What Impact Will The “Sugar Tax” Have On The Hospitality Industry?

Next April, the UK will bear witness to its first “sugar tax”, a surcharge on fizzy drinks designed with promoting healthy living in mind.

The tax, announced in the 2016 budget, is largely aimed at tackling climbing obesity rates among children across the country. Figures from Public Health England state that nearly 1/5th of all primary school leavers are obese; if you add overweight children to that, that figure climbs to over 1/3rd.

With type 2 diabetes on the rise as well, it’s fair to say that the UK has something of a sugar problem.

How does it work?

The sugar tax is levied on all soft drinks that contain over a certain percentage of refined sugar content. As such, pure fruit juice and milk-based drinks are exempt from this tax due to only containing natural sugars, while smaller producers will also enjoy exemption from the tax. The tax is largely aimed at the bigger picture; larger producers who have their products on show nationwide.

How much tax is paid depends on the amount of grams per 100ml. Drinks with more than 5g per 100ml will be placed under an 18p per litre rate of tax, while drinks with more than 8g per 100ml will have a levy of 24p per litre.

The money raised from the sugar tax will be used to fund sports and exercise in primary schools.

What has the reaction been?

Many are naturally in support of the sugar tax. Jamie Oliver, who has campaigned for healthier eating in schools for over a decade, was thrilled by the news; a “sugar tax” was an idea he had already implemented in his restaurants (again, this only applied to fizzy drinks and not his infamously sweet desserts). The idea of investing the revenue in primary school sports has also been widely praised.

However, there has been plenty of concern surrounding this new tax from a variety of different people.

Heston Blumenthal, for example, has criticised the tax as being “confusing” and “a minefield” for parents who want to fully understand nutrition. Essentially, if you want to tax fizzy drinks because they contain sugar, you have to tax everything that contains sugar.

Other industry figures have shown concern that the producers won’t take the brunt of the financial burden despite being responsible. Instead, retailers, pubs, bars and restaurants will carry the weight of the tax.

Producers themselves are considering taking legal action against the government on the grounds of it's narrow application; the tax of course doesn't apply to other heavy sugar drinks such as milkshakes, as well as other foodstuffs. A similar tax in Scandinavia was successfully challenged on these grounds.

What is the potential impact on the hospitality industry?

With the tax coming into effect in the 2018 tax year, there is plenty of time for producers and sellers to adapt and prepare. A key concern of the sugar tax is that it doesn’t necessarily mean the producers bear the brunt of the additional costs. The industry is keen to clarify whether this will in fact increase costs for bars, pubs and retailers who aren’t directly responsible for the sugar content of what they sell.

Even though the impact on these groups will be inevitable, ALMR chief executive Kate Nicholls is keen to ensure that costs don’t impact small businesses more heavily than the producers.

“We need confirmation that the tax on sugary drinks will be a true levy on producers and not a sales tax that will increase costs for retailers. The Chancellor has indicated that there will be a consultation on its introduction and the ALMR will be looking to liaise with the Government to ensure that additional costs are not passed on to pubs and bars.

“Extension of Small Business Rate relief is a welcome first step in reducing rates burdens for businesses, but more needs to be done to address a system that currently sees pubs and bars paying 15 pence per pint in rates compared to about 1 penny per pint in supermarkets.”

Earlier this year, Nicholls had voiced serious concern that a sugar tax would impose extra costs on independent venues and pubs could push them beyond the margins of profitability they have, which have already been anchored by rising business rates and inflexible local planning laws.

Bars and nightclubs would be the places hit most hard by this new levy. Given that they sell a lot of soft drinks as well as spirits with high-sugar content mixers, prices for the owner would certainly rise and consumers will face the prospect of more expensive nights out, especially young people.

Cafés are likely to emerge from this unscathed. With the vast majority of their drinks either being milk-based or fruit juices, they will largely avoid the tax in its current form.

Restaurants shouldn’t be hit too hard either. While most offer a variety of soft drinks, they have worked incredibly hard over the last decade to offer plenty of healthy alternatives, though that doesn’t mean that they avoid the tax - the only way to do that would be to stop stocking high-sugar drinks entirely.

The good news is that there is still plenty of time to adapt to the sugar tax, and also plenty of time for changes to be made to it.

What does the sugar tax fail to address?

The sugar tax, while doubtless a step in the right direction, isn’t as comprehensive as some would like it to be.

For a start, not all drinks with a high sugar content are included. For example, an extra-large hot chocolate from Starbucks contains double the recommended daily sugar, yet avoids the tax and thus doesn’t have to be altered to comply with anything. Milkshakes are also a notable culprit, containing large amounts of both sugar and saturated fat.

Then there’s the issue of the kids favourite: sweets. While soft drink purchases have been falling over the last few years, purchases of confectionary have actually risen by 1%. Hardly a significant rise, but it goes to show that soft drinks aren’t necessarily the main cause of childhood obesity.

With an estimated £520m being raised by the tax, it’s surprising to see it all being pumped into one specific area. Education is as important in nutrition as physical activity is, and it’s a little bit disappointing to not see a commitment to a revised curriculum which sees the elements of nutrition deconstructed. Children cannot know the differences between natural and refined sugars, or polyunsaturated, monounsaturated and saturated fats if they aren’t taught about them from a young age. Ultimately, the new tax fails to tackle the issue of awareness.

The final concern is how much money it will raise as a whole. The tax will cost an estimated £1bn to implement, nearly double what it is expected to raise in its first year.

What do you think?