Policy paper

Soft Drinks Industry Levy uprating

Published 30 October 2024

Who is likely to be affected

Businesses registered for the Soft Drinks Industry Levy who package or import liable soft drinks containing at least 5 grams of sugars per 100 millilitres.

General description of the measure

As announced at Autumn Budget 2024, to protect its real terms value, both the lower and higher rates of the Soft Drinks Industry Levy will increase each year over the next 5 years to reflect the 27% Consumer Price Index increase between 2018 and 2024 as well as increase in line with the Consumer Price Index each year from 1 April 2025.

The rates will be adjusted to apply per 10 litres so that rate changes can be made in smaller increments, to reflect the Consumer Price Index more precisely. To illustrate using the existing rate, 18p per 1 litre becomes £1.80 per 10 litres.

The annual increase will be the total of:

• a 27% increase to reflect the change in Consumer Price Index from April 2018 to April 2024, spread equally over the 5 year period from 2025 to 2029 (this equates to a 10 and 13 pence per 10 litres increase per year to the lower and higher rates respectively)
• Consumer Price Index inflation over the previous year starting from April 2025 (This will be based on the Office for Budget Responsibility forecast for annual Consumer Price Index inflation for quarter 2 (1 April to 30 June) of the relevant year)

Rates will be increased on 1 April each year — the new rate, reflecting both the above inputs, will be announced in the preceding autumn fiscal event

Policy objective

The Soft Drinks Industry Levy applies to the production and importation of liable soft drinks containing added sugars. It supports the government’s efforts to tackle obesity by incentivising the reduction of added sugar in soft drinks.

It has a lower rate which applies to added sugar drinks with a total sugar content of 5 to 7.9 grams per 100 millilitres and a higher rate for drinks with 8 grams or more per 100 millilitres. 

The Soft Drinks Industry Levy rates are not indexed to inflation and have not been increased since introduction, so are gradually reducing in value against inflation. Uprating the Soft Drinks Industry Levy in line with inflation will ensure that the levy remains effective and continues to encourage reformulation by protecting its value in real terms. This builds on the Soft Drinks Industry Levy’s significant success in reducing the sugar content in UK soft drinks by 46%.

Background to the measure

At Budget 2016 the government announced the introduction of a new levy on soft drinks that contain high added sugar content to help tackle childhood obesity in the UK.  

The Soft Drinks Industry Levy came into effect in April 2018 and is considered a successful mechanism for changing behaviour and encouraging reformulation of packaged soft drinks, resulting in reduced sugar content.  

Detailed proposal

Operative date

The increases in the lower and higher rates of the Soft Drinks Industry Levy will apply to a chargeable event which occurs on or after 1 April 2025. The Soft Drinks Industry Levy will then be subject to an annual uprating based on Consumer Price Index, to be announced at future fiscal events, on 1 April each year.

Current law

Section 36 of the Finance Act 2017 specifies the rates of the Soft Drinks Industry Levy. 

Proposed revisions

Legislation will be introduced in Finance Bill 2024-25 to amend Finance Act 2017, Part 2, s.36(1), to reflect the new rates as: 

• in the case of chargeable soft drinks that meet the higher sugar threshold, at the rate of £2.59 per 10 litres of prepared drink
• in the case of chargeable soft drinks that do not meet the higher sugar threshold, at the rate of £1.94 per 10 litres of prepared drink

Summary of impacts

Exchequer impact (£ million)

2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030
—	+20	+40	+60	+75	+95

These figures are set out in Table 5.1 of Autumn Budget 2024 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2024.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

The costing for this measure accounts for a behavioural response whereby producers reformulate their product by lowering sugar content. It also accounts for reduced demand for drinks liable to the Soft Drinks Industry Levy resulting from price changes.

Impact on individuals, households and families

This measure is expected to impact individuals, families and households who consume soft drinks containing at least 5 grams of sugars per 100 millilitres (approximately 11% of soft drinks sales are subject to the Soft Drinks Industry Levy). This is because, where there is no reformulation, it is likely that manufacturers and importers will ‘pass through’ the Soft Drinks Industry Levy charge to consumers. However, price increases are likely to be modest, given that this measure is estimated to increase the Soft Drinks Industry Levy on a 330ml can of a ‘higher band’ soft drink by 3 pence by 2029 to 2030. The average household spends £2.50 per week (in-home) on soft drinks, 89% of which will not be subject to the Soft Drinks Industry Levy.

The measure is not expected to impact on family formation, stability or breakdown. 

This measure, by protecting the real-terms value of the Soft Drinks Industry Levy and encouraging reformulation, is 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.

Customer experience is expected to remain broadly the same as this measure does not alter how individuals interact with HMRC.

Equalities impacts

Changes to the Soft Drinks Industry Levy rates will affect different elements of the population differently depending on the underlying pattern of consumption. 

The increases to the Soft Drinks Industry Levy rates may make drinks sweetened using sugar rather than artificial sweeteners relatively more expensive. Although unlikely due to the relatively small increase, it may encourage manufacturers to further reformulate existing products to replace sugar with artificial sweeteners. This may impact on people with Type 1 or 2 diabetes or with Phenylketonuria (a condition where people are unable to metabolise certain artificial sweeteners). Overall, this measure is expected to have a positive impact on the health of individuals in the UK.

It is not anticipated that there will be impacts for those in other groups sharing protected characteristics. 

Impact on business including civil society organisations

This measure is expected to have a negligible administrative impact on approximately 500 to 600 businesses registered for the Soft Drinks Industry Levy who package or import liable soft drinks containing at least 5 grams of sugars per 100 millilitres. One-off costs will include familiarisation with the change and could include businesses updating internal systems to reflect the new rate. There are not expected to be any continuing costs. 

Customer experience is expected to remain broadly the same as this measure does not alter how businesses interact with HMRC. 

This measure is not expected to impact on civil society organisations. 

Operational impact (£ million) (HMRC or other)

There will be HMRC operational costs for this change which are estimated to be £520,000.

Other impacts

Other impacts have been considered and none has been identified. 

Monitoring and evaluation

The measure will be monitored through information collected from tax receipts. 

Further advice

If you have any questions about this change, contact cit.vatregistrationandaccountingpolicy@hmrc.gov.uk