Government plans to extend levy to milkshakes

The sugar tax applied to fizzy drinks is set to be extended to milkshakes and other milk-based drinks under new government plans.

The government is consulting on proposals to end the exemption from the tax for dairy-based drinks, as well as non-dairy substitutes such as oats or rice.

Chancellor Rachel Reeves announced in her autumn budget last year that the government was considering widening the levy.

The so-called sugar tax, known formally as the soft drinks industry levy (SDIL), applies to manufacturers and was introduced by the Conservative government in April 2018 as a means to tackle obesity.

On Monday, the Treasury also confirmed proposals to reduce the maximum amount of sugar allowed in drinks before they become subject to the levy from 5g to 4g per 100ml.

Some 203 pre-packed milk-based drinks on the market, which make up 93% of sales within the category, will be hit with the tax unless their sugar content is reduced in accordance with the proposals, government analysis says.

The exemption for milk-based drinks was included because of concerns about calcium consumption, particularly among children.

The Treasury said that young people only get 3.5% of their calcium intake from such drinks, meaning “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,” the Treasury said.

The government estimates that 89% of soft drinks sold in the UK are not subject to the tax because of widespread reformulation by manufacturers since 2018.

But it added that the levy had effectively created a “target” of just below the 5g threshold, and products had clustered below 5g as a result.

The government consultation will run from Monday until 21 July.

The SDIL has raised a total of £1.9 billion since its introduction in 2018, according to government statistics released last September. Revenue for HMRC for the 2023-24 financial year was £338 million.

Opponents of the levy in recent years include the soft drinks industry, pubs and off licences. Some argue the levy disproportionately affects lower-income families and does little to tackle obesity.

On the latest plans, industry body the Food and Drink Federation said it welcomed the chance to share its views in the consultation.

It said “significant progress” had already been made and “many years of investment in research and development” had reduced sugar in soft drinks by 46% in the last five years, with a 30% sugar reduction in pre-packed milk-based drinks in the last three years.

It added that food and drink manufacturers were facing a series of inflationary pressures and called on the government to “continue to create the right conditions for businesses to innovate and also be clear about their long-term goals to promote business confidence”.