A sugar tax is an indirect tax levied on manufacturers that imposes a 20% tax on the sale of soft

drinks that contain high levels of sugar. The intent is that consumers will stop buying so many

unhealthy soft drinks and switch to healthier alternatives. Such a tax will have many varied

microeconomic effects.

The first argument for a tax on drinks with a high sugar content is to battle negative consumption

externalities. The negative consumption externality is a negative effect felt by a third party

independent of the market, making the cost to society higher than the private cost. The purchase

and consumption of soft drinks causes a negative externality to the NHS, who spend billions

every year treating people with diabetes or similar conditions caused by unhealthy foods and an

excess of sugar, with over a quarter of adults in the UK being obese. A sugar tax could lower the

costs for the NHS as people switch to buying healthier drinks to save money.

However, the tax is badly targeted, looking at only soft drinks and not fruit juices or milk based

drinks with a higher sugar content. Many milk based drinks or fruit juices that claim to be

healthy and sugar free often contain more sugar through their ingredients than a soft drink does,

with a healthy chocolate milk from a supermarket containing nearly twice as much sugar as a

bottle of Coke. Since these drinks are exempt from the tax, more people may start buying them,

causing more costs to society due to NHS treatments that could have potentially been less

without the sugar tax on soft drinks. This makes the tax inefficient when considering the

intention of lowering sugar intake.

Secondly, companies will be encouraged to reformulate drinks in order to avoid the tax by

lowering the sugar content. This is vital for the success of the tax, as one of the main reasons

such a tax was proposed was to lower the costs on the NHS for people with conditions caused by

overconsuming sugar. Sugar intake from teenagers tends to double or even triple their

recommended daily intake. Companies reformulating their drinks to avoid the costs will likely

mean teens are consuming less sugar daily.

On the other hand, the tax will not affect producers that much as they will just pass the cost onto

the consumers by raising their prices. This will leave producers unaffected as consumers end up

paying the price for the new tax, negatively impacting consumers who are on a low income, with

the poorest people being hit the hardest by the tax, especially as lower income families spend a

larger proportion of their income on food. This is a regressive tax, because it taxes all people

equally without consideration for those who may not be able to afford losing as much of their

income, adversely affecting consumers.

Lastly, a sugar tax will raise government revenue. Even after the establishment of a sugar tax,

consumers will go on buying sugary drinks, possibly less often, but it will continue. This higher

revenue can be used to fund healthcare, research into the dangers of sugary drinks and potential

alternatives or education about the dangers of too much sugar to teach children about eating

healthier from a younger age. A good usage for the tax revenue will make it more acceptable to

consumers and cause less public outcry about raised prices.

However, since the tax is only on sugary drinks, people may switch to other sugary products like

sweets. Consumers may simply switch to other foodstuffs or beverages with high sugar content

to get their usual fix of sugar. Only a small proportion of people’s sugar consumption comes

from soft drinks, and the tax will do nothing to stop people from seeking out other sources for

their sugar such as confectionery.

In conclusion, the sugar tax will be very beneficial for the UK, lowering sugar consumption in

the long run and raising government revenue. However, it can also have some difficulties
lowering sugar consumption over all areas, which can be aided by instituting the tax on all foods

above a certain sugar content.