Coca-Cola and other soft drinks companies targeted by George Osborne’s sugar tax have warned that the chancellor’s new levy will not reduce obesity.
Analysts said prices were likely to rise for shoppers as a result of the tax, announced in a surprise budget measure on Wednesday, but suggested that the new tax could be hidden in smaller pack sizes or reduced discounts.
The tax is set to launch in April 2018 and will put up the price of drinks which contain at least 5g of sugar per 100ml – such as Fanta, Sprite and Schweppes tonic. Drinks with 8g of sugar per 100ml or more – such as normal Coca-Cola, Red Bull, Irn-Bru and Lucozade Energy Original – will face a higher rate of tax.
Coca-Cola’s UK boss, Leendert den Hollander, said: “We don’t believe the sugar tax is the right thing to be done. We are not debating the issue, we are debating the solution. The facts don’t suggest that a sugar tax works to change behaviour.
“We know this is one of the mechanics and solutions that people think will help deal with the issue of obesity, at least from a government perspective, but there is no evidence to suggest that this will reduce obesity.”
Marnie Millard, chief executive of Nichols, the maker of Vimto and Panda soft drinks, said: “While we recognise sugar consumption is a shared responsibility, we do not believe that a tax on soft drinks is an effective solution or fair to consumers.”
Meanwhile, Britvic said in a statement: “We are extremely disappointed that the government is proposing to introduce a soft drinks tax from 2018. Singling out soft drinks alone will not solve the obesity problem, given the small proportion of calories they contribute in the average diet.
“We remain of the view that only a holistic, wide-ranging strategy will tackle obesity.”
The Treasury has not yet decided how much more producers will have to charge for heavily sweetened drinks, but health campaigners want it to be 20%. That would be equivalent to about 40p on a 1.75l bottle of Coke or a more than 10p on a standard can of fizzy drink.
James Brown, at pricing strategy specialists Simon-Kucher & Partners, said: “We’d expect much of this tax to be passed on to consumers through higher shelf prices, but also in hidden ways such as smaller pack sizes and lower promotional discounts.”
He said pubs, cafes and restaurants could be surprise losers from the tax as manufacturers might find the tax easier to pass on to those outlets than to supermarkets, where there are only a few big players who fight hard over price.
Analysts at City broker Shore Capital suggested that a price rise of 6p to 8p per can could be enough to persuade shoppers to switch to a healthy alternative but that shoppers might also choose to switch from a brand, such as Coke, to unbranded equivalents.
The announcement of the tax hit the stock-market value of soft drinks companies. Shares in AG Barr, the maker of Irn-Bru, were down 6% since Osborne spoke to parliament. Nichols has lost 7.5% while shares in Britvic, which makes and distributes Pepsi in the UK, are down 3.3% as investors fear that sales will suffer.
More than 350 products sold by major retailers will be affected by the levy, according to Mysupermarket.co.uk, the price comparison site. It said more than half of those items, which include red can Coca-Cola, standard Pepsi and Red Bull, contain more than 8g of sugar per 100ml. However, heavily sweetened fruit juices and milk-based drinks will be excluded from the tax.
One supermarket boss told the Guardian he was looking forward to the potential of reducing the amount of fizzy drinks on his shelves and replacing them with healthier options. But another said the tax was likely to have little impact on sales, given the unflagging popularity of other heavily taxed treats such as alcohol.
City analysts believe sales are likely to be hit, but that the scale of the drop is difficult to assess until the government reveals the level of the tax.
In France, where a soft drink tax amounted to about 2p per 330ml can, sales fell by about 3% in the first year but the impact reduced as shoppers got used to the new higher prices. In Mexico, when a 10% tax was imposed, sugary drink sales fell by 12% while bottled water sales soared.
Nicola Mallard, a consumer industry analyst at Investec, said the threat of the tax would accelerate drinks companies’ efforts to reduce sugar in their products. In the past four years there had been an average 11% reduction in calories from soft drinks, according to the British Soft Drink Association.
“The levy will only be introduced in two years’ time, with the clear intention that companies reformulate their products in the interim to reduce or eliminate exposure to the levy,” she said.
She said brands such as Pepsi, which contains 11g of sugar per 100ml, could reformulate to take them into the lower band of the tax but were unlikely to be able to remove sugar altogether.
Citing the example of the tax in Mexico, Coca-Cola’s Den Hollander said: “If the objective is to reduce calorie intake on a daily basis then the example in Mexico shows it doesn’t work.” He said Mexico’s tax on sugar drinks, introduced in 2014, had only reduced average intake by six calories a day.
