In a bid to tackle the increasing problem of obesity in the UK, the Chancellor recently announced a new sugar tax on sugary soft drinks, to be implemented from 2018.
According to analysts, the measure is unlikely to reduce levels of obesity, but will increase prices of drinks and may result in drinks manufacturers reducing pack sizes and offering lower discounts. From April 2018, drinks that have 5g of sugar per 100ml will attract a tax levy, while those drinks that contain 8g or more of sugar per 100ml will attract a higher rate of tax.
Opinions are divided, as some believe that charging tax on sugary drinks won’t stop consumers buying the products, although they may switch from brand names to an unbranded drink, which won’t reduce obesity levels. Others believe that consumers will switch to healthier drinks and more companies will attempt to reduce sugar levels in their products.
Share values of soft drink manufacturers have also been affected, with the value of AG Barr shares falling by 6% since the Chancellor’s announcement, and Britvic falling by 3.3%. According to research by Mysupermarket.co.uk, over 350 products will be affected by the sugar tax, which includes popular drinks like red can Coca-Cola and Red Bull. Drinks thatcare milk based and natural fruit juice drinks will be exempt from the tax.
Options for UK companies
Businesses in the UK have until April 2018 to implement changes necessary to tackle the implications of a sugar tax on their products. There are a number of ways to deal with the potential impact, minimising increased costs and disruption to the company.
Improving the product
Soft drinks companies may decide to improve their soft drinks and reduce the levels of sugar per 100ml. By reducing sugar to below 5g per 100ml, the sugar tax won’t apply. However, this could increase manufacturing costs, with potentially more expensive ingredients. Production and cost forecasts will be required to enable a study of the potential impact on production costs and revenues. A management accounting service will usually deal with this as part of an outsourced service, reducing the impact on a company.
Reduce production costs
The cost of a product may be reduced by changing the ingredients, or reducing the pack size. This will allow for the cost of the tax to be absorbed without having to increase prices for the consumer. However, the quality of the drink should also be monitored to ensure the same high standards.
Another tax will also place further burden on businesses in the UK. So contact us to discuss ways to minimise the impact of the sugar tax on your company.