The Sugar Levy means an extra £1 billion in
government debt interest payments

I’ll admit it. I am a sceptic. I thought that George Osborne had two key reasons for introducing a Sugar Levy in last week’s budget:

  1. As a nice little revenue raiser
  2. As a handy distraction from missed deficit reduction targets and pie-in-the-sky deficit forecasts.

But I am willing to hold up my hands and admit I was wrong.

We know a Sugar Levy will do nothing to reduce consumption of sugar. In summary, people like sugary drinks and will continue buying them, companies like selling people what they want and so will continue making them – alongside myriad low and no sugar options – and all the evidence from other countries with this kind of tax has found it doesn’t work to reduce consumption.

But the OBR has explained in its Economic and Fiscal Outlook that the Sugar Levy won’t be a nice revenue raiser for the government – because it has its own costs attached, too. Under the OBR’s forecast for borrowing and the indirect effect of policy changes, it says this:

“In 2018-19, the effect on RPI inflation of introducing the new soft drinks industry levy has added around £1 billion to accrued interest payments on index-linked gilts.”

This was further clarified by the OBR in an email to People Against Sugar Tax, explaining that:

“the soft drinks industry levy feeds through to a price increase in 2018-19 in our forecast. This in turn increases the growth rate of the retail prices index (RPI) and this in turn is used as the measure by which index linked government debt. So the increase in the RPI adds to the cost of debt interest.”

Isn’t that a masterstroke: a policy which not only doesn’t work against its stated aims, but costs a fortune in debt interest.

The Levy is forecast to raise £520m. The cost to government through higher debt interest payments is forecast to be £1bn. But as we all know it’s not government money – it’s our money. This Levy means that the taxpayer will be on the hook for an extra £1.5bn in the first year. And taxpayers with RPI linked debt will presumably also suffer – Student Loan anyone?

If we agree that primary schools could do with having some more investment in sports, then I reckon there are loads of better ways to achieve that than this ridiculous nanny statist, regressive, economically illiterate tax.

Time to drop it, George.

Emily is the Chairman of Conservatives for Liberty. Follow her on Twitter: @ThinkEmily



One Comment

  1. However we are in a deflationary time with Chinese massive surplus capacity plus trade surplus cash being spread out over the world. Deflationary despite truly huge printing of electronic money. A little inflation would be helpful in getting some inflation into the system and a rebalancing wages a little more tax there . . . I would be surprised at that calculation. However most tax increases (see VAT) bump up and then fall out of the calculation after a year.

    I cannot find the amount of outstanding Indexed linked gilts to be able to judge what sort of effect they are expecting as a % of the entire index. Most likely another part of the random walk of many goods. Remember the increasing use of computers, internet networking and continuous improvement reduces prices particularly when the components double in power and half in price every 2 years like computers. That is a substantial deflationary effect yet the same amount of money is spent each year on a new computer.

    Reinstating all the M measures of money in circulation would give a better insight of what is going on in the economy but is negative for politicians who prefer only new from themselves vs facts.

    The reduction over some years of high glycemic index sugars (fructose being particularly bad) would over time reduce spend in the NHS, a useful saving in a massive budget. Your calculation also adds vs subtracts. 520mil in minus 1bn equals minus 500mil.

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