Boris Johnson, who is likely to become our new prime minister, has announced that he wants to revisit and potentially reverse one of the Cameron government’s main public-health policies – the introduction of a tax on sugary drinks – and put the brakes on moves to extend it. The so-called sugar tax came into effect in April 2018. It imposes a charge of 18p per litre on drinks with 5g-8g of sugar per 100ml, rising to 24p on those with 8g or above.
Why does Johnson want to scrap it?
To arrest the “creep of the nanny state”, he says. If elected Tory leader, as PM he would launch a review into the effectiveness of such taxes while making clear he’s a sceptic. Embarrassingly, his announcement coincided with a new study from Cancer Research UK finding that obesity, rather than smoking, is now the leading cause of four common cancers and came just days before the health secretary, Matt Hancock, was due to publish a green paper on public health pulling in the opposite direction. The paper, now delayed, is widely reported to push various proposals to tackle obesity, including taxes on sugary milk drinks.
What is Johnson’s thinking?
“The recent proposal for a tax on milkshakes seems to me to clobber those who can least afford it,” he says. “If we want people to lose weight and live healthier lifestyles we should encourage people to walk, cycle and do more exercise.”
But don’t sugar taxes work?
They probably do. It’s too early to say whether the UK’s sugar tax has started to slim our waistlines. But according to Graham MacGregor, a professor of cardiovascular medicine who campaigns on public health, more than half of all drinks manufacturers have cut the sugar content of drinks since the tax was announced in March 2016 – the equivalent of 45 million kilos of sugar not eaten each year. That’s already a big win, given that for overweight teenagers – 80% of whom will remain obese as adults, and lose 15-20 years of healthy life as a result on average – soft drinks are their biggest source of sugar.
So the taxes reduce consumption?
Yes. A survey of the issue, published last month in the journal Obesity Reviews, by academics at the University of Otago in New Zealand, carried out a meta-analysis of four recent studies from settings where a sugary-drinks tax have been introduced. They found that on average a 10% tax on sugary drinks has cut the purchase and consumption of such products by 10%. Separately, a study for The Lancet last year of 13 different countries found that taxes on unhealthy consumption, such as Mexico’s sugar levy, had resulted in major health gains, especially for the poorest.
But aren’t these taxes regressive?
Yes, in the sense that they impose the highest monetary cost on poor families: their children drink the most fizzy drinks. But they are only regressive, argues the Institute for Fiscal Studies, if you ignore the future costs to an individual’s health of consuming too much sugar now. The World Health Organisation is strongly in favour of such taxes, which it sees as progressive, since they help poor people the most. In a previous life, Johnson too was strongly in favour. In 2015, as London mayor, Johnson argued that because those most affected by obesity were “overwhelmingly” the poorest, London must lead the way on sugar taxes. The next year he introduced a 10p levy on soft drinks with added sugar in the City Hall cafe.
Why does this matter to investors?
It’s a sign of where Johnson’s thinking may be on regulation. The posh tonic people Fever-Tree saw their shares tick up on the morning he made his comments. Britvic (which makes Pepsi in the UK, and Robinsons) also perked up. More broadly, though, it’s a reminder of the financial risks and burgeoning opportunities associated with nutrition and obesity – including the threat of class action lawsuits we have seen in the tobacco sector. Changing consumer preferences and regulatory environments will favour firms that can switch their product portfolios to healthier alternatives, says investment firm Rathbone Greenbank. “At the same time, there are potential opportunities for producers of food ingredients that enhance nutritional value, companies providing fitness equipment and services, and healthcare companies that are developing novel treatments for obesity and its related health issues.”
How has “Big Sugar” responded?
Among the big manufacturers that slashed sugar levels in response to the levy was AG Barr, which makes Irn Bru, as well as drinks brands such as Rockstar, Rubicon and Snapple. Barr cut the sugar content in its flagship Irn Bru from 10.3g to 4.7g per 100ml – and says that 99% of its products are not caught by the sugar tax. Coca-Cola decided it can’t afford to change its classic recipe (10.6g) for fear of alienating its customers. Instead, it has shrunk bottle sizes (now selling 1.5l bottles rather than 1.75l, for example) and sold a lot more bottles of Coca-Cola Zero Sugar. But it has cut sugar levels in other drinks, including Fanta, Sprite, Dr Pepper, Lilt and Oasis.
What would a reversal mean?
If Johnson does roll back regulation, it’s unlikely that makers would start ramping up sugar levels again, although it would help Coca-Cola, which stuck with its high-sugar classic. Meanwhile, firms that have moved heavily into artificial sweeteners include Tate & Lyle, the major supplier to food and drink producers, although investors should be aware that sweeteners themselves could be subject to growing health concerns and political risk. PureCircle focuses on “next-generation stevia sweeteners” that it says will lead to higher margins. Meanwhile, Treatt (a global supplier of flavourings and fragrance ingredients) is growing its business to help food and drink producers reduce sugar content.