through reformulation and substitution to alternative drinks, and the subsequent health and economic benefits.

National Diet and Nutrition Survey (NDNS) data was used to calculate the average free sugar consumption from the products of interest. Kantar World Panel sales data was then used to isolate the proportion of free sugar sold that is in scope of being affected by the new proposals. Together these were used to estimate the total amount of sugar which could be removed from diets.

Agreed assumptions for reformulation and substitution were then applied to estimate the sugar reduction following implementation of the proposals. Finally, this sugar reduction was converted into calories and Calorie Model v4.1 was used to estimate the health and economic benefits from the calorie reduction.

Data sources

Tables 3.10 and 6.10 from National Diet and Nutrition Survey 2019 (NDNS) – cross-sectional survey data on food consumption and nutritional intake.

Internal extracts of Kantar World Panel sales data from Take Home Dataset 2023 – data on take-home sales and nutritional values of grocery products.

Assumptions

The following key assumptions were agreed in collaboration between DHSC, HMRC and HMT:

Reformulation: It is assumed that 65% of products which get brought into scope of the SDIL with the proposed changes will reformulate to sugar levels directly below the new sugar threshold to avoid paying the SDIL. This assumption is informed by a cross-sectional study by Scarborough et al (2020).

Substitution: For the products remaining in scope of SDIL after reformulation, it is assumed that 100% of price increases are passed onto consumers resulting in an 11% reduction in demand for soft drinks and a weighted average reduction of 10% in demand for in scope milk-based drinks. It is assumed that consumers substitute to drinks with lower sugar content which are not affected by the SDIL. These assumptions have been developed by HMRC based on literature on the impact of the SDIL.

Sales: It is assumed that there is no sales growth in soft drinks, milk-based drinks or milk substitute drinks.

Lactose allowance: This analysis includes an average lactose allowance of 4g for milk-based products on assumed milk content. Milk substitutes receive no lactose allowance. The real lactose allowance will vary based on the individual product.

Timeframe: It is assumed that there is a 3-year lead in time for all anticipated reformulation to take place starting from the announcement, based on insight from the existing levy. This analysis reflects the impact on calories at year 3 once all reformulation has occurred.

Limitations: The key limitations of this analysis are:

Modelling: This is a modelled estimate, and the approach is sensitive to assumptions, particularly reformulation and substitution. For example, if the reformulation assumption is changed by around 5 percentage points, the estimated calorie reductions can vary by up to 50%

Kantar sales data: The datasets used from Kantar have quality control measures built into their production processes. In addition, DHSC perform a rigorous cleaning process to ensure that:

all products are being treated on a consistent basis (for example in the original dataset some products are measured by their weight, others by servings)
correct any inaccuracies in the nutritional data

For this analysis, a proportionate methodology has been used to categorise drink products using only previous year’s categorisation and have not been subject to additional checks. As a result, some products may be assigned to different categories than intended or remain unassigned, therefore the number and sales of products should be treated as an estimate.

Nutritional information (specifically sugar content per 100ml) was taken directly from the Kantar dataset and not subject to additional cleaning processes. Therefore, the values for sugar sold and sales weighted average sugar content should be treated as estimates.

NDNS consumption data: NDNS categories used in this analysis include goods outside of the scope of the SDIL. Kantar sales data has been used to approximate the proportion of sales which come from products in scope, however, this should be considered an estimate as it is not possible to fully match categories across data sets.

Notes

Calorie Model Version 4.1 (the current model) was developed by DHSC analysts in mid-2022 and is now in use. This version:

added osteoarthritis, kidney cancer, upper gastrointestinal cancer, uterine cancer and kidney cancer to the mode
updated underlying data and costings to 2019 or the latest available

For a full description of the model see Annex A – DHSC Calorie Model (Version 3) and the DHSC Calorie Model Technical Consultation Document. Version 4 has the same fundamental structure as Version 3 with the above additions. Quality assurance (QA) was carried out in line with government Aqua book principles.

Benefits have been adjusted from 2019 to 2025 prices using the GDP deflator, which is in accordance with the standard practice outlined in the HMT Green Book.

Question 11

9.  Summary of consultation questions

Accepted Answer

Question 1: If you are a business please specify which of the following describe your business. You can choose more than one option:

a UK producer of soft drinks to which you own the brand
a UK ‘contract’ or licensed producer of soft drinks on behalf of someone else
a UK packager of soft drinks that you have produced
a UK packager of soft drinks that someone else has produced
an overseas producer of soft drinks
an importer of soft drinks into the UK
a UK retailer
a UK wholesaler or distributer.
a business providing goods or services that support the production, packaging, importation or supply of soft drinks in the UK (please provide further details)
none of the above

Question 2: If you are a type of business not listed in question 1, or want to give more information about your business, please provide details.

Question 3: Are you an individual? If so, please tell us your interest in this consultation.

Question 4: Are you an organisation? If so, please provide further details (for example trade or health body).

Question 5: If you are a business, where is your business established?

UK
Isle of Man
EU – please state
non-EU – please state
not applicable

Question 6. If you are in business, how many staff do you employ across the UK?

fewer than 10
10 to 100
101 to 500
more than 500
not applicable