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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.

Westminster in 2025: Policy Shifts and Political Risks

GK is delighted to present its ‘Westminster in 2025’ report which sets out the key policy shifts and political risks we are expecting to see over the coming 12 months.

The report can be accessed here: Westminster in 2025 – Policy Shifts and Political Risks

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.

GK Point of View- Spring Budget 2024

Spring Budget 2024_GK Strategy

The GK team react to the Chancellor’s Spring Budget, with GK Strategic Advisers offering their insight into what this means for the Conservative Party in the run up to the General Election, what the budget means for individuals, as well as the announcement’s wider impact on key British industries.

To read our briefing please use the link above or click here.

View on the Spring Statement - David Laws, GK Adviser

View on the Spring Statement – David Laws, GK Adviser

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“Well, you might almost think that there is an election on the way! Or maybe that the Chancellor is seeking to position himself more favourably with Tory MPs in case there is a leadership election any time soon.

“This is the Chancellor, after all, who until recently had been jacking taxes up through the roof – higher NICs, frozen personal allowances, higher corporation tax. Today, he moved to cut petrol duties by 5p per litre, increase the amount people can earn before paying national insurance and – the big rabbit out of the hat – announced a 1p cut in the basic rate of income, for 2024.

“This package will cheer up Tory backbenchers, many voters and the Conservative supporting media. But it’s not obvious that the Chancellor has tackled the broad range of problems confronting the economy.

“Inflation is set to average 7.4% this year, which will squeeze living standards, not least for those too poor to benefit from the higher national insurance threshold. The package delivered very little for those on the lowest incomes – poverty is likely to increase notably. Perhaps the Chancellor has decided that those in poverty are not his target audience?

“Growth forecasts have been slashed almost in half for the current year, which will boost borrowing. Debt interest payments are surging higher because of rocketing inflation. The Chancellor is gambling on growth being strong enough to keep the deficit falling, but there are significant risks here.

“Meanwhile, many people will wonder what sense there is in increasing national insurance by 1.25% now, and then cutting income tax by 1% in two years time. This means lower taxes for pensioners and high taxes on workers – not perhaps much economic sense or fairness.

“Beneath these headline announcements are some interesting suggestions of policy changes to boost training and reform R and D tax credits. As ever with these statements, we now need to look closely at the small print.”