Putting the tooth fairy out of business

Sugar, essentially a source of energy, is often demonised and it is easy to see why: when eaten in excess, it rots teeth, can trigger Type 2 diabetes, and is a factor in the rise of obesity.

As a result of sugar’s role in these burgeoning public health issues, the UK Scientific Advisory Committee on Nutrition recommended in 2015 that consumption of sugar-sweetened beverages be minimised. This led to a so-called ‘sugar tax’ in the March 2016 Budget. A tiered soft drinks industry levy aimed at producers and importers, it is due to come in next year once details are finalised and it is passed into law.

But if a sugar tax is the answer, what exactly is the question? And will it work?

Launching the levy last year, the Government said its main aim is to significantly reduce England’s alarming rate of childhood obesity within the next ten years. To this end, the levy is designed ‘to encourage producers to reduce the amount of sugar in their products and to move consumers towards healthier alternatives’.

Question one: How can we reduce the incidence of childhood obesity?

Childhood obesity is undoubtedly a major public health issue. Nearly a third of children aged two to 15 are overweight or obese and younger generations are becoming obese at earlier ages. The problem is worse in children from low-income backgrounds.

The effects can last a lifetime. Obese adults are seven times more likely to become a Type 2 diabetic than adults of a healthy weight. They are also more prone to heart disease and depression.

The economic toll is also heavy. The NHS in England spent £5.1 billion on overweight and obesity-related ill-health between 2014 and 2015.

The causes of obesity are complex and include lifestyle, genetics and culture, but most experts agree that at its root there is an imbalance between the calories a person consumes and those used up through activity.

Sugar, a hidden ingredient in many foods, is implicated in weight gain because of its high calorific content. Some theories attribute the rise in obesity to the effect sugar has on insulin production, the hormone that promotes the absorption of bloody glucose into body cells. This hormonal interplay may even make people lay down fat irrespective of calorie intake.

Teenagers in England are the biggest consumers of sugar-sweetened drinks in Europe. Armed with this fact, and emboldened by the Government’s success in reducing the nation’s salt intake, former Chancellor George Osborne decided to tackle the obesity crisis with a levy on fizzy drinks. It was the centrepiece of the childhood obesity strategy announced last year.

Under the current proposals for the sugar tax, drinks in which the sugar content exceeds eight grams per 100 millilitres will be liable to a levy of 24 pence per litre. As things stand, this will affect the regular versions of Coca- Cola, Pepsi Cola, and Red Bull.

Drinks with a sugar content of between five and eight grammes per 100 millilitres will be taxed at 18 pence per litre.

The revenue from the levy, estimated to be £520  million in the first year, will be invested in programmes to reduce obesity and encourage physical activity and balanced diets for school age children.

Question two: How do we make consumers eat more healthily?

Close inspection of the UK’s diet and consumption habits makes the taxing of soft drinks alone seem flawed. Such drinks are not a major source of sugar for most people, accounting for three per cent of calories in the average UK diet according to government data.

What’s more, high sugar fruit juices, smoothies and milkshakes will be exempt from the tax although some of these contain far more sugar than a typical soft drink.

Behaviours have already changed, with consumers making healthier choices long before a tax was mooted. The British Soft Drinks Association (BSDA) says that 60 per cent of soft drinks now sold in the UK are low or no calories.

Sugar intake from soft drinks has fallen by 17.8 per cent since 2012 according to research by Kantar Worldpanel. The same research shows that more than a third of meals now feature an ingredient specificallychosen for health reasons, a figure which has doubled since 1980.

The levy could actually have unintended consequences in terms of what people consume. As a spokesperson for the TaxPayers’ Alliance (TPA) puts it: ‘Higher prices for soft drinks may well push consumers onto other unhealthy products which are not covered by the sugar tax rather than low sugar alternatives, which would result in a much smaller impact on health outcomes.’

The TPA calls the tax ‘regressive’, believes it will hit the poor the hardest and that lifestyle change is the best way to bring about a reduction in obesity.

Question three: How can we encourage manufacturers to change their products and how they market them?

The proposed levy is intended to create stronger incentives for action by manufacturers. In other words, it is a stick for product reformulation.

At launch, the Government gave producers and importers two years to lower the sugar in their drinks; they will not face the tax if they take action in the allotted time.

Although it is largely unknown how the soft drinks industry will respond to the tax, Coca-Cola and PepsiCo have been promoting no-sugar drinks such as Coca-Cola Zero Sugar and Pepsi Max cherry. Industry may pass the levy onto consumers, although this is not ministers’ intention.

With an eye on the tax, the wider food industry is also looking for ways of making healthier products. Chocolate makers including Nestle and Mars are reported to be looking at reducing the size of their products by 20 per cent. Retailers are taking a stronger stance on health, removing sweets from checkout lanes.

‘The levy is acting as a lever for change,’ says Robert Nuttall, a partner at consultancy Fortitude Partners and a corporate social responsibility strategist. ‘Companies in the food sector are looking at their product portfolios and overall health agenda. They realise it affects brand and reputation.’

Given the rise in obesity, one question is whether change is happening fast enough. Nuttall says: ‘Big questions are being asked such as whether Big Food is an influencer or a provider? A lot should play out in the next 12 months.’

However, there a flipside to reformulation, according to Christopher Snowden, head of lifestyle economics at the Institute of Economic Affairs, namely a reduction in consumer choice. Snowden says: ‘I think reformulation is outrageous. It will lead to smaller portion sizes and to substitution of ingredients. For me this is about consumer welfare.’

He also believes it could be the thin edge of the wedge with regards to taxation, adding: ‘Where do we go next? Rationing? Taxing fat people?’ Snowden also wants more transparency as to the work Public Health England is doing with industry on reformulation.

So, will the levy work?

In opting for a sugar tax, Britain joins Belgium, France, Hungary and Mexico, all of which have imposed some form of tax on drinks with added sugar.

Lobbying against the sugar tax has been extensive. There is little or no historical evidence that food taxes per se have an effect on obesity according to BSDA. Director general Gavin Partington says: ‘Evidence worldwide does not suggest that taxes of this sort have any impact on levels of obesity.’

In France, sales of soft drinks initially fell after a tax was introduced in 2012 but have increased since. In Mexico, the impact of a soft drinks tax saw a reduction of just six calories a day per person in a typical diet of more than 3,000.

However, a recent scientific study published in The Lancet suggests a sugar tax could help lower childhood obesity levels and have other health benefits.

Scientists including Dr Adam Briggs, a Wellcome Trust research training fellow at the University of Oxford, estimated the impact on rates of obesity, Type 2 diabetes and tooth decay according to best and worst case scenarios of three potential industry responses: reducing the sugar content of soft drinks, raising the price of sugary drinks and increasing the range of low-sugar drinks.

Believed to be the first study of its kind, it found that the best health benefits would be derived from product reformulation. That would result in a reduction of 144,383 of 15.5 million adults and children with obesity in the UK, 19,094 fewer incident cases of Type 2 diabetes per year, and 269,375 fewer decayed, missing or filled teeth annually. A price hike on high and mid-sugar drinks would result in 81,594 fewer adults and children with obesity.

The authors of the study say: ‘Our results suggest that, of the scenarios modelled, reformulation would lead to the largest health benefits. Price rises and changes to product market share might also lead to important improvements in health. However, effects would be attenuated if manufacturers chose to pass the tax on to purchasers across all drinks or other products in their portfolio rather than just those targeted by the levy.’

But the study warns that the health impact of the soft drinks levy is dependent on its implementation by industry. ‘Uncertainty exists as to how industry will react and about estimation of health outcomes,’ the authors say.

They add there is a need for ongoing monitoring of the strategies adopted by industry as well as for modelling of the long-term health consequences. ‘Policymakers should engage with stakeholders to encourage responses to the levy that will maximise the potential health benefits of the new policy,’ they said.

Reformulation, the most effective strategy identified in the study, is also advocated by the British Dental Association (BDA), but not on its own. The BDA also wants better public education and upfront clear labelling of sugar content.

Mick Armstrong, chair of the BDA, says: ‘The industry could do itself and its customers a favour by putting the brakes on the unacceptably high numbers of children filling up our hospital beds for [tooth] extractions.’

What happens next?

A lot is resting on the sugar tax’s shoulders. A central plank of the childhood obesity strategy, the levy has been presented as an incentive for the industry to reformulate existing products to remove sugar, reduce portion sizes, and promote new or existing low-sugar alternatives.

It is hoped that as well as reducing the incidence of obesity, particularly among children, the tax could help fight tooth decay and diabetes.

Results of a recent medical study indicate that the levy could promote the desired outcomes, particularly if it leads to product reformulation. But that depends on how industry responds and taxation alone is not widely seen as a silver bullet.

Other measures are required to tackle the complex problem of childhood obesity, for example lifestyle changes.

Nuttall says of the tax: ‘It is a narrow solution to a broad problem.’

As the Government itself recognises, long-term, sustainable change will only be achieved through the active engagement of schools, communities, families and individuals. It said last year: ‘The launch of this [childhood obesity] plan represents the start of a conversation, rather than the final word.’

HM Treasury has been consulting on the technical detail of the soft drinks industry levy, and will legislate in the Finance Bill 2017. Subject to Parliament passing the legislation, the levy is due to be introduced next year.

It is in the soft drinks industry’s own interests to take action before the levy comes in – and to communicate those actions – otherwise it could face a reputational hit. It could also be unpleasantly surprised with more punitive taxes. The BDA points to the example of the US state of Philadelphia which recently brought in a soda tax which is 24 times more than its beer taxes.

The scene is set for 2017 to be a key year for the soft drinks industry. The rest of food and drinks sector will be watching to see how the drinks manufacturers react to the planned tax, and indeed if it will work.