Britain builds a better soda tax

Britain will soon be introducing a three-tiered structure for taxing sugary drinks, beginning in 2018. How does the Brits' plan differ from those that other governments have implemented?

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    A detail of a can of Coca-Cola is seen in London, Britain (March 16, 2016.) Britain will introduce a sugar levy on soft drinks in two years' time to tackle a growing obesity crisis, finance minister George Osborne said in a surprise announcement on Wednesday, hitting share prices in drinks and sugar firms.
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Britain will soon tax sugary drinks. Whether you love that idea or hate it, you’ve got to give the Brits credit: They’ve designed a better version of the tax than any other government.

Beginning in 2018, the United Kingdom will charge the equivalent of 0.75 cents per ounce for drinks that contain more than 3 teaspoons of sugar in an 8-ounce serving and a full cent per ounce for drinks with more than 5 teaspoons per serving. These tax levels are similar to the penny per ounce that Berkeley, California levies on sugary drinks.

Britain’s innovation is in the tiering. Rather than hit all sugary drinks with the same tax, as Berkeley does, Britain has three levels. Drinks with little sugar aren’t taxed at all, drinks with moderate sugar face one tax rate, and drinks with lots of sugar face a higher one. As a result, many flavored waters will escape any tax, slightly sweet iced teas will face a low tax, and regular soda will usually bear the higher tax.

This three-tier structure will encourage people and businesses to favor lower-sugar drinks over sweeter ones. That’s important because sugar content differs significantly. If you believe sugar is harmful, you should want people not only to cut back on sugary drinks, but to switch to less sugary options. And you’d want businesses to devote product development, marketing, and pricing efforts to lower-sugar options.

Linking the tax to sugar content encourages businesses to do that. Indeed, Britain is delaying the new tax until 2018 to give beverage companies time to avoid or lower the tax by reformulating their products.

Britain’s tiering is far from perfect. Why do the tax rates differ by only a third, when the difference in sugar content is often larger? Why not have more tiers—or even directly tax sugar content? Those are important questions. But they don’t diminish the fact that Britain’s approach makes much more sense than taxing sugary drinks uniformly, as Berkeley (a penny per ounce), Mexico (a peso per liter), and almost all other soda-taxing governments do. Those taxes—and similar ones designed as sales taxes—do nothing to encourage consumers and businesses to favor lower-sugar drinks. (Hungary has a simpler two-tier system; only drinks in the same range as Britain’s upper tier get taxed.)

Soda taxes are at best a limited tool for improving nutrition. Well-designed taxes can discourage consumption of sugary drinks, which clearly contribute to obesity, diabetes, and other ills. But health depends on many factors, not just the amount of sugar one drinks. People may switch to other, tax-free alternatives like juice that also have lots of sugar. Soda taxes are regressive, falling more heavily on lower-income families. And they raise controversial questions about the role of government.

Given those concerns, reasonable people differ over whether these taxes make sense at all. If governments choose to enact them, however, they should target sugar content rather than drink volume. Britain’s tiered tax is a welcome step in that direction.

This article first appeared at TaxVox.

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