Soft drinks levy set to raise just £240m after firms slash sugar content

The incoming soft drinks tax will raise less than half the cash originally predicted by the Government after firms have slashed the sugar content in their drinks, according to the UK's fiscal watchdog.

The Office for Budget Responsibility (OBR) estimates the levy - which comes into force on April 6 - will raise £240 million in 2018-19.

This is less than half the £520 million it was expected to raise when the Government first announced the move at the 2016 budget.

Irn Bru maker AG Barr is one of the firms that has changed its formula ahead of the levy (Stewart Attwood/AG Barr)
Irn Bru maker AG Barr is one of the firms that has changed its formula ahead of the levy (Stewart Attwood/AG Barr)

The OBR raised questions over the spending commitments for the new levy as a result of the forecast changes, with the Government having pledged to use the cash raised to pay for school sport.

In its economic and fiscal outlook report published alongside the Spring Statement, the OBR said it had been forced to dramatically cut its forecasts for the sugar levy after firms have altered their drinks formula "sooner and more aggressively than originally assumed".

More than 50% of manufacturers have changed their formulas to reduce the sugar content ahead of the levy, according to new figures from the Treasury.

The OBR said that rates of the levy have not been changed to match the Government's target to raise £500 million from the soft drinks levy in 2019-20.

"In Budget 2016, the Government presented the levy as being hypothecated to 'pay for school sport', but the receipts shortfall has not led to changes in the associated spending commitments," it added.

The Treasury said it was good news that manufacturers were cutting their sugar content and added "nothing had changed" in terms of its spending commitments.

A Treasury spokesman said: "This levy is about changing behaviour. It's about making people healthier overall.

"It's really positive that the industry has recognised this and engaged so much on this."

From next month, the most sugary soft drinks - those with more than 8g of sugar per 100ml - are to be taxed at 24p per litre, while those with 5g of sugar per 100ml will pay 18p.

Irn Bru maker AG Barr is one of the firms which has changed its formula ahead of the levy, sparking uproar earlier this year among loyal fans of the popular Scottish fizzy drink.

It stopped making the original full-sugar version of Irn Bru in early January and expects 99% of its entire drinks range to be low sugar - containing less than 5g per 100ml - by the time the new soft drinks sugar tax comes into force.

In its forecast report, the OBR also cut the amount it expects the Government to raise from the bank levy, by £200 million to £2.4 billion in 2017-18.

It said revenues from the bank tax are also expected to fall to £900 million a year by 2022-23.

This is thought to be partly due to the smaller size of bank balance sheets, as well as the previously announced move to reduce the headline rate to 0.1% by January 2021 and narrow the scope of the levy in future years.