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Soft Drinks, Hard Questions

OXFORD – In March, the British government announced that it intends to introduce a tax on sugary drinks in 2018 to tackle childhood obesity. Whether the tax, which will be debated this summer, achieves its public-health goals depends on the details, and on rigorous evaluation of its effects.

The United Kingdom is not alone in worrying about the global rise in obesity-related ailments like diabetes and cardiovascular disease – costly conditions that can lead to significant disability and early death. Many countries have introduced, or are considering, taxes on unhealthy foods and drinks – in particular, those to which sugar has been added.

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For example, Chile has an 18% tax on high-sugar drinks; France taxes drinks with both added sugar and artificial sweeteners; and Hungary taxes food and drink with high sugar, salt, and caffeine content. Philadelphia, Pennsylvania, recently became the largest US city to introduce a tax on sweetened drinks.

These food taxes operate one of the most effective behavioral-change levers available to policymakers: price. But it would be premature to conclude that higher prices necessarily lead to lower consumption and thus better health outcomes. A tax’s effectiveness depends on how it is designed, and how consumers and the food industry respond to the incentives it creates.

The introduction of taxes on sugary drinks in Mexico and Berkeley, California, has demonstrated the industry’s willingness to fight legislation that might lower its profits. And evidence suggests that these taxes, once implemented, did indeed result in a change in price for customers, who subsequently bought fewer sugary drinks.

Unfortunately, however, little is known about the effect of these taxes on public health. Obesity and its related ailments take a long time to develop, and isolating the effects of food taxes from changes caused by other health policies and cultural trends is challenging. However, both mathematical modeling and simple logic suggest that these taxes will improve health. And detailed evaluations have been launched in Mexico and elsewhere to quantify the effect.

Interestingly, all sugary drink taxes, whether in France, Hungary, Mexico, or Chile, are sales taxes; they lead directly to point-of-sale price increases, often in proportion to the volume of the drink. In Mexico, for example, the tax is a peso per liter, which raises the price by around 10%.

This is where the proposed UK scheme differs. Former Chancellor of the Exchequer George Osborne announced a two-tiered levy, with the explicit aim of encouraging the industry, rather than consumers, to change behavior.

Under Osborne’s plan, the sugary drinks industry will be charged around 18 pence ($0.24) per liter for products containing 5-8 grams of sugar per 100 milliliters of liquid, and 24 pence per liter for drinks with more than eight grams of sugar per 100 milliliters. So, for example, Sprite, which has 6.6 grams of sugar per 100 milliliters, would be taxed at the lower rate; Coca-Cola, with 10.6 grams per 100 milliliters, would pay the upper rate. The revenue will be used to fund sports programs in schools and expand breakfast clubs.

In his budget statement, Osborne challenged the sugary drinks industry to respond to his proposal by reformulating their products, encouraging consumers to switch to low-sugar brands, and reducing portion sizes.

The proposed tax has been widely welcomed by public health organizations and campaigners. But, because placing the burden on industry is a different approach than has been implemented elsewhere, the effects are not entirely predictable. For example, there is nothing to stop a company from raising prices across its product range, thereby erasing any price difference between high-sugar drinks and low-sugar alternatives.

The possibility of the reformulation of existing offerings and new entrants into the market are other important uncertainties. In 2014, Coca-Cola introduced its low-sugar alternative, Coca-Cola Life. With its distinctive green packaging and wholesome image established through advertising campaigns, the new product captured more than 2% of total Coca-Cola sales in the first year after its introduction. However, it is unclear whether these additional sales came from consumers who would otherwise be drinking full-sugar Coca-Cola, the diet version of the soft drink, or other beverages, such as fruit juice or water.

In his statement, Osborne excluded small producers from the legislation, but he did not define what he meant by “small.” This could encourage an expansion and diversification of small designer products with a market advantage, as has happened with craft beer.

Finally, the government has suggested that the industry should consider providing smaller portions, but existing vending and storage infrastructure is designed for 330ml cans and 500ml bottles. Any large change would require an industry-wide shift in packaging and distribution.

The debate has already begun. The UK soft drink industry is considering legal action, arguing that the tax is anti-competitive given that pure fruit juice and sweetened milk are not included (Mars Milkshake, for example, has 12.8 grams of sugar per 100 milliliters). On the other side, some campaigners want high-sugar foods, such as sweets and cakes, to be included in the proposed legislation.

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The world will be watching the UK with interest, as its approach would be politically easier for other countries to adopt. Recently, Ireland became the latest country to announce its intention to levy a tax on sugary drinks.

If industry responds to the tax by reformulating products and changing its marketing strategy, and if this leads to a reduction in sugar intake in the UK, then the tax will have been a success. But accomplishing this will require policymakers to get the legislation right and to ensure that its effects are properly assessed.