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Milking it! Extending the sugar tax for public health and economic gain

This week the government launched a consultation on its plans to tighten the sugar levy. This follows last year’s review of the effectiveness of the SDIL to date. Chancellor Rachel Reeves strongly hinted that the government was considering broadening the scope of the levy at October’s autumn budget and the consultation document does just that.

The government’s proposals include reducing the minimum sugar content level at which the levy applies from 5g to 4g; removing the exemption for milk-based drinks; and removing the exemption for milk substitute drinks. This means milkshakes, pre-made coffees and many of your favourite fizzy drinks will be reformulated or face becoming taxable.

Initial analysis suggests that over 90% of milk-based products will be affected. Initially exempt because milk is a source of calcium for children, the government’s revised position is that any potential health benefits are outweighed by the negative impact of consuming high levels of sugar.

Although the contents of this consultation come as no surprise to those who have been closely following policymaking in this space, it does set the mood music for the upcoming national food strategy and signals a government unafraid to be heavy-handed when it comes to public health. Although the SDIL is widely considered to be a successful and effective policy intervention, the UK’s sugar consumption remains significantly above recommended levels, especially among children. By lowering the sugar thresholds and widening the scope of products, more soft drink producers will be forced to reformulate products or see their production costs increase. However businesses decide to act in response to changing regulations, the government hopes the result is a significant reduction in the nation’s consumption of sugar.

Obesity costs the NHS around £6.5 billion a year. NHS data shows a deeply concerning trend of rising childhood obesity. Almost 10% of children are now living with obesity by the time they start school and 24% of children have tooth decay by aged five thanks to excess sugar consumption. With obesity taking effect earlier in life, the associated costs for the NHS are set to soar to £9.7 billion by 2050. This is especially bad news for a government grappling with a challenging economic environment and acute pressures on public spending. But for Labour, it feels all the more personal because in the most deprived areas the prevalence of obesity can be almost 15% higher than in the least deprived ones – something that the last government’s food strategy picked up on. Tackling health inequality is a huge part of the government’s commitment to ensuring all children and young people have the same opportunities and start in life.

For industry, there is a fine balance to strike. Full resistance to public health reforms designed to improve the health of our children would leave a bad taste in consumers’ mouths. Developing and maintaining an open, constructive dialogue with government, including showcasing innovative reformulations, will be a far more effective approach. Framed in this way, industry will be able to better make the case that a proportionate approach to SDIL and wider public health reforms will deliver positive health and economic change.

Now is the time to engage. Those who can successfully demonstrate alignment with the government’s public health goals will be well-positioned for future discussions about the developing national food strategy, which will set the strategic direction of travel for the rest of this parliament and beyond. One thing is for sure, this is unlikely to be the last government intervention in the name of improving the nation’s health.

The consultation runs until 21 July. If you’d like to discuss contributing to it or the wider HFSS policy environment, please contact Lauren on lauren.atkins@gkstrategy.com.

What does the future hold for crypto regulation?

Positioning the UK as a leader in the global market

UK policymakers and regulators have expressed their intention to encourage growth, innovation and competition in the digital assets industry. However, the government also wants to protect consumers and maintain market integrity. This is a balance that policymakers and regulators in other jurisdictions have found difficult to strike. The previous Conservative government wanted to make the UK a global hub for cryptoasset technology and investment – a goal shared by Keir Starmer.

Accelerating the timeline for reform

In 2018, HM Treasury (HMT) and the Financial Conduct Authority (FCA) began coordinating a phased regulatory approach, initially focusing on stablecoins before introducing new regulations for the wider cryptoassets industry.

Since the 2024 general election, the FCA’s approach has shifted slightly. The government has indicated its support for most of the reforms set out prior to the general election. However, Starmer is less focused on stablecoins than his predecessor and is likely to accelerate the timeline for the regulation of the wider cryptoasset industry, rather than adopt the phased approach.

The government is aware that other international hubs have also taken significant steps in regulating digital assets. The EU’s Markets in Crypto-Assets Regulation (MiCA) became fully applicable in December 2024 and has introduced a comprehensive regulatory regime for the European bloc’s digital asset market. Given the EU continues to work on secondary legislation to supplement MiCA and also requires crypto firms to align with other EU rules on governance and data-sharing, the EU’s new regime is likely to significantly increase the regulatory burden on firms. The second Trump administration has already signalled that it will take a much more lenient approach in the US compared to the Biden administration. Trump has issued an executive order directing agencies within his administration to create a regulatory framework that supports the cryptoassets industry and limits unnecessary government intervention.

Firms operating across multiple jurisdictions need to be cognisant of how the UK’s approach differs with other cryptoasset hubs to ensure compliance. The government is likely to favour an approach that places the UK somewhere between the EU and the US. While the UK’s eventual cryptoassets regime is likely to provide stronger consumer protections than a Trump-inspired US regime, it is unlikely to be as prescriptive as the EU on the categorisation of cryptoassets, the scope of regulated activities, and disclosure obligations for cryptoasset issuers.

Implementing the new regulatory regime

In November 2024, the FCA published a “Crypto Roadmap” of key dates for the development and introduction of the UK’s cryptoasset regime. The roadmap sets out a series of consultations focused on different aspects of the future regulatory regime to be held over the course of 2025 and during the first quarter of 2026, with the final rules published in 2026. This includes the completion of a consultation on the proposed creation of an information sharing platform for industry stakeholders (to be approved by HMT) to prevent market abuse and boost compliance with future regulation. The FCA also plans to consult on a governance regime in autumn 2025 including further measures to ensure crypto firms adhere to the FCA’s Consumer Duty and its Senior Managers and Certification Regime (SMCR). This would likely require individuals in senior roles at firms be approved by the FCA or the Prudential Regulatory Authority.

The cryptoassets industry is likely to benefit from Chancellor Rachel Reeves’ decision to urge regulators to accelerate efforts to support growth and innovation. As part of a wider deregulation push, Reeves tweaked the FCA’s secondary objective to make it clear that the regulator must do more to make the UK financial services markets more competitive than other countries. Although the FCA’s CEO Nikhil Rathi is concerned that deregulation could lead to ‘bad actors slipping through the net’, he has said that he is willing to consider the easing of some consumer protections to reduce the regulatory burden. This could be significant for the cryptoassets industry. Larger firms are currently better placed to comply with expected new regulatory measures, while smaller firms may not have the internal structures and resources to do so, potentially forcing them out of the market or creating opportunities for consolidation.

We’d be delighted to share our perspectives on what the government’s crypto and fintech reforms could mean for you and how you can engage with policy debates. Please contact joshua@gkstrategy.com if you would like to discuss the reforms with the GK team.

GK Podcast: Skills England and Apprenticeships Reform

GK Strategy is pleased to present the latest episode of its podcast. This episode focuses on the government’s wide-ranging reforms to the apprenticeships and skills system, and the potential impact on employers, providers and learners.

In this episode we speak to GK Strategic Adviser and former Minister for Skills and Higher Education, the Rt Hon Robert Halfon, and former advisor to the Department for Education and former Director of EDSK, Tom Richmond.

The podcast can be listened to here: GK Strategy Podcast – Episode 3.

Navigating changes to food and drink packaging: A guide for investors

Mark Field, director and founder of Prof Consulting Group, outlines what investors need to know about packaging in the food and drink sector

Setting the scene

Food and drink packaging is undergoing major transformation with innovations at each stage of the value chain. By responding to regulatory, consumer, and supply chain challenges, companies are finding new ways to reach customers and help them shop more sustainably. The role of packaging is to keep food and drink intact, safe and fresh along its journey from producer to consumer. It provides a space to communicate information to customers and to represent a brand. Carefully managed, it is a window to showcase a company’s values, but poor execution risks significant brand damage.

Shifts in the regulatory and commercial landscape

Regulation – responding to concerns about environmental pollution and climate breakdown, the regulatory landscape is shifting to place responsibility on producers for the packaging they put into the market.

In Europe, the upcoming PPWR is part of the region’s circular economy plan to value waste and minimise its environmental impact. The new regulation updates existing rules and aims to harmonise how packaging is managed throughout EU countries, making trade smoother. PPWR will require all countries to increase the share of reusable packaging which includes deposit return schemes, targets, economic incentives and minimum percentages of reusable packaging. In addition, 70% of all packaging by weight must be recycled by 2030. For some companies this might mean investing in new packaging equipment to handle new materials, for example, in the transition from plastic to paper. For others it can mean an entirely new way of selling, such as using returnable glass jars instead of plastic pots.

Nations in the UK are considering (England) or have implemented (Wales) deposit return schemes where consumers return packaging to a retail outlet and receive money back. This requires investment into infrastructure such as reverse vending machines. Others are working with digital technology to trace their products through the recycling system starting with the home curb side collection and rewarding customers who participate.

The UK’s plastic packaging tax charges a flat rate per tonne of plastic packaging with less than 30% recycled plastic. Companies must ensure they have accurate information on the packaging they buy to submit data to a government register.

Communication on packaging sustainability must be accurate and not mislead consumers according to the upcoming EU Green Claims Directive and the UK’s existing CMA’s Green Claims Code. One of the goals is to ensure that consumers are empowered to participate in the circular economy and can make informed choices. Consumers and NGOs are alert to greenwashing and don’t hesitate to call out companies who overstep the line.

A new UN treaty to regulate the production and disposal of plastic is expected at the end of 2024. Brands are calling for a limit to the amount of virgin plastic produced and for support on recycling and reuse systems.

Consumers – people expect companies to ensure their packaging is sustainable and research shows they want to participate in the transformation. According to global surveys, recycling packaging is the most popular sustainable behaviour, practiced by 62% of people. Companies can respond to these needs with clear and accurate disposal communication and with innovation in packaging formats.

Supply chains – extracting raw materials places undue pressure on natural resources and creates pollution that worsens climate and nature breakdown. Reducing the extraction of virgin raw materials, such as oil and timber, is urgent. Food and drink companies can limit their contribution to these challenges and take the opportunity to strengthen their resilience in the face of shortages and rising costs. UK and EU packaging leaders are moving from efficiency and lightweighting towards new materials, recyclable and recycled, and reusable packaging formats. For example, alcoholic drinks companies are experimenting with infinitely recyclable aluminium instead of glass, and being lighter, the product has fewer transport emissions.

Risks and opportunities

Companies who are unable to understand or keep pace with regulatory changes face increased costs resulting from levies on non-recyclable packaging, fines for misleading green claims and increased costs of excess packaging. Evidence shows that if customers are disappointed, companies will lose sales.

However, leading companies in the sector are embracing the transformation and innovating across the value chain. For example, with smart packaging technology using freshness tags; using alternative materials to plastic such as seaweed coatings and mushroom fibre cushioning; and using more reusable and refillable packaging. Infrastructure to support circularity is also growing, with refill stations, mobile and fixed reverse vending machines, and scanning and tracking technology increasingly prevalent. Cameras and cloud-based systems can be used to enable traceability and visibility over each process involved in collecting, recycling and cleaning packaging.

Companies that can promote and support convenient sustainable living will succeed in today’s crowded market. Many value-driven brands are entering the market and winning customers on this basis.

What should investors be asking?

Investors who want to understand the sustainability of packaging used by food and drink businesses should be asking management teams the following questions:

How does the business actively prepare for upcoming regulatory change and comply with existing regulations?

Does the business follow industry codes and benchmarks?

How does the business track the competitive landscape and identify gaps and innovations that resonate with consumers?

Does the business understand how customers use and dispose of their packaging?

Does existing packaging have clear recycle/reuse instructions?

Can the business substantiate claims on packaging sustainability?

Does the business know and manage the full life cycle along the value chain from raw material production through to disposal?

Does the business communicate their sustainability status openly e.g. on website linked to a QR code on packaging?

How does the business collaborate with stakeholders in all markets to ensure their packaging is reused/recycled correctly?

Prof Consulting Group helps to lead business to success in the UK and Australian food industry with its team of industry-leading experts and extensive range of services. For more information or to discuss how Prof. Consulting Group can support your business, please visit https://www.profcg.com/contact/

Will Trump derail Starmer’s policy plans?

GK Associate Josh Owolabi shares his thoughts on the impact of a second Trump presidency on the government’s policy agenda.

Messaging from the Starmer government since Trump’s election victory has focused on projecting calmness. The government believes that it has done its ‘homework’ on Trump and that both countries will prosper while Trump is in office. However, Trump’s unpredictability was a key characteristic of his first presidency. His penchant for breaking – or threatening to break – norms is well established and will induce anxiety within Downing Street. Trump does not do ‘orthodox’ and, in contrast to his first term, now has the full support of the Republican Party to make radical policy changes that could impact the UK economy and the Starmer government’s delivery of its policy agenda.

Trump’s view on the use of tariffs symbolises his unorthodox approach. He has proposed a 60% tariff on imports from China and up to 20% on goods imported from other countries as part of his ‘America First’ strategy. Economists and research institutes across the United States have criticised the plan, arguing that it is counterproductive as it would make goods more expensive for American consumers. This would also be problematic for the Starmer government as the US is the biggest market for high value goods from the UK, including pharmaceuticals, automotive parts, and medical products, and would likely impact pricing for goods in these industries.

The National Institute of Economic and Social Research (NIESR) has argued that the imposition of even a 10% tariff would be damaging for the UK, reducing GDP growth by 0.7% in 2025. Given the fiscal climate, the government can ill-afford a reduction in growth if it plans to deliver on its pledges to improve access to healthcare and education (including a major expansion of early years entitlement in 2025).

Although Trump’s ‘trade war’ rhetoric is focused on China and the EU which could mean avoiding the full 20% tariff on exported goods, the UK is unlikely to receive special treatment. While Trump spoke of a UK-US trade deal during his first term, which would likely remove any tariffs, it is unrealistic to expect progress on a deal any time soon. The US has demanded the lowering of regulatory standards on American agricultural imports, such as ‘chlorinated chicken’, which has been a red line for previous governments.

The Starmer government is unlikely to budge on this issue given that the public does not support the lowering of food standards to secure a trade deal. Stephen Moore, a former economic adviser to Trump, has said that the UK must embrace the US economic model and move away from Europe’s “socialist” system, if it wants to agree a trade deal with the US. The Prime Minister has categorically rejected this view. During a speech at the Lord Mayor’s Banquet, he argued that his government does not need to choose between the US or the EU. Instead, Keir Starmer plans to forge closer economic ties with both. However, implementing this strategy will be incredibly difficult if Trump picks a fight with the EU and demands that trade with China is reduced.

Trump’s isolationist instincts will also cause concern. The government’s pledge to raise defence spending to 2.5% of GDP to support the Ukrainian war effort will therefore come under heavy scrutiny. Trump has long expressed frustration with the US’ allies for allowing their defence spending to fall after the Cold War ended, feeling that the US has been left to pick up the bill. Will the new Trump administration be satisfied that the UK is committed to reducing the overreliance on the United States? If not, the Starmer government may need to prioritise defence spending which would limit the government’s room to manoeuvre as it has just raised taxes by £40bn and still remains only just within its fiscal rules. Increased defence spending will make it harder for the government to spend more elsewhere, and get ailing public services back ‘on track’ or make investments that help it to grow the economy.

Pensions reform: Will the Chancellor’s vision become reality?

The Chancellor’s first Mansion House Speech, has made it clear that pensions reform is the first item on the Treasury’s agenda for financial services policy and regulation. Following an autumn budget that caused some business leaders to question the government’s pro-growth agenda, Rachel Reeves’ speech emphasised the important role that pensions reform will play in delivering long-term economic growth.

As expected, Reeves reiterated her intent to pool Local Government Pension Scheme (LGPS) assets into a handful of megafunds. This proposal has been set out in the Pension Investment Review: interim report. The report, published by the Treasury and the Department for Work and Pensions, sets out the initial findings for ‘phase one’ of the government’s review. A consultation on this measure has also been launched alongside the report, offering stakeholders the opportunity to share views on new requirements for pooling and the governance of funds.

The government has also launched a separate consultation on a proposal to set a minimum size limit on Defined Contribution (DC) scheme default funds in the private sector. The government believes that this measure will encourage consolidation and allow savers to be moved more easily from underperforming pension schemes to schemes that deliver higher returns.

The government’s vision for the pooling of schemes has been welcomed by industry trade bodies, given the returns it could generate for savers and the scope it could create for pension funds to invest in longer-term assets. It is no secret that the Chancellor is keen for the UK to mirror the Australian system, where there is greater investment in infrastructure assets.

However, the government will still need to assuage stakeholder concerns about these proposals, given the disruption it could bring to the pensions market. The government will need to balance its own policy goals with market realities. If the government requires a significant portion of pension funds to be invested in the UK, how will industry stakeholders be impacted, given some will view the maximising of returns as their primary objective, rather than investment in British assets?

The government will also need to address concerns around the timeline for implementation. Given the pensions review is still in progress, there remains an opportunity for stakeholders to engage with the government to ensure that proposed policy changes support economic growth, and that the implementation process provides the industry with sufficient time to adjust to the new regime.

The government has announced that the final report of its pensions review will be published in Spring 2025 and that the Pensions Schemes Bill will also be introduced to Parliament shortly afterwards. By this stage, the government will need to have set out a roadmap for its reforms. It will also need to address how, if at all, to mandate the consolidation of the LGPS, and funds in the DC market, and whether new rules will be introduced to regulate pension scheme selection advice and investment consultancy.

These questions highlight the complexity of the task that the Chancellor faces. Despite these challenges, pensions reform remains at the heart of the government’s most important mission – delivering economic growth. The Chancellor’s speech and the newly launched consultations set out further details on the government’s vision for reform. The industry will now have the chance to scrutinise those plans and share its view on how to minimise implementation risks and maximise opportunities for growth.

GK Strategy is a political and regulatory consultancy firm supporting management teams and investors to understand and navigate complex policy changes.

We’d be delighted to share our perspectives on what the government’s pensions reforms could mean for you and how you can engage with policy debates. Please contact joshua@gkstrategy.com if you would like to discuss the reforms with the GK team.