Policy paper

HMT-HMRC Soft Drinks Industry Levy Review

Published 30 October 2024

Objective 

Preventing ill-health is essential to the Government’s health mission – to see the people of the UK living healthier and happier lives, our economy growing, and the pressures on our health service reduced.

Changing industry incentives is a key part of this, as the Soft Drinks Industry Levy (SDIL) has shown. Since its announcement in 2016, the SDIL has successfully led to extensive product reformulation, with a 46% average reduction in sugar in soft drinks in scope of the levy between 2015 and 2020.

With UK rates of obesity almost doubling over the last three decades, and average sugar consumption twice the recommended amount, the Government has made clear at the Budget its intention that SDIL should remain effective and fit-for-purpose.

First, to protect its real terms value, the SDIL will be increased, over the next five years, to reflect the 27% CPI inflation between 2018 and 2024. Annual rate increases will take place from 1 April 2025 and will also reflect future yearly CPI increases. More detail about these plans can be found in the Tax Information and Impact Note.

Second, the Government will review the SDIL’s operation and structures, with a view to further drive down the sugar content in soft drinks. More detail about the scope of this review is provided below.

Scope

HM Treasury and HMRC will engage with industry, and other interested stakeholders, to identify opportunities to improve the SDIL’s effectiveness at reducing sugar in soft drinks. The Government will specifically consider changes to:

1. the sugar content thresholds at which the SDIL applies; 

2. whether to remove the current exemptions for milk-based and milk substitute drinks.  

The Government is not seeking to revisit the fundamental tax design and scope. 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 review.

Sugar content thresholds

Currently the SDIL applies to pre-packaged drinks containing at least 5g sugar per 100ml. The tax is charged at its lower rate (18p per litre) on drinks with 5g to 7.9g sugar per 100ml, and at a higher rate (24p per litre) for drinks with 8g or more sugar per 100ml.

Under these structures, 89% of soft drinks sold in the UK do not pay SDIL, as they contain less than 5g sugar per 100ml. However, as overall UK sugar consumption remains significantly above recommended levels, this review will consider whether the 5g threshold should be lowered, to encourage sugar reductions in drinks below this cut off. For instance, it may be appropriate to align with the Nutrient Profiling Model (NPM), which scores foods and drinks based on their balance of nutrients; products containing more than 4.5g sugar per 100g will score points for total sugar in the NPM.

The review will also look at options to encourage reformulation of the most sugary drinks in the higher band; this could involve increasing the high rate, or creating a third tax rate for drinks with more than, for instance, 10g sugar per 100ml.

Milk-based and milk substitute drink

Currently milk-based drinks are exempt from the SDIL, provided they contain at least 75ml of milk per 100ml. Common examples include pre-packaged milkshakes and milky coffee drinks.

This exemption was initially provided to ensure that the SDIL did not disincentivise sufficient consumption of calcium, 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.

However, due to the high sugar content of some milk-based and milk substitute drinks, the Government is reconsidering the case for removing the exemption. As young people only get 3.5% of their calcium intake from milk-based drinks, it is likely that the health benefits do not justify the harms from excess sugar. 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.

Approach

As part of this review, HMT and HMRC officials will meet with a range of experts and interested parties across industry, academia and elsewhere. Meetings will take place from December 2024 onwards and the review will conclude in Spring 2025. Depending on the outcome of the review, the Government would expect to enact any changes to the SDIL following Budget 2025.  

Engagement with industry, and other interested stakeholders, will help to inform the advice provided to HM Treasury ministers. The final decisions on adjustments to the SDIL are for the Chancellor of the Exchequer to make at a future Budget.

Points of contact

If you would like to contribute to the SDIL Review, please get in touch with sdil_review@hmtreasury.gov.uk. Early engagement would be welcomed.